1933 Act No. 333-36033
1940 Act No. 811-08367
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 22 [X]
EVERGREEN MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
EVERGREEN MUNICIPAL TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 21
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 21 to Registrant's Registration Statement
No. 333-36033/811-08367 consists of the following pages, items of information
and documents:
The Facing Sheet
The Contents Page
PART A
-------------
Prospectus for Evergreen Tax-Free High Income Fund
is contained herein.
Prospectus for Evergreen Municipal Income Fund (formerly Mentor
Municipal Income Portfolio) contained in Post-Effective
Amendment No. 20 to Registration Statement No.
333-36033/811-08367 filed on January 28, 2000 is incorporated
by reference herein.
Prospectus for Evergreen Florida High Income Municipal Bond Fund,
Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund,
Evergreen Maryland Municipal Bond Fund, Evergreen North Carolina Municipal Bond
Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia
Municipal Bond Fund contained in Post-Effective Amendment No. 18
to Registration Statement No. 333-36033/811-08367 filed on
December 22, 1999 is incorporated by reference herein.
Prospectus for Evergreen High Grade Municipal Bond Fund, Evergreen
Municipal Bond Fund and Evergreen Short-Intermediate Municipal Fund
contained in Post-Effective Amendment No. 15 to Registration
Statement No. 333-36033/811-08367 filed on September 28, 1999
is incorporated by reference herein.
Prospectus for Evergreen Connecticut Municipal Bond Fund, Evergreen New
Jersey Municipal Bond Fund and Evergreen Pennsylvania Municipal Bond Fund
contained in Post-Effective Amendment No. 12 to Registration
Statement No. 333-36033/811-08367 filed on July 29, 1999
is incorporated by reference herein.
PART B
------
Statement of Additional Information for Evergreen Tax-Free High
Income Fund is contained herein.
Statement of Additional Information for Evergreen Municipal
Income Fund (formerly Mentor Municipal Income Portfolio)
is contained in Post-Effective Amendment No. 20 to
Registration Statement No. 333-36033-811-08367 filed on
January 28, 2000 is incorporated by reference herein.
Statement of Additional Information for Evergreen Florida High Income
Municipal Bond Fund, Evergreen Florida Municipal Bond Fund, Evergreen Georgia
Municipal Bond Fund, Evergreen Maryland Municipal Bond Fund, Evergreen North
Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and
Evergreen Virginia Municipal Bond Fund contained in Post-Effective
Amendment No. 18 to Registration Statement No. 333-36033/811-08367
filed on December 22, 1999 is incorporated by reference herein.
Statement of Additional Information for Evergreen High Grade Municipal Bond
Fund, Evergreen Municipal Bond Fund and Evergreen Short-Intermediate Municipal
Fund contained in Post-Effective Amendment No. 15 to Registration
Statement No. 333-36033/811-08367 filed on September 28, 1999
is incorporated by reference herein.
Statement of Additional Information for Evergreen Connecticut Municipal
Bond Fund, Evergreen New Jersey Municipal Bond Fund and Evergreen Pennsylvania
Municipal Bond Fund contained in Post-Effective Amendment No. 12 to Registration
Statement No. 333-36033/811-08367 filed on July 29, 1999 is incorporated by
reference herein.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Advisor
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART A
PROSPECTUS
<PAGE>
EVERGREEN NATIONAL MUNICIPAL BOND FUNDS
Evergreen Tax-Free High Income Fund
Class A
Class B
Class C
Class Y
[LOGO OF EVERGREEN FUNDS]
Prospectus, January 10, 2000, as amended March 20, 2000
The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor has it
approved or disapproved these securities. Anyone who tells you
otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
FUND RISK/RETURN SUMMARIES:
<TABLE>
<S> <C>
Overview of Fund Risks...................................................... 1
Evergreen Tax-Free High Income Fund......................................... 2
GENERAL INFORMATION:
The Fund's Investment Advisor............................................... 4
The Fund's Portfolio Manager................................................ 4
Calculating the Share Price................................................. 4
How to Choose an Evergreen Fund............................................. 4
How to Choose the Share Class That Best Suits You........................... 5
How to Buy Shares........................................................... 7
How to Redeem Shares........................................................ 8
Other Services.............................................................. 9
The Tax Consequences of Investing in the Fund............................... 9
Fees and Expenses of the Funds.............................................. 10
Financial Highlights........................................................ 11
Other Fund Practices........................................................ 13
</TABLE>
In general, The Fund seeks to provide investors with current income exempt from
federal income tax by investing in municipal obligations.
Fund Summary Key
The Fund's summary is organized around the following basic topics and
questions:
INVESTMENT GOAL
What is the Fund's financial objective? You can find clarification on how
the Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about trying to meet its goals? What types of
investments does it contain? What style of investing and investment philosophy
does it follow? Does it have limits on the amount invested in any particular
type of security?
RISK FACTORS
What are the specific risks for an investor in the Fund?
PERFORMANCE
How well has the Fund performed in the past year? The past five years? The
past ten years?
EXPENSES
How much does it cost to invest in the Fund? What is the difference between
sales charges and expenses?
<PAGE>
OVERVIEW OF FUND RISKS
Tax-Free
High Income
Fund
typically relies on the following strategies:
. normally investing at least 80% of its assets in municipal securities that
are exempt from federal income tax, other than the alternative minimum tax;
. investing up to 100% of its assets in below investment grade securities,
also referred to as "high-yield, high-risk bonds' which may involve greater
credit risk because of their lower rating, but also may offer greater
potential earnings; and
. selling a portfolio investment when the issuer's investment fundamentals
begin to deteriorate, to take advantage of more attractive yield
opportunities, when the investment no longer appears to meet the Fund's
investment objective, when the Fund must meet redemptions, or for other
investment reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
. seek current income which is exempt from federal income tax;
. seek a fixed-income investment in tax-exempt securities as part of an asset
allocation plan to balance their stock portfolios; and
. invest for the long term (three years or more).
Following this overview, you will find information on the Fund's specific
investment strategies and risks.
................................................................................
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
. not guaranteed to achieve their
investment goal
. not a deposit with a bank
. not insured, endorsed or guaranteed
by the FDIC or any government agency
. subject to investment risks,
including possible loss of your
original investment
Like most investments, your investment
in the Fund could fluctuate
significantly in value over time and
could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following
this overview:
Interest Rate Risk
When interest rates go up, the value of debt securities tends to fall. Since
your Fund invests a significant portion of its portfolio in debt securities, if
interest rates rise, then the value of your investment may decline. When
interest rates go down, interest earned by the Fund on its debt securities may
also decline, which could cause the Fund to reduce the dividends it pays.
Credit Risk
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. Since the Fund invests in debt
securities, the value of your investment may decline if an issuer fails to pay
an obligation on a timely basis.
Below Investment Grade Bond Risk
Below investment grade bonds are commonly referred to as "junk bonds" because
they are usually backed by issuers of less proven or questionable financial
strength. Such issuers are more vulnerable to financial setbacks and less
certain to pay interest and principal than issuers of bonds offering lower
yields and risk. Markets may react to unfavorable news about issuers of below
investment grade bonds, causing sudden and steep declines in value.
TAX-FREE HIGH INCOME FUND
1
<PAGE>
EVERGREEN
Tax-Free High Income Fund
FUND FACTS:
Goal:
. Current Income Exempt from Federal Income Tax
Principal Investment:
. Municipal Securities
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
. Class Y
Investment Advisor:
. Evergreen Investment Management Company
Sub-Advisor:
. Stamper Capital & Investments, Inc.
Portfolio Manager:
. B. Clark Stamper
Dividend Payment Schedule:
. Monthly
INVESTMENT GOAL
The Fund seeks to provide current income free from federal income tax.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund invests principally in a diversified portfolio of municipal
obligations which are debt securities, such as municipal bonds and municipal
notes, issued by state and local governments or their agencies or
instrumentalities. Interest earned on tax-exempt securities may still be
subject to other forms of taxation, including state and local taxes and federal
alternative minimum taxes. During normal market conditions, at least 80% of the
Fund's assets are invested in tax-exempt securities. Up to 20% of the Fund's
assets may be invested in taxable securities. The Fund will normally have at
least 80% of its net assets invested in municipal obligations without
limitation as to quality ratings, maturity ranges or types of issuers. The
average maturity of the Fund's portfolio will vary; however, it is anticipated
that a significant portion of the portfolio will normally be invested in long-
term obligations of 20 years or more since such securities generally produce
higher yields than shorter-term obligations. The Fund may invest up to 100% of
its assets in high-yield, high-risk (below investment grade) tax-exempt
securities. The Fund's portfolio manager seeks such tax-exempt securities which
offer yields that fully compensate for the risk of holding securities that are
not investment grade. The portfolio manager uses research which focuses on
factors affecting the creditworthiness of the issuing municipality, including
the economic vitality of the region, and the collateral and revenues supporting
the tax-exempt security.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal and, if employed, could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
. Interest Rate Risk
. Credit Risk
. Below Investment Grade Bond Risk
The 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 the Fund. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
In addition, the special tax status of tax-exempt securities may be undermined
or changed by future federal or state legislation which could cause a decline
in the market value of tax-exempt investments held by the Fund.
For further information regarding the Fund's investment strategy and risk
factors, see "Other Fund Practices."
TAX-FREE HIGH INCOME FUND
2
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Past
performance is not an indication of future results.
The chart below shows the percentage gain or loss for Class B shares of the
Fund in the past ten calendar years. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year-to-year. This graph includes the effects of Fund expenses but not sales
charges. Returns would be lower if sales charges were included.
Year-by-Year Total Return for Class B Shares (%)*
[GRAPH]
1990 2.81
1991 11.73
1992 8.45
1993 8.32
1994 2.29
1995 7.85
1996 5.54
1997 6.95
1998 3.86
1999 -2.84
Best Quarter: 2nd Quarter 1991 +3.35%*
Worst Quarter: 4th Quarter 1999 -1.24%*
This next table lists the Fund's average annual total return by class over the
past one, five and ten years and since inception (through 12/31/1999),
including applicable sales charges. This table is intended to provide you with
some indication of the risks of investing in the Fund by comparing its
performance with the Lehman Brothers 10-Year Municipal Bond Index (LB10YMBI).
The LB10YMBI is a broad market performance index for tax-exempt bonds with a
remaining maturity of one to ten years. An index does not include transaction
costs associated with buying and selling securities or any mutual fund
expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date Since
of Class 1 year 5 year 10 year 3/21/1985
<S> <C> <C> <C> <C> <C>
Class A 12/1/1994 -6.69% 4.00% 5.33% 6.24%
Class B 3/21/1985 -7.48% 3.88% 5.42% 6.31%
Class C 8/18/1997 -4.73% 4.20% 5.42% 6.31%
Class Y 10/16/1997 -1.98% 4.62% 5.63% 6.46%
LB10YMBI -1.25% 7.12% 7.10% 8.49%
</TABLE>
* Historical performance shown for Classes A, C and Y prior to their inception
is based on the performance of Class B, the original class offered, by the
Fund's predecessor fund, Davis Tax-Free High Income Fund. These historical
returns for Classes A and Y have not been adjusted to reflect the effect of
each Class' 12b-1 fees. These fees for Class A are 0.25% and 1.00% for
Classes B and C. Class Y does not pay a 12b-1 fee. If these fees had been
reflected, returns for Classes A and Y would have been higher.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder Transaction
Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum sales 4.75% None None None
charge imposed
on purchases (as
a % of offering
price)
Maximum deferred None(1) 5.00% 2.00% None
sales charge
(as a % of
either the
redemption
amount or
initial
investment
whichever is
lower)
</TABLE>
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses++
<S> <C> <C> <C> <C>
Class A 0.53% 0.25% 0.27% 1.05%
Class B 0.53% 1.00% 0.27% 1.80%
Class C 0.53% 1.00% 0.27% 1.80%
Class Y 0.53% 0.00% 0.27% 0.80%
</TABLE>
+ Estimated for the fiscal year ending 5/31/2000.
++ The investment advisor has agreed to limit its Total Fund Operating Expenses
to the stated amount for a period of two years.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and that
you reinvest all of your dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption at Assuming
End of Period No Redemption
--------------------------------------------- ---------------------
After: Class A Class B Class C Class Y Class B Class C
<S> <C> <C> <C> <C> <C> <C>
1 year $577 $683 $383 $82 $183 $183
3 years $793 $866 $566 $255 $566 $566
5 years $1,027 $1,175 $975 $444 $975 $975
10 years $1,697 $1,826 $2,116 $990 $1,826 $2,116
</TABLE>
TAX-FREE HIGH INCOME FUND
3
<PAGE>
EVERGREEN
THE FUND'S INVESTMENT ADVISOR
The investment advisor manages the Fund's investments and supervises its daily
business affairs. All investment advisors for the Evergreen Funds are
subsidiaries of First Union Corporation, the sixth largest bank holding company
in the U.S., with over $253 billion in consolidated assets as of 12/31/1999.
First Union Corporation is located at 301 South College Street, Charlotte,
North Carolina 28288-0013.
Evergreen Investment Management Company (EIMC) is the investment advisor to the
Fund. EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $12 billion in assets for 31 of the Evergreen Funds.
EIMC is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
The Fund's predecessor, Davis Tax-Free High Income Fund, paid to its advisor,
Davis Selected Advisers, LP, an aggregate advisory fee of 0.62% for its
previous fiscal year ended 9/30/1999.
The Fund will pay EIMC an annual advisory fee based on the Fund's average daily
net assets at the following rate:
0.55% of the first $250 million
0.50% of the next $250 million
0.45% on amounts over $500 million
Stamper Capital & Investments, Inc. (Stamper Capital) is the sub-advisor to the
Fund. Stamper Capital manages the day-to-day investment operations of the Fund.
Stamper Capital is located at 1011 Forty First Avenue, Santa Cruz, California
95062.
EIMC will pay a sub-advisory fee to Stamper Capital at the following rate:
0.195% of the first $250 million
0.180% of the next $250 million
0.165% on amounts over $500 million
THE FUND'S PORTFOLIO MANAGER
B. Clark Stamper manages the Fund. Mr. Stamper has been President of Stamper
Capital since October 1995. Mr. Stamper has been the portfolio manager of the
Davis Tax-Free High Income Fund since June 1990 when he joined Davis Selected
Advisers, LP.
CALCULATING THE SHARE PRICE
The value of one share of the Fund, also known as the net asset value, or NAV,
is calculated on each day the New York Stock Exchange is open, at 4 p.m.
Eastern time or as of the time the Exchange closes, if earlier. The Fund
calculates the share price for each share by adding up its total assets,
subtracting all liabilities, then dividing the result by the total number of
shares outstanding. Each class of shares is calculated separately. Each
security held by the Fund is valued using the most recent market data for that
security. If no market data is available for a given security, the Fund will
price that security at fair value according to policies established by the
Fund's Board of Trustees. Short-term securities with maturities of 60 days or
less will be valued on the basis of amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your account at
any given time is the latest share price multiplied by the number of shares you
own. Your account balance may change daily because the share price may change
daily.
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
. Most importantly, read the prospectus to see if the Fund is suitable for you.
. Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading the
Fund's prospectus. He or she can also assist you through all phases of
opening your account.
. Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website at www.evergreen-
funds.com.
TAX-FREE HIGH INCOME FUND
4
<PAGE>
EVERGREEN
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a fund, you select a share class. The Fund offered in this
prospectus offers four different share classes: Class A, Class B, Class C and
Class Y. Each class except Class Y has its own sales charge. Pay particularly
close attention to the fee structure of each class so you know how much you
will be paying before you invest.
Class A
If you select Class A shares, you may pay a front-end sales charge of up to
4.75%, but you do not pay a deferred sales charge. In addition, Class A shares
are subject to 12b-1 fees. The front-end sales charge is deducted from your
investment before it is invested. The actual charge depends on the amount
invested, as shown below:
<TABLE>
<CAPTION>
As a % of As a % Dealer
Your NAV excluding of your commission
Investment sales charge investment as a % of NAV
<S> <C> <C> <C>
Up to $49,999 4.75% 4.99% 4.25%
$50,000-$99,999 4.50% 4.71% 4.25%
$100,000-$249,999 3.75% 3.90% 3.25%
$250,000-$499,999 2.50% 2.56% 2.00%
$500,000-$999,999 2.00% 2.04% 1.75%
$1,000,000 and over 0.00% 0.00% 1.00 to 0.25%
</TABLE>
Although no front-end sales charge applies to purchases of $1,000,000 and over,
you will pay a 1.00% deferred sales charge if you redeem any such shares within
13 months of purchase.
Two ways you can reduce your
Class A sales charges:
1. Rights of Accumulation allow you to combine your investment with all
existing investments in all your Evergreen Fund accounts when determining
whether you meet the threshold for a reduced Class A sales charge.
2. Letter of Intent. If you agree to purchase at least $50,000 over a 13-month
period, you pay the same sales charge as if you had invested the full amount
all at once. The Fund will hold a certain portion of your investment in
escrow until your commitment is met.
Contact your broker or the Evergreen Service Company at 1-800-343-2898 if you
think you may qualify for either of these services.
The Fund may also sell Class A shares at net asset value without a front-end or
deferred sales charge to the Directors, Trustees, officers and employees of the
Fund and the advisory affiliates of First Union Corporation, and to members of
their immediate families, to registered representatives of firms with dealer
agreements with Evergreen Distributor, Inc. (EDI), and to a bank or trust
company acting as trustee for a single account.
Class B
If you select Class B shares, you do not pay a front-end sales charge, so the
entire amount of your purchase is invested in the Fund. However, your shares
are subject to an additional expense, known as 12b-1 fees. In addition, you may
pay a deferred sales charge if you redeem your shares within six years after
the month of purchase. The amount of the deferred sales charge depends on the
length of time the shares were held, as shown below:
<TABLE>
<CAPTION>
Deferred Sales
Time Held Charge
<S> <C>
Month of Purchase + First 12 Month Period 5.00%
Month of Purchase + Second 12 Month Period 4.00%
Month of Purchase + Third 12 Month Period 3.00%
Month of Purchase + Fourth 12 Month Period 3.00%
Month of Purchase + Fifth 12 Month Period 2.00%
Month of Purchase + Sixth 12 Month Period 1.00%
Thereafter 0.00%
After 7 years Converts to Class A
Dealer Allowance 4.00%
</TABLE>
If imposed, the Fund deducts the deferred sales charge from the redemption
proceeds you would otherwise receive. The deferred sales charge is a percentage
of the lesser of (1) the net asset value of the shares at the time of
redemption or (2) the shareholder's original net cost for such shares. Upon
request for redemption, to keep the deferred sales charge a shareholder must
pay as low as possible, the Fund will first seek to redeem shares not subject
to the deferred sales charge and/or shares held the longest, in that order. The
deferred sales charge on any redemption is, to the extent permitted by the
National Association of Securities Dealers, Inc., paid to EDI or its
predecessor.
Class C
Like Class B shares, you do not pay a front-end sales charge on Class C shares.
However, you may pay a deferred sales charge if you redeem your shares within
two years after the month of purchase. Also, these shares do not convert to
Class A shares and so the higher 12b-1 fees paid by Class C shares continue for
the life of the account.
TAX-FREE HIGH INCOME FUND
5
<PAGE>
EVERGREEN
The maximum amount of the deferred sales charge depends on the length of time
the shares were held, as shown below:
<TABLE>
<CAPTION>
Maximum
Deferred
Time Held Sales Charge
<S> <C>
Month of Purchase + First 12 Month Period 2.00%
Month of Purchase + Second 12 Month Period 1.00%
Thereafter 0.00%
Dealer Allowance 2.00%
</TABLE>
The maximum deferred sales charge will be reduced for certain investors.
Waiver of Class B or Class C Deferred Sales Charges You will not be assessed a
deferred sales charge for Class B or Class C shares if you redeem shares in the
following situations:
. When the shares were purchased through reinvestment of dividends/capital
gains
. Death or disability
. Lump-sum distribution from a 401(k) plan or other benefit plan qualified
under ERISA
. Automatic IRA withdrawals if your age is at least 59 1/2
. Automatic withdrawals of up to 1.0% of the account balance per month
. Loan proceeds and financial hardship distributions from a retirement plan
. Returns of excess contributions or excess deferral amounts made to a
retirement plan participant
Class Y
The Fund offers Class Y shares at net asset value without an initial sales
charge, deferred sales charge or 12b-1 fees. Class Y shares are only offered to
persons who owned shares in an Evergreen Fund advised by Evergreen Asset
Management Corp. on or before December 31, 1994; certain institutional
investors; and investment advisory clients of an investment advisor of an
Evergreen Fund (or the investment advisor's affiliates).
TAX-FREE HIGH INCOME FUND
6
<PAGE>
EVERGREEN
HOW TO BUY SHARES
Evergreen Funds' low investment minimums make investing easy. Once you decide
on an amount and a share class, simply fill out an application and send in your
payment, or talk to your investment professional.
Minimum Investments
Initial Additional
Regular Accounts $1,000 None
IRAs $250 None
Systematic Investment Plan $50 $25
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<C> <S> <C>
By Mail or . Complete and sign the account application. . Make your check payable to Evergreen Funds
through an . Make the check payable to Evergreen Funds. . Write a note specifying:
Investment . Mail the application and your check to the address below: - The Fund name
Professional Evergreen Service Company Overnight Address: - Share class
P.O. Box 2121 Evergreen Service Company - Your account number
Boston, MA 02106-2121 200 Berkeley St. - The name(s) in which the account is
Boston, MA 02116-5039 registered.
. Or deliver them to your investment representative . Mail to the address to the left or
(provided he or she has a broker-dealer arrangement deliver to your investment representative
with EDI)
By Phone . Call 1-800-343-2898 to set up an account number and . Call the Evergreen Express Line at 1-800-346-3858
get wiring instructions (call before 12 noon if 24 hours a day or 1-800-343-2898 between 8 a.m.
you want wired funds to be credited that day). and 6 p.m. Eastern time, on any business day.
. Instruct your bank to wire or . If your bank account is set up on file, you can
transfer your purchase (they may charge a wiring fee). request either:
. Complete the account application and mail to: - Federal Funds Wire (offers immediate
Evergreen Service Company Overnight Address: access to funds) or
P.O. Box 2121 Evergreen Service Company - Electronic transfer through the Automated
Boston, MA 02106-2121 200 Berkeley St. Clearing House which avoids wiring fees.
Boston, MA 02116-5039
. Wires received after 4 p.m. Eastern time on market trading
days will receive the next market day's closing price.*
By Exchange . You can make an additional investment by exchange from an existing Evergreen Funds account by contacting your
investment representative or calling the Evergreen Express Line at 1-800-346-3858.**
. You can only exchange shares within the same class.
. There is no sales charge or redemption fee when exchanging Funds within the Evergreen Funds family.***
. Orders placed before 4 p.m. Eastern time on market trading days will receive that day's closing share price (if
not, you will receive the next market day's closing price).*
. Exchanges are limited to three per calendar quarter, but in no event more than five per calendar year.
. Exchanges between accounts which do not have identical ownership must be made in writing with a signature guarantee
(see "Exceptions: Redemption Requests That Require A Signature Guarantee" on the next page).
Systematic . You can transfer money automatically from your bank . To establish automatic investing for an
Investment account into your Fund on a monthly basis. existing account, call 1-800-343-2898 for
Plan (SIP) . Initial investment minimum is $50 if an application.
you invest at least $25 per month with this service. . The minimum is $25 per month or $75 per quarter.
. To enroll, check off the box on the
account application and provide: . You can also establish an investing program
- Your bank account information through direct deposit from your paycheck.
- The amount and date of your monthly investment Call 1-800-343-2898 for details.
</TABLE>
* The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded or monitored
for verification, recordkeeping and quality-assurance purposes. The
Evergreen Funds reserve the right to terminate the exchange privilege of
any shareholder who exceeds the listed maximum number of exchanges, as well
as to reject any large dollar exchange if placing it would, in the judgment
of the portfolio manager, adversely affect the price of the Fund.
***This does not apply to exchanges from Class A shares of an Evergreen
money market fund.
TAX-FREE HIGH INCOME FUND
7
<PAGE>
EVERGREEN
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
<CAPTION>
Methods Requirements
<C> <S>
Call Us . Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-
2898 between 8 a.m. and 6 p.m. Eastern time, on any business day.
. This service must be authorized ahead of time, and is only available for
regular accounts.*
. All authorized requests made before 4 p.m. Eastern time on market trading days
will be processed at that day's closing price. Requests made after 4 p.m. will
be processed the following business day.**
. We can either:
-wire the proceeds into your bank account (service charges may apply)
-electronically transmit the proceeds into your bank account via the Automated
Clearing House service
-mail you a check.
. All telephone calls are recorded for your protection. We are not responsible
for acting on telephone orders we believe are genuine.
. See "Exceptions: Redemption Requests That Require A Signature Guarantee" below
for requests that must be made in writing with your signature guaranteed.
Write Us . You can mail a redemption request to: Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116-5039
. Your letter of instructions must:
-list the Fund name and the account number
-indicate the number of shares or dollar value you wish to redeem
-be signed by the registered owner(s)
. See exceptions list below for requests that must be signature guaranteed.
. To redeem from an IRA or other retirement account, call 1-800-343-2898 for a
special application.
Redeem Your . You may also redeem your shares through participating broker-dealers by
Shares in delivering a letter as described above to your broker-dealer.
Person . A fee may be charged for this service.
Systematic . You can transfer money automatically from your Fund account on a monthly or
Withdrawal quarterly basis - without redemption fees.
Plan (SWP) . The withdrawal can be mailed to you, or deposited directly into your bank
account.
. The minimum is $75 per month.
. The maximum is 1% of your account per month or 3% per quarter.
. To enroll, call 1-800-343-2898 for an application.
</TABLE>
* Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded or monitored
for verification, recordkeeping and quality-assurance purposes. The
Evergreen Funds reserve the right to terminate the exchange privilege of
any shareholder who exceeds the listed maximum number of exchanges, as well
as to reject any large dollar exchange if placing it would, in the judgment
of the portfolio manager, adversely affect the price of the Fund.
** The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days
for investments made by Automated Clearing House transfer. We also reserve the
right to redeem in kind by paying you the proceeds of a redemption in
securities rather than cash, and to redeem the remaining amount in the account
if your redemption brings the account balance below the initial minimum of
$1,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
. You are redeeming more than $50,000.
. You want the proceeds transmitted into a bank account not listed on the
account.
. You want the proceeds payable to anyone other than the registered owner(s) of
the account.
. Either your address or the address of your bank account has been changed
within 30 days.
. The account is registered in the name of a fiduciary corporation or any other
organization.
In these cases, additional documentation is required:
corporate accounts: certified copy of corporate resolution
fiduciary accounts: copy of the power of attorney or other governing document
Who Can Provide A Signature Guarantee:
. Commercial Bank
. Trust Company
. Savings Association
. Credit Union
. Member of a U.S. stock exchange
TAX-FREE HIGH INCOME FUND
8
<PAGE>
EVERGREEN
OTHER SERVICES
Evergreen Express Line (800) 346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find the Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market
commentary from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can
be made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will
be included on your statement.
Payroll Deduction (Class A, Class B and Class C only)
If you want to invest automatically through your paycheck, call us to find out
how you can set up direct payroll deductions. The amounts deducted will be
invested in your Fund account using the Electronic Funds Transfer System. We
will provide the Fund account number. Your payroll department will let you know
the date of the pay period when your investment begins.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
at amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request
is received.
Dividend Exchange
You may elect on the application to reinvest capital gains and/or dividends
earned in one Evergreen Fund into an existing account in another Evergreen Fund
in the same share class--automatically. Please indicate on the application the
Evergreen Fund(s) into which you want to invest the distributions.
Reinvestment Privileges
Under certain circumstances, shareholders may, within one year of redemption,
reinstate their accounts at the current price. This is the Fund's net asset
value, also sometimes referred to as the Fund's "NAV."
THE TAX CONSEQUENCES OF INVESTING IN THE FUND
You may be taxed in two ways:
. On Fund distributions (dividends and capital gains)
. On any profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Fund expects that substantially all of its regular
dividends will be exempt from federal income tax other than the federal
alternative minimum tax. Otherwise, the Fund may distribute two types of
taxable income to you:
. Dividends. To the extent that regular dividends are derived from interest
that is not tax-exempt or from short-term capital gains, you will have to
include them in your federal taxable income. The Fund pays a monthly dividend
from the dividends, interest and other income on the securities in which it
invests.
. Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. The Fund generally distributes capital gains, if
any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and are
considered ordinary income just like dividends. Profits on securities held
longer than 12 months are considered long-term capital gains and are taxed at
a special tax rate (20% for most taxpayers).
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and
capital gain payments will be reinvested to buy additional shares. Distribution
checks that are returned and distribution checks that are uncashed when the
shareholder has failed to respond to mailings from the shareholder servicing
agent will automatically be reinvested to buy additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by the Fund during the previous calendar year.
TAX-FREE HIGH INCOME FUND
9
<PAGE>
EVERGREEN
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital
gains. It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gain or loss you incur when you sell
shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend
and capital gains distributions for each calendar year on Form 1099 DIV.
Proceeds from a sale are reported on Form 1099B. You must report these on your
tax return. Since the IRS receives a copy as well, you could pay a penalty if
you neglect to report them.
Evergreen Service Company will send you a tax information guide each year
during tax season, which may include a cost basis statement detailing the gain
or loss on taxable transactions you had during the year. Please consult your
own tax advisor for further information regarding the federal, state and local
tax consequences of an investment in the Fund.
Retirement Plans
You may invest in the Fund through various retirement plans, including IRAs,
401(k) plans, Simplified Employee Plans (SEPs), IRAs, 403(b) plans, 457 plans
and others. For special rules concerning these plans, including applications,
restrictions, tax advantages and potential sales charge waivers, contact your
broker-dealer. To determine if a retirement plan may be appropriate for you,
consult your tax advisor.
FEES AND EXPENSES OF THE FUND
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Class A, Class B and Class C shares. Up to 0.25% of the average daily net
assets of Class A shares and up to 1.00% of the average daily net assets of
Class B and Class C shares are payable as 12b-1 fees. These fees increase the
cost of your investment. The higher 12b-1 fees imposed on Class B and Class C
shares may, over time, cost more than the initial sales charge of Class A
shares. The purpose of 12b-1 fees is to promote the sale of more shares of the
Fund to the public. The Fund may use 12b-1 fees for advertising and marketing
and as a "service fee" to the broker-dealer for additional shareholder
services.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken
out before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your
total return in the Fund is reduced in direct proportion to the fees; 2)
expense ratios can vary greatly between funds and fund families, from under
0.25% to over 3.0%; and 3) the Fund's advisor may waive a portion of the Fund's
expenses for a period of time, reducing its expense ratio.
TAX-FREE HIGH INCOME FUND
10
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at the results for one share in each share class of
the Fund--how much income it earned, how much of this income was passed along as
a distribution and how much the return was reduced by expenses. The tables have
been derived from financial information audited by KPMG LLP, the Fund's
independent auditors. For a more complete picture of
EVERGREEN
Tax-Free High Income Fund
<TABLE>
<CAPTION>
December 1, 1994
Year Ended September 30, (Inception of
---------------------------------------- Class) through
1999 1998 1997 1996 September 30, 1995
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 9.19 $ 9.22 $ 9.15 $ 9.19 $ 8.90
-------- -------- ------- ------- -------
Income (loss) from
investment operations
Net investment income 0.47 0.54 0.57 0.61 0.40
Net realized and
unrealized gains
(losses) (0.52) 0.04 0.11 (0.05) 0.30
-------- -------- ------- ------- -------
Total from investment
operations (0.05) 0.58 0.68 0.56 0.70
-------- -------- ------- ------- -------
Dividends and
distributions
Net investment income (0.47) (0.54) (0.59) (0.54) (0.40)
Distribution from
realized gains 0 (0.05) (0.02) (0.06) (0.01)
Dividends in excess of
net investment income (0.01) (0.02) 0 0 0
-------- -------- ------- ------- -------
Total dividends and
distributions (0.48) (0.61) (0.61) (0.60) (0.41)
-------- -------- ------- ------- -------
Net asset value, end of
period $ 8.66 $ 9.19 $ 9.22 $ 9.15 $ 9.19
-------- -------- ------- ------- -------
Total return(1) (0.61)% 6.53% 7.66% 6.33% 7.93%
Ratios and supplemental
data
Net assets, end of
period (000 omitted) $174,441 $243,878 $92,020 $44,828 $45,461
Ratios of expenses to
average net assets 1.06% 1.04% 1.26%(2) 1.36% 1.43%*
Ratio of net investment
income to average net
assets 5.30% 5.37% 6.60% 6.64% 5.95%*
Portfolio turnover
rate(3) 73.45% 126.28% 112.71% 106.55% 127.80%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all divi-
dends and distributions reinvested in additional shares on the reinvest-
ment date, and redemption at the net asset value calculated on the last
business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.25% for September 30, 1997. Prior
to 1996, such reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period, di-
vided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the calcula-
tion.
* Annualized
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 9.16 $ 9.19 $ 9.12 $ 9.17 $ 9.09
-------- -------- -------- -------- --------
Income (loss) from
investment operations
Net investment income 0.41 0.49 0.53 0.54 0.48
Net realized and
unrealized gains
(losses) (0.53) 0.02 0.08 (0.05) 0.10
-------- -------- -------- -------- --------
Total from investment
operations (0.12) 0.51 0.61 0.49 0.58
-------- -------- -------- -------- --------
Dividends and
distributions
Net investment income (0.41) (0.48) (0.52) (0.48) (0.48)
Distribution from
realized gains 0 (0.05) (0.02) (0.06) (0.01)
Dividends in excess of
net investment income 0(4) (0.01) 0 0 (0.01)
-------- -------- -------- -------- --------
Total dividends and
distributions (0.41) (0.54) (0.54) (0.54) (0.50)
-------- -------- -------- -------- --------
Net asset value, end of
period $ 8.63 $ 9.16 $ 9.19 $ 9.12 $ 9.17
-------- -------- -------- -------- --------
Total return(1) (1.39)% 5.74% 6.89% 5.51% 6.64%
Ratios and supplemental
data
Net assets, end of
period (000 omitted) $228,440 $255,300 $132,934 $109,488 $126,727
Ratio of expenses to
average net assets 1.82% 1.80%(2) 2.02% 2.10% 2.14%
Ratio of net investment
income to average net
assets 4.54% 4.62% 5.87% 5.89% 5.37%
Portfolio turnover
rate(3) 73.45% 126.28% 112.71% 106.55% 127.80%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions rein-
vested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period.
Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.79% for September 30, 1998. Prior to
1996, such reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period, di-
vided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the calcula-
tion.
(4) Less than $0.005 per share.
TAX-FREE HIGH INCOME FUND
11
<PAGE>
the Fund's financial statements, please see the Annual Report of the Fund's
predecessor fund, Davis Tax-Free High Income Fund, as well as this Fund's
Statement of Additional Information.
EVERGREEN
Tax-Free High Income Fund
<TABLE>
<CAPTION>
August 18, 1997
Year Ended September 30, (Inception of
---------------------------- Class) through
1999 1998 September 30, 1997
<S> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $ 9.22 $ 9.25 $ 9.20
------------ ------------ ------
Income (loss) from
investment operations
Net investment income 0.42 0.49 0.04
Net realized and
unrealized gains
(losses) (0.54) 0.03 0.03
------------ ------------ ------
Total from investment
operations (0.12) 0.52 0.07
------------ ------------ ------
Dividends and
distributions
Net investment income (0.41) (0.48) (0.02)
Distribution from
realized gains 0 (0.05) 0
Dividends in excess of
net investment income 0(4) (0.02) 0
------------ ------------ ------
Total dividends and
distributions (0.41) (0.55) (0.02)
------------ ------------ ------
Net asset value, end of
period $ 8.69 $ 9.22 $ 9.25
------------ ------------ ------
Total return(1) (1.34)% 5.74% 0.77%
Ratios and supplemental
data
Net assets, end of period
(000 omitted) $ 41,642 $ 36,594 $2,430
Ratio of expenses to
average net assets 1.83% 1.77%(2) 2.03%*
Ratio of net investment
income to average net
assets 4.53% 4.65% 5.85%*
Portfolio turnover
rate(3) 73.45% 126.28% 112.71%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all divi-
dends and distributions reinvested in additional shares on the reinvest-
ment date, and redemption at the net asset value calculated on the last
business day for the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.76% for September 30, 1998.
(3) The lesser of purchases or sales of portfolio securities for a period, di-
vided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the calcula-
tion.
(4) Less than $0.005 per share.
* Annualized
<TABLE>
<CAPTION>
October 6, 1997
(Inception of
Year Ended Class) through
September 30, 1999 September 30, 1998
<S> <C> <C>
CLASS Y SHARES
Net asset value, beginning of period $ 9.19 $ 9.20
------ ------
Income (loss) from investment operations
Net investment income 0.48 0.54
Net realized and unrealized gain (loss) (0.52) 0.03
------ ------
Total from investment operations (0.04) 0.57
------ ------
Dividends and distributions
Net investment income (0.48) (0.53)
Distribution from realized gain 0 (0.05)
Dividends in excess of net investment
income (0.01) 0
------ ------
Total dividends and distributions (0.49) (0.58)
------ ------
Net asset value, end of period $ 8.66 $ 9.19
------ ------
Total return(1) (0.51)% 6.34%
Ratios and supplemental data
Net assets, end of period (000 omitted) $1,292 $ 883
Ratios of expenses to average net assets 0.93% 0.93%*(2)
Ratio of net investment income to
average net assets 5.43% 5.49%*
Portfolio turnover rate(3) 73.45% 126.28%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all divi-
dends and distributions reinvested in additional shares on the reinvest-
ment date, and redemption at the net asset value calculated on the last
business day for the fiscal period. Total returns are not annualized for
periods of less than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.92% for September 30, 1998.
(3) The lesser of purchases or sales of portfolio securities for a period, di-
vided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the calcula-
tion.
* Annualized
TAX-FREE HIGH INCOME FUND
12
<PAGE>
EVERGREEN
OTHER FUND PRACTICES
The Fund may invest in a variety of derivative instruments including options
and futures. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate. Small price movements in the underlying
asset can result in immediate and substantial gains or losses in the value of
derivatives.
Options and futures can be used to increase return and to hedge the Fund's
portfolio to protect against changes in interest rates, to adjust the
portfolio's duration, to maintain the Fund's exposure to its market, to manage
cash or to attempt to increase income. Although this is intended to increase
returns, these practices may actually reduce returns or increase volatility.
The Fund may also invest in zero-coupon bonds, which generate interest income
before receipt of actual cash payments. The market prices of these securities
are generally more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do securities paying interest currently that have similar
maturities and credit quality.
Please consult the SAI for more information regarding these and other
investment practices used by the Fund, including risks.
TAX-FREE HIGH INCOME FUND
13
<PAGE>
EVERGREEN
Notes
TAX-FREE HIGH INCOME FUND
14
<PAGE>
EVERGREEN
Notes
TAX-FREE HIGH INCOME FUND
15
<PAGE>
EVERGREEN
Evergreen Funds
Money Market
Florida Municipal Money Market Fund
Money Market Fund
Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Treasury Money Market Fund
U.S. Government Money Market Fund
Tax Advantaged
Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
High Grade Municipal Bond Fund
Maryland Municipal Bond Fund
Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
Short-Intermediate Municipal Fund
South Carolina Municipal Bond Fund
Tax-Free High Income Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Diversified Bond Fund
High Income Fund
High Yield Bond Fund
Intermediate Term Bond Fund
Quality Income Fund
Short-Intermediate Bond Fund
Strategic Income Fund
U.S. Government Fund
Balanced
Balanced Fund
Capital Balanced Fund
Foundation Fund
Tax Strategic Foundation Fund
Growth & Income
Blue Chip Fund
Equity Income Fund
Growth and Income Fund
Income and Growth Fund
Select Equity Index Fund
Small Cap Value Fund
Utility Fund
Value Fund
Domestic Growth
Aggressive Growth Fund
Capital Growth Fund
Evergreen Fund
Growth Fund
Masters Fund
Omega Fund
Select Special Equity Fund
Small Company Growth Fund
Stock Selector Fund
Strategic Growth Fund
Tax Strategic Equity Fund
Global International
Emerging Markets Growth Fund
Global Leaders Fund
Global Opportunities Fund
International Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Precious Metals Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
TAX-FREE HIGH INCOME FUND
16
<PAGE>
QUICK REFERENCE GUIDE
1 Evergreen Express Line
Call 1-800-346-3858
24 hours a day to
. check your account
. order a statement
. get a Fund's current price, yield and total return
. buy, redeem or exchange Fund shares
2 Investor Services
Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m. Eastern time to
. buy, redeem or exchange shares
. order applications
. get assistance with your account
3 Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m. Eastern time
4 Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
. to buy, redeem or exchange shares
. to change the registration on your account
. for general correspondence
5 For express, registered or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
6 Visit us on-line:
www.evergreen-funds.com
7 Regular communications you will receive:
Account Statements -- You will receive quarterly statements for each
Fund you invest in.
Confirmation Notices -- We send a confirmation of any transaction you
make within five days of the transaction.
Annual and Semi-annual Reports -- You will receive a detailed financial
report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax information you
need to include in your tax returns as well as the Evergreen Tax
Information Guide.
<PAGE>
For More Information About the Fund, Ask for:
The Fund's most recent Annual or Semi-annual Report, which contains a
complete financial accounting for the Fund and a complete list of the Fund's
holdings as of a specific date, as well as commentary from the Fund's
portfolio manager. This Report discusses the market conditions and
investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Fund. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days. In
addition, any of these documents, with the exception of the SAI, may be
downloaded off our website at www.evergreen-funds.com.
Information about the Fund (including the SAI) is also available on the
SEC's Internet website at http://www.sec.gov. Copies of this material may be
obtained, for a duplication fee, by writing the SEC Public Reference
Section, Washington, D.C. 20549-6009, or by electronic request at the
following e-mail address: [email protected]. This material can also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
For more information about the Public Reference Room, call the SEC at 1-202-
942-8090.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No: 811-08367
53028 551901 RV1 3/2000
-------------
[LOGO OF EVERGREEN FUNDS] BULK RATE
U.S.
POSTAGE
401 South Tryon Street PAID
Charlotte, NC 28288 PERMIT NO. 19
HUDSON, MA
-------------
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN MUNICIPAL TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700
EVERGREEN NATIONAL MUNICIPAL BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 10, 2000, AS AMENDED MARCH 20, 2000
EVERGREEN TAX-FREE HIGH INCOME FUND
(THE"FUND")
THE 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 Fund listed above. It is not a prospectus but should be read in
conjunction with the prospectus of the Fund dated January 10, 2000, as amended
March 20, 2000, and as supplemented from time to time. You may obtain the
prospectus without charge by calling (800) 343-2898 or by downloading it off our
website at www.evergreen-funds.com. The information in Part 1 of this SAI is
specific information about the Fund described in the prospectus. The information
in Part 2 of this SAI contains more general information that may or may not
apply to the Fund or class of shares in which you are interested.
Certain information may be incorporated by reference to the predecessor
fund's (Davis Tax-Free High Income Fund) Annual Report dated September 30, 1999.
You may obtain a copy of the document without charge by calling (800) 343-2898.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY..............................................................1-1
INVESTMENT POLICIES........................................................1-1
OTHER SECURITIES AND PRACTICES.............................................1-3
PRINCIPAL HOLDERS OF FUND SHARES...........................................1-3
EXPENSES...................................................................1-4
PERFORMANCE................................................................1-7
COMPUTATION OF CLASS A OFFERING PRICE......................................1-7
SERVICE PROVIDERS..........................................................1-8
FINANCIAL STATEMENTS.......................................................1-9
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES..............2-1
PURCHASE AND REDEMPTION OF SHARES.........................................2-17
SALES CHARGE WAIVERS AND REDUCTIONS.......................................2-19
PRICING OF SHARES.........................................................2-22
PERFORMANCE CALCULATIONS..................................................2-23
PRINCIPAL UNDERWRITER.....................................................2-25
DISTRIBUTION EXPENSES UNDER RULE 12b-1....................................2-26
TAX INFORMATION...........................................................2-28
BROKERAGE.................................................................2-31
ORGANIZATION..............................................................2-32
INVESTMENT ADVISORY AGREEMENT.............................................2-34
MANAGEMENT OF THE TRUST...................................................2-35
CORPORATE AND MUNICIPAL BOND RATINGS......................................2-38
ADDITIONAL INFORMATION....................................................2-49
<PAGE>
PART 1
TRUST HISTORY
The Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. The Fund is a
diversified series of the Trust. A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. The Fund was created to acquire Davis Tax-Free High Income Fund. The
acquisition occurred on March 17, 2000.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
The 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
the 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 the Fund are in terms of current market value.
1. DIVERSIFICATION
The 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, the 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
The 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:.
The 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, the Fund may not issue senior
securities.
4. BORROWING
The Fund may not borrow money, except to the extent permitted by
applicable law.
FURTHER EXPLANATION OF BORROWING POLICY:
The Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. The Fund may also borrow up to an additional 5% of its total assets from
banks or others. The Fund may borrow only as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares. The
Fund may purchase additional securities so long as borrowings do not exceed 5%
of its total assets. The Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities. The
Fund may purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
5. UNDERWRITING
The Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. REAL ESTATE
The Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, the 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
The Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that the 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
The Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
FURTHER EXPLANATION OF LENDING POLICY:
To generate income and offset expenses, the 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 the Fund any income accruing on the security. The
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 the Fund and its shareholders.
When the Fund lends its securities, it will require the borrower to
give the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
9. INVESTMENT IN FEDERALLY TAX EXEMPT SECURITIES
The 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.
OTHER SECURITIES AND PRACTICES
For information regarding securities the Fund may purchase and
investment practices the Fund may use, see the following sections in Part 2 of
this SAI under "Additional Information on Securities and Investment Practices."
Information provided in the sections listed below expands upon and supplements
information provided in the Fund's prospectus.
Money Market Instruments
U.S. Government Securities High Yield, High Risk Bonds
When-Issued, Delayed-Delivery and Illiquid and Restricted Securities
Forward Commitment Transactions Investment in Other Investment
Repurchase Agreements Companies
Reverse Repurchase Agreements Short Sales
Dollar Roll Transactions Municipal Bonds
Convertible Securities Payment-in-kind Securities
Warrants Zero Coupon "Stripped" Bonds
Securities Lending Mortgage-Backed or Asset-Backed
Options and Futures Strategies Securities
PRINCIPAL HOLDERS OF FUND SHARES
As of February 29, 2000, the officers and Trustees of the Trust owned
as a group less than 1% of the outstanding shares of any class of the Fund.
Set forth below is information with respect to each person who, to the
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of the Fund as of February 29, 2000.
---------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------
----------------------------------------------------------- ---------
----------------------------------------------------------- ---------
---------------------------------------------------------------------
CLASS B
---------------------------------------------------------------------
----------------------------------------------------------- ---------
----------------------------------------------------------- ---------
---------------------------------------------------------------------
CLASS C
---------------------------------------------------------------------
----------------------------------------------------------- ---------
----------------------------------------------------------- ---------
---------------------------------------------------------------------
CLASS Y
---------------------------------------------------------------------
----------------------------------------------------------- ---------
----------------------------------------------------------- ---------
EXPENSES
Advisory Fees
Evergreen Investment Management Company (EIMC) is the investment
advisor to the Fund. EIMC is entitled to receive from the Fund an annual fee
based on the average daily net assets, as follows:
---------------------------------- ---------------------
AVERAGE DAILY NET ASSETS FEE
---------------------------------- ---------------------
---------------------------------- ---------------------
first $250 million 0.55%
---------------------------------- ---------------------
---------------------------------- ---------------------
next $250 million 0.50%
---------------------------------- ---------------------
---------------------------------- ---------------------
over $500 million 0.45%
---------------------------------- ---------------------
Stamper Capital & Investments, Inc. (Stamper Capital), acts as
sub-advisor to the Fund, and is paid by EIMC for providing sub-advisory services
at a rate equal to the following:
---------------------------------- ---------------------
AVERAGE DAILY NET ASSETS FEE
---------------------------------- ---------------------
---------------------------------- ---------------------
first $250 million 0.195%
---------------------------------- ---------------------
---------------------------------- ---------------------
next $250 million 0.180%
---------------------------------- ---------------------
---------------------------------- ---------------------
over $500 million 0.165%
---------------------------------- ---------------------
For more information, see "Investment Advisory Agreements" in Part 2 of
this SAI.
Advisory Fees Paid
Below are the advisory fees paid by the Fund for the last three fiscal
years. EIMC became the Fund's investment advisor on March 17, 2000. Prior to
that time, the predecessor fund, Davis Tax-Free High Income Fund, was advised by
Davis Selected Advisers, LP (Davis Advisers).
- ----------------------- -------------------- ----------------- ================
YEAR ENDED YEAR ENDED YEAR ENDED
9/30/1999 9/30/1998 9/30/1997
- ----------------------- -------------------- ----------------- ================
- ----------------------- -------------------- ----------------- ================
ADVISORY FEE PAID $3,107,801 $2,769,520 $1,065,546
- ----------------------- -------------------- ----------------- ================
Sub-Advisory Fees Paid
Stamper Capital acts as sub-advisor to the Fund and is reimbursed by
EIMC, the investment advisor as of March 17, 2000, for the costs of providing
sub-advisory services. Stamper Capital receives a sub-advisory fee equal to
0.195% of the first $250 million of the Fund's average daily net assets, 0.180%
of the next $250 million of such net assets, and 0.165% of such net assets in
excess of $500 million.
Prior to March 17, 2000, the Fund was advised by Davis Advisers. Below
are the sub-advisory fees paid by Davis Advisers to Stamper Capital for the last
three fiscal years:
- -------------- ---------------------- --------------------- ====================
YEAR ENDED 9/30/1999 YEAR ENDED 9/30/1998 YEAR ENDED 9/30/1997
- -------------- ---------------------- --------------------- ====================
- -------------- ---------------------- --------------------- ====================
SUB-ADVISORY
FEE PAID $933,268 $963,057 $444,708
- -------------- ---------------------- --------------------- ====================
Brokerage Commissions
The Fund paid no brokerage commissions during the fiscal years ended
September 30, 1999, 1998 and 1997. For more information regarding brokerage
commissions, see "Brokerage" in Part 2 of this SAI.
Portfolio Turnover
The Fund generally does not take portfolio turnover into account in
making investment decisions. This means the Fund could experience a high rate of
portfolio turnover (100% or more) in any given fiscal year, resulting in greater
brokerage and other transaction costs which are borne by the Fund and its
shareholders. It may also result in the Fund realizing greater net short-term
capital gains, distributions from which are taxable to shareholders as ordinary
income.
Underwriting Commissions
Below are the underwriting commissions paid by the Fund or its
predecessor and the amounts retained by the principal underwriter for the last
three fiscal years. For more information, see "Principal Underwriter" in Part 2
of this SAI.
- ------------------------------ -------------------- ==================
TOTAL UNDERWRITING UNDERWRITING
COMMISSIONS COMMISSIONS
RETAINED
- ------------------------------ -------------------- ==================
YEAR ENDED 9/30/1999 $316,814 $51,835
- ------------------------------ -------------------- ==================
- ------------------------------ -------------------- ==================
YEAR ENDED 9/30/1998 $4,936,465 $745,286
- ------------------------------ -------------------- ==================
- ------------------------------ -------------------- ==================
YEAR ENDED 9/30/1997 $1,397,658 $228,998
- ------------------------------ -------------------- ==================
12b-1 Fees
Below are the 12b-1 fees paid by the Fund or its predecessor for the
fiscal year ended September 30, 1999. For more information, see "Distribution
Expenses Under Rule 12b-1" in Part 2 of this SAI.
<TABLE>
<CAPTION>
- ------------ ================================ ================================ ===============================
CLASS A CLASS B CLASS C
================================ ================================ ===============================
---------------- --------------- ----------------- -------------- ---------------- ==============
DISTRIBUTION SERVICE FEES DISTRIBUTION SERVICE FEES DISTRIBUTION SERVICE FEES
FEES FEES FEES
- ------------ ---------------- --------------- ----------------- -------------- ---------------- ==============
- ------------ ---------------- --------------- ----------------- -------------- ---------------- ==============
<S> <C> <C> <C> <C> <C> <C>
FUND $0 $515,625 $1,860,068 $604,685 $319,031 $106,343
- ------------ ---------------- --------------- ----------------- -------------- ---------------- ==============
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust
individually for the fiscal year ended May 31, 1999, and by the Trust and the
eleven other trusts in the Evergreen Fund complex for the calendar year ended
December 31, 1999. The Trustees do not receive pension or retirement benefits
from the Fund. For more information, see "Management of the Trust" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
------------------------------------- ---------------------------- ========================================
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM THE EVERGREEN
TRUSTEE FROM TRUST FOR THE FISCAL FUND COMPLEX PAID TO THE TRUSTEES FOR
YEAR ENDED 5/31/1999 THE CALENDAR YEAR ENDED 12/31/1999*
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
<S> <C> <C>
Laurence B. Ashkin $2,381 $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,381
Charles A. Austin, III $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
N/A
Arnold H. Dreyfuss** N/A
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,321
K. Dun Gifford $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$3,046
James S. Howell*** $97,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,321
Leroy Keith Jr. $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,381
Gerald M. McDonnell $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,747
Thomas L. McVerry $85,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
N/A
Louis W. Moelchert, Jr. ** N/A
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,321
William Walt Pettit $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,313
David M. Richardson $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,381
Russell A. Salton, III $77,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,608
Michael S. Scofield $102,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
$2,321
Richard J. Shima $75,000
------------------------------------- ---------------------------- ========================================
------------------------------------- ---------------------------- ========================================
N/A
Richard K. Wagoner** N/A
------------------------------------- ---------------------------- ========================================
</TABLE>
*Certain Trustees have elected to defer all or part of their
total compensation for the calendar year ended December 31,
1999. The amounts listed below will be payable in later years
to the respective Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,500
McVerry $85,000
Pettit $75,000
Salton $77,000
Scofield $61,200
** Arnold H. Dreyfuss, Louis W. Moelchert, Jr. and Richard K.
Wagoner were elected to the Board of Trustees on
December 16, 1999.
***As of January 1, 2000, James S. Howell retired and became
Trustee Emeritus.
PERFORMANCE
Total Return
Below are the average annual total returns for each class of shares of
the Fund (including applicable sales charges) as of September 30, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
- --------------------- -------------------- --------------------- -------------------- ===================
TEN YEARS OR SINCE
INCEPTION DATE OF
CLASS(a) ONE YEAR FIVE YEARS CLASS INCEPTION DATE
OF CLASS
- --------------------- -------------------- --------------------- -------------------- ===================
- --------------------- -------------------- --------------------- -------------------- ===================
<S> <C> <C> <C> <C>
Class A -5.34% 4.40% 5.80% 12/1/1994
- --------------------- -------------------- --------------------- -------------------- ===================
- --------------------- -------------------- --------------------- -------------------- ===================
Class B -6.10% 4.32% 5.92% 3/21/1985
- --------------------- -------------------- --------------------- -------------------- ===================
- --------------------- -------------------- --------------------- -------------------- ===================
Class C -3.22% 4.65% 5.93% 8/18/1997
- --------------------- -------------------- --------------------- -------------------- ===================
- --------------------- -------------------- --------------------- -------------------- ===================
Class Y -0.51% 5.00% 6.11% 10/6/1997
- --------------------- -------------------- --------------------- -------------------- ===================
</TABLE>
(a) Historical performance shown for Classes A, C and Y prior to their
inception is based on the performance of Class B, the original class
offered, of the predecessor fund, Davis Tax-Free High Income Fund. These
historical returns for Classes A and Y have not been adjusted to reflect
the effect of each class' 12b-1 fees. These fees for Class A are 0.25%, for
Class B are 1.00% and for Class C are 1.00%. Class Y does not pay 12b-1
fees. If these fees had been reflected, returns for Classes A and Y would
have been higher.
Yields
Below are the current and tax equivalent yields of the Fund for the
30-day period ended September 30, 1999. For more information, see "30-Day Yield"
and "Tax Equivalent Yield" under "Performance Calculations" in Part 2 of this
SAI.
<TABLE>
<CAPTION>
============================= ============================================= =============================================
30-DAY YIELD TAX-EQUIVALENT YIELD
============================= ============================================= =============================================
FEDERAL TAX
RATE (1) CLASS A CLASS B CLASS C CLASS Y CLASS A CLASS B CLASS C CLASS Y
- ------------ ================ ---------- ----------- ---------- =========== ----------- ---------- ----------- ==========
============ ================ ---------- ----------- ---------- =========== ----------- ---------- ----------- ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUND 39.6% 5.37% 4.89% 4.87% 5.85% 8.89% 8.10% 8.06% 9.69%
============ ================ ---------- ----------- ---------- =========== ----------- ---------- ----------- ==========
</TABLE>
(1) Assumed for purposes of this chart. Your tax rate may vary.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value (NAV) plus a sales
charge. Below is an example of the method of computing the offering price of
Class A shares of the Fund. The example assumes a purchase of Class A shares of
the Fund aggregating less than $100,000 based upon the NAV of the Fund's Class A
shares at September 30, 1999. For more information, see "Pricing of Shares" in
Part 2 of this SAI.
- ------------------------------ -------------------- ============================
NET ASSET VALUE PER SHARE SALES CHARGE OFFERING PRICE PER SHARE
- ------------------------------ -------------------- ============================
- ------------------------------ -------------------- ============================
$8.66 4.75% $9.09
- ------------------------------ -------------------- ============================
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. (EIS) serves as administrator to
the Fund, 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 from the Fund an annual fee at a rate of 0.10% of the Fund's
average daily net assets.
Below are the administrative service fees paid by the Fund or its
predecessor (under a prior fee arrangement) for the last three fiscal years
ending:
- --------------------------- --------------------------- =======================
SEPTEMBER 30,1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- --------------------------- --------------------------- =======================
- --------------------------- --------------------------- =======================
$15,996 $15,996 $64,586
- --------------------------- --------------------------- =======================
Transfer Agent
Evergreen Service Company (ESC), P.O. Box 2121, Boston, Massachusetts
02106-2121, a subsidiary of First Union Corporation, is the Fund's transfer
agent. ESC issues and redeems shares, pays dividends and performs other duties
in connection with the maintenance of shareholder accounts. The Fund pays ESC
annual fees as follows:
----------------------------- --------------- ==============
FUND TYPE ANNUAL FEE ANNUAL FEE
PER OPEN PER CLOSED
ACCOUNT* ACCOUNT**
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Monthly Dividend Funds $25.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Quarterly Dividend Funds $24.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Semiannual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Annual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Money Market Funds $25.50 $9.00
----------------------------- --------------- ==============
*For shareholder accounts only. The Fund pays ESC cost plus 15% for
broker accounts.
** Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Distributor
Evergreen Distributor, Inc. (EDI), 90 Park Avenue, New York, New York
10016, markets the Fund through broker-dealers and other financial
representatives.
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of the Fund.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, keeps custody of the Fund's securities and cash and
performs other related duties.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Fund.
FINANCIAL STATEMENTS
The audited financial statements and the independent auditors' report
thereon are hereby incorporated by reference to the predecessor 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.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. SOME OF
THE INFORMATION BELOW WILL NOT APPLY TO THE FUND OR THE CLASS IN WHICH YOU ARE
INTERESTED. SEE THE LIST UNDER OTHER SECURITIES AND PRACTICES IN PART 1 OF THIS
SAI TO DETERMINE WHICH OF THE SECTIONS BELOW ARE APPLICABLE.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. Evergreen Equity Income Fund may also invest in
debt securities and high grade preferred stocks for defensive purposes when its
investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The 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 Student Loan Marketing
Association.
SECURITIES ISSUED BY THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA"). The
Fund 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 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.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund 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 Fund 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, the 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 the 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 may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund 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
investment advisor to be creditworthy. In a repurchase agreement the 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 Fund's 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 the 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 the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the 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 the 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 the
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.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the security
which is the subject of the agreement. In addition to the general risks involved
in leveraging, dollar rolls are subject to the same risks as repurchase and
reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, bonds
with warrants attached or bonds with a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allow convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Preferred Stocks
The Fund may purchase preferred stock. Preferred stock, unlike common
stock, has a stated dividend rate payable from the corporation's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. As a result, the
swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options and Futures Strategies
The Fund may at times seek to hedge against either a decline in the
value of its portfolio securities or an increase in the price of securities
which the investment advisor plans to purchase through the writing and purchase
of options and the purchase or sale of futures contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
the Fund's current return.
The ability of the Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes stated below.
WRITING COVERED OPTIONS ON SECURITIES. The Fund may write covered call options
and covered put options on optionable securities of the types in which it is
permitted to invest from time to time as the investment advisor determines is
appropriate in seeking to attain the Fund's investment objective. Call options
written by the Fund give the holder the right to buy the underlying security
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund at a stated price.
The Fund may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Fund owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all time while the put option is
outstanding. A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the Fund owns or has the right to acquire. In the case of a call written
for cross-hedging purposes or a put option, the Fund will maintain in a
segregated account at the Fund's custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Fund's
obligation under the option. The Fund may also write combinations of covered
puts and covered calls on the same underlying security.
The Fund will receive a premium from writing an option, which increases
the Fund's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, the Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds
market price plus the amount of the premium received.
The Fund may terminate an option which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund will
realize a profit (or loss) from such transaction if the cost of such transaction
is less (or more) than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option may be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. This protection is provided during the life of the put option
since the Fund, as holder of the put, is able to sell the underlying security at
the exercise price regardless of any decline in the underlying security's market
price. For the purchase of a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
any profit which the Fund might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
The Fund may also purchase a call option to hedge against an increase
in price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund might
have realized had it bought the underlying security at the time it purchased the
call option will be reduced by the premium paid for the call option and by
transaction costs.
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. 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.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the 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 sells 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. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the 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.
The 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. The 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 the
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 investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. 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. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The 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.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The 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, the
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 the 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
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.
Limitations. The Fund will not purchase or sell futures contracts or options on
futures contracts for non-hedging purposes if, as a result, the sum of the
initial margin deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the net assets of the Fund unless the transaction meets certain "bona fide
hedging" criteria.
RISKS OF OPTIONS AND FUTURES STRATEGIES. THE EFFECTIVE USE OF OPTIONS AND
FUTURES STRATEGIES DEPENDS, AMONG OTHER THINGS, ON THE FUND'S ABILITY TO
TERMINATE OPTIONS AND FUTURES POSITIONS AT TIMES WHEN THE INVESTMENT ADVISOR
DEEMS IT DESIRABLE TO DO SO. ALTHOUGH THE FUND WILL NOT ENTER INTO AN OPTION OR
FUTURES POSITION UNLESS THE INVESTMENT ADVISOR BELIEVES THAT A LIQUID MARKET
EXISTS FOR SUCH OPTION OR FUTURE, THERE CAN BE NO ASSURANCE THAT THE FUND WILL
BE ABLE TO EFFECT CLOSING TRANSACTIONS AT ANY PARTICULAR TIME OR AT AN
ACCEPTABLE PRICE. THE INVESTMENT ADVISOR GENERALLY EXPECTS THAT OPTIONS AND
FUTURES TRANSACTIONS FOR THE FUND WILL BE CONDUCTED ON RECOGNIZED EXCHANGES. IN
CERTAIN INSTANCES, HOWEVER, THE FUND MAY PURCHASE AND SELL OPTIONS IN THE
OVER-THE-COUNTER MARKET. THE STAFF OF THE SEC CONSIDERS OVER-THE-COUNTER OPTIONS
TO BE ILLIQUID. THE FUND'S ABILITY TO TERMINATE OPTION POSITIONS ESTABLISHED IN
THE OVER-THE-COUNTER MARKET MAY BE MORE LIMITED THAN IN THE CASE OF EXCHANGE
TRADED OPTIONS AND MAY ALSO INVOLVE THE RISK THAT SECURITIES DEALERS
PARTICIPATING IN SUCH TRANSACTIONS WOULD FAIL TO MEET THEIR OBLIGATIONS TO THE
FUND.
THE USE OF OPTIONS AND FUTURES INVOLVES THE RISK OF IMPERFECT
CORRELATION BETWEEN MOVEMENTS IN OPTIONS AND FUTURES PRICES AND MOVEMENTS IN THE
PRICE OF THE SECURITIES THAT ARE THE SUBJECT OF THE HEDGE. THE SUCCESSFUL USE OF
THESE STRATEGIES ALSO DEPENDS ON THE ABILITY OF THE FUND'S INVESTMENT ADVISOR TO
FORECAST CORRECTLY INTEREST RATE MOVEMENTS AND GENERAL STOCK MARKET PRICE
MOVEMENTS. THE RISK INCREASES AS THE COMPOSITION OF THE SECURITIES HELD BY THE
FUND DIVERGES FROM THE COMPOSITION OF THE RELEVANT OPTION OR FUTURES CONTRACT.
Foreign Securities
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.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
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.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments.
Investors should be aware of the following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond, and
(c) the Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
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.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
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
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks 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, the 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. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it 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. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund 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 S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the 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 the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment 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 the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
U.S. Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the U.S.
Virgin Islands, Guam and Puerto Rico to the extent such obligations are exempt
from the income or intangibles taxes, as applicable, of the state for which the
Fund is named. The Fund does not presently intend to invest more than (a) 10% of
its net assets in the obligations of each of the U.S. Virgin Islands and Guam or
(b) 25% of its net assets in the obligations of Puerto Rico. Accordingly, the
Fund may be adversely affected by local political and economic conditions and
developments within the U.S. Virgin Islands, Guam and Puerto Rico affecting the
issuers of such obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructurings under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Collateralized Mortgage Obligation "Residual" Interests
The Fund may invest in other types of mortgage-related securities,
including any securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans or real property,
including collateralized mortgage obligation "residual" interests. Residual
interests are derivative mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans. The cash flow generated by the mortgage assets
underlying a series of mortgage securities is applied first to make required
payments of principal of and interest on the mortgage securities and second to
pay the related administrative expenses of the issuer. The residual generally
represents the right to any excess cash flow remaining after making the
foregoing payments. Each payment of such excess cash flow to a holder of the
related residual represents income and/or a return of capital. The amount of
residual cash flow resulting from a series of mortgage securities will depend
on, among other things, the characteristics of the mortgage assets, the coupon
rate of each class of the mortgage securities, prevailing interest rates, the
amount of administrative expenses, and the prepayment experience on the mortgage
assets. The values of residuals are extremely sensitive to changes in interest
rates. The yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying mortgage assets in the same manner as an
interest-only class of stripped mortgaged-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may also
be extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. In certain circumstances, there may be little or no
excess cash flow payable to residual holders. The Fund may fail to recoup fully
its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Fund may be unable to dispose of these
interests at prices approximating the values the Fund had previously assigned to
them.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code") and to maintain exemption from the 1940 Act. In the event an issuer of
debt securities collateralized by real estate defaults, it is conceivable that
the REITs could end up holding the underlying real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Code, each
item of income, gain, loss, deduction, and credit is not taxed at the
partnership level but flows through to the holder of the partnership unit. This
allows the partnership to avoid double taxation and to pass through income to
the holder of the partnership unit at lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different 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 the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
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. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of First Union National Bank ("FUNB") and its affiliates, EDI and any
broker-dealer with whom EDI has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees; and (g) upon the
initial purchase of an Evergreen Fund by investors reinvesting the proceeds from
a redemption within the preceding 30 days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC. These provisions are generally intended to provide additional
job-related incentives to persons who serve the Fund or work for companies
associated with the Fund and selected dealers and agents of the Fund. Since
these persons are in a position to have a basic understanding of the nature of
an investment company as well as a general familiarity with the Fund, sales to
these persons, as compared to sales in the normal channels of distribution,
require substantially less sales effort. Similarily, these provisions extend the
privilege of purchasing shares at net asset value to certain classes of
institutional investors who, because of their investment sophistication, can be
expected to require significantly less than normal sales effort on the part of
the Fund and the Distributor. In addition, the provisions allow the Funds to be
competitive in the mutual fund industry, where similar allowances are common.
Class B Shares
The Fund offers Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Fund will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase......................... 5.00%
Second 12-month period following the month of purchase......... 4.00%
Third 12-month period following the month of purchase.......... 3.00%
Fourth 12-month period following the month of purchase......... 3.00%
Fifth 12-month period following the month of purchase.......... 2.00%
Sixth 12-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
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EDI. The Fund offers Class C
shares at net asset value without an initial sales charge. With certain
exceptions, however, the Fund will charge a CDSC on shares you redeem within 24
months after the month of your purchase, in accordance with the following
schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase 2.00%
Second 12-month period following the month of purchase 1.00%
Thereafter 0.00%
See "Contingent Deferred Sales Charge" below.
Class C shares purchased through an omnibus account with Merrill Lynch
will be charged a 1.00% CDSC if redeemed within 12 months after the month of
purchase. Redemptions made thereafter will not be charged a CDSC.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisor's 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.
Institutional Shares, Institutional Service Shares
Each institutional class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. The minimum initial investment in any institutional class
of shares is $1 million, which may be waived in certain circumstances. There is
no minimum amount required for subsequent purchases.
Contingent Deferred Sales Charge
The Fund charges 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 Expenses Under Rule 12b-1,"
below). Institutional and Institutional Service shares do not charge a CDSC. If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional and
Institutional Service shares.
If you are making a large purchase, there are several ways you can
combine multiple purchases of Class A shares in Evergreen Funds and take
advantage of lower sales charges. These are described below.
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%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
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 Fund may sell its 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 the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, EDI, any broker-dealer
with whom EDI has entered into an agreement to sell shares of
the Fund, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single
account in the name of such bank or trust company if the
initial investment in any of the Evergreen Funds 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, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission
on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has
died or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a
shareholder who is at least 59 years old;
6. shares in an account that we have closed because the
account has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Income Plan of
up to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement
plan participant;
9. a financial hardship 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 the Fund for shares of the same class
of any other Evergreen Fund which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the 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.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest 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. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily (or twice
daily, for Money Market Funds) on Monday through Friday, as described in the
prospectus. The Fund will not compute its NAV on the days the New York Stock
Exchange is closed: 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 the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities
exchange or the over-the-counter National Market System
("NMS") are valued on the basis of the last sales price on the
exchange where primarily traded or on the NMS prior to the
time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or
in the over-the-counter market for which there has been no
sale and other securities traded in the over-the-counter
market are valued at the mean of the bid and asked prices at
the time of valuation.
(3) Short-term investments maturing in more than 60 days, for
which market quotations are readily available, are valued at
current market value.
(4) Short-term investments maturing in sixty days or less are
valued at amortized cost, which approximates market.
(5) Securities, including restricted securities, for which
market quotations are not readily available; listed securities
or those on NMS if, in the investment advisor's opinion, the
last sales price does not reflect an accurate current market
value; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of
Trustees.
(6) Municipal bonds are valued by an independent pricing
service at fair value using a variety of factors which may
include yield, liquidity, interest rate risk, credit quality,
coupon, maturity and type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-DAY YIELD
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated 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 period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-DAY CURRENT AND EFFECTIVE YIELD
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
TAX EQUIVALENT YIELD
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI 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 EDI 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 EDI 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 Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI 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 EDI or any other person for whose acts EDI 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 Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "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 EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12B-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C and Institutional
Service shares, as applicable, the Fund may incur expenses for 12b-1 fees up to
a maximum annual percentage of the average daily net assets attributable to a
class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
* Currently limited to 0.25% or less to be used exclusively as
a shareholder service fee. See the expense table in the
prospectus of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above.
Amounts paid under the Plans are used to compensate EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C and
Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- -------------
Class A 0.25%*
----------------------------- -------------
----------------------------- -------------
Class B 1.00%
----------------------------- -------------
----------------------------- -------------
Class C 1.00%
----------------------------- -------------
----------------------------- -------------
Institutional Service 0.25%*
----------------------------- -------------
*May be lower. See the expense table in the prospectus of the
Fund in which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on 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 EDI to
compensate broker-dealers in connection with the sale of such shares.
Service fees are accrued daily and paid at least annually on Class A, Class B,
Class C, and Institutional Service shares and are charged as class expenses, as
accrued.
Under the Plans, the Treasurer of the Trust 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.
The investment 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 EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-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.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C and
Institutional Service shares. The Plans are designed to (i) stimulate brokers to
provide distribution and administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares and (ii) stimulate
administrators to render administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B, Class C and Institutional Service shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for its Class A, Class B,
Class C and Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the 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 the 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 the 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 EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (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, the 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, the 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 the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond fund, distributions will be taxable
to shareholders whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond fund or U.S. Treasury or
U.S. Government money market fund, it anticipates that all or a portion of the
ordinary dividends which it pays will qualify for the 70% dividends-received
deduction for corporations. The Fund will inform shareholders of the amounts
that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S.
Government money market fund, none of its income will consist of corporate
dividends; therefore, none of its distributions will qualify for the 70%
dividends-received deduction for corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Shareholders of Municipal Bond Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the 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 the Fund who may be a "substantial user" (as defined
by the Code, as amended.) 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, the 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").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the 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 12
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 61-day period
beginning 30 days before and ending 30 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 the 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
the 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 the 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.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually 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 the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Masters Fund may incur higher brokerage costs than would be the case if
a single investment advisor or sub-advisor were managing the entire portfolio.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by Evergreen Asset Management Corp. ("EAMC"),
Lieber & Company, an affiliate of EAMC and a member of the New York and American
Stock Exchanges, will, to the extent practicable, effect substantially all of
the portfolio transactions effected on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The foregoing is qualified in its entirety by reference to the Trust's
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
the 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 "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the 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 (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), 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.
Code of Ethics
The Trust and its various advisors have each adopted a code of ethics
per Rule 17j-1 of the 1940 Act ("Code of Ethics"). Each of these Codes of Ethics
permits Fund personnel to invest in securities for their own accounts and is on
file with, and available from, the SEC.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters 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
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment 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; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (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 the Fund and its
shares with the 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 the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the 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 the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The 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 the
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 Agreement 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. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, K. Dun Gifford and Russell Salton, each of whom
is an Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and 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
(DOB: 2/28/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corporation (food manufacturer);
(DOB: 9/2/28) Trustee, Mentor Funds, Mentor Variable Investment
Portfolios, Mentor Institutional Trust, and Cash
Resource Trust; Director, America's Utility Fund, Inc.;
Formerly, Chairman and Chief Executive Officer,
Hamilton Beach/Proctor-Silex, Inc. (small appliance
manufacturer).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/23/38) 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 (leather
goods purveyor); former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford
Gifts of Fine Foods; former Chairman, Gifford, Drescher
& Associates (environmental consulting).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); 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 and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
Louis W. Moelchert, Jr. (DOB: Trustee President, Private Advisors, LLC; Vice President for
12/20/41) Investments, University of Richmond; Director, America's
Utility Fund, Inc.; Trustee, The Common Fund, Mentor
Variable Investment Portfolios, Mentor Funds, Mentor In
stitutional Trust, and Cash Resource Trust.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Richardson & Runden & Company (executive search
(DOB: 9/14/41) and advisory services); former Vice Chairman, 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.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, First Union
Corporation; former consultant to the Board of Trustees
of the Evergreen Funds; former member, New York Stock
Exchange; member, North Carolina Securities Traders
Association; member, Financial Analysts Society.
William M. Ennis President President and Chief Executive Officer, Evergreen Investment
(DOB: 6/26/60) Company and Chief Operating Officer, Capital Management
Group, First Union Corporation.
Carol Kosel Treasurer Vice President Evergreen Investment Services, Inc. and
(DOB: 12/25/63) Treasurer, Vestaur Securities, Inc.; former Senior Manager,
KPMG LLP.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National 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)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
</TABLE>
* Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the 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.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
- ------------ ------------- ----------- =========================================
MOODY'S S&P FITCH CREDIT QUALITY
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
Aaa AAA AAA Excellent Quality (lowest risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
Aa AA AA Almost Excellent Quality (very low risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
A A A Good Quality (low risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
Baa BBB BBB Satisfactory Quality (some risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
Ba BB BB Questionable Quality (definite risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
B B B Low Quality (high risk)
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
- ------------ ------------- ----------- =========================================
- ------------ ------------- ----------- =========================================
D DDD/DD/D In Default
- ------------ ------------- ----------- =========================================
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
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
edged." 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 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 risk appear somewhat larger than the Aaa securities.
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 some time in the future.
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.
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.
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.
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.
CA Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are 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 Caa. 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 Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. 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 The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
- - On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
- - Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
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 Corporate 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 commitment 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. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ 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.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate 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 evidenced 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.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 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.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C 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.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" 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.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal 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 Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. 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 S&P 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 Municipal 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 MUNICIPAL RATINGS
Moody's Municipal 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 Municipal 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 or 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 Municipal 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 Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" 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.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
Unless otherwise noted, the exhibits listed below are contained herein.
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on October 8, 1997
(b) By-laws Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on October 8, 1997
(c) Provisions of instruments defining the rights Incorporated by reference to
of holders of the securities being registered Registrant's Post-Effective Amendment No. 1
are contained in the Declaration of Trust Filed on July 31, 1998
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII
included as part of Exhibits 1 and 2, above.
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Registrant's Post-Effective Amendment No. 7
Union National Bank Filed on July 31, 1998
(d)(2) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Post-Effective Amendment No. 7
Asset Management Corp. Filed on July 31, 1998
(d)(3) Investment Advisory and Management
Agreement between the Registrant and Evergreen
Investment Management Company (formerly Keystone
Investment Management Company)
(d)(4) Form of Investment Advisory and Management Agreement Incorporated by reference to Registrant's
between the Registrant and Mentor Investment Post-Effective Amendment No. 14
Advisors, LLC Filed on August 17, 1999
(d)(5) Sub-Advisory Agreement between the Evergreen
Investment Management Company and Stamper
Capital and Investments, Inc.
(Tax-Free High Income Fund)
(e)(1) Class A and Class C Principal Underwriting
Agreement between the Registrant and Evergreen
Distributor, Inc.
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor Registrant's Post-Effective Amendment No. 7
Inc. (B-1) Filed on July 31, 1998.
(e)(3) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Post-Effective Amendment No. 7
Inc. (B-2) Filed on July 31, 1998.
(e)(4) Class B Principal Underwriting Agreement
between the Registrant and Evergreen Distributor,
Inc.
(e)(5) Class Y Principal Underwriting Agreement
between the Registrant and Evergreen Distributor,
Inc.
(e)(6) Specimen copy of Dealer Agreement used by Incorporated by reference to
Evergreen Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed November 12, 1997
(f) Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 2
Filed on November 10, 1997
(g)(1) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(g)(2) Letter Amendment to Custodian Agreement between
Registrant and State Street Bank and Trust Company
(Tax-Free High Income Fund)
(h)(1) Administration Agreement between the Registrant
and Evergreen Investment Services, Inc.
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(h)(3) Form of Administration Agreement between Incorporated by reference to
Registrant and Evergreen Investment Services, Registrant's Post-Effective Amendment No. 14
Inc. (10/15/99 Agreement) Filed on August 17, 1999
(h)(4) Letter Amendment to Transfer Agent Agreement
between the Registrant and Evergreen Service
Company (Tax-Free High Income Fund)
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997
(i)(2) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to Registrant's
Post-Effective Amdendment No. 14
Filed on August 17, 1999
(j)(1) Consent of PricewaterhouseCoopers LLP Incorporated by reference to Registrant's
National Municipal Funds Post-Effective Amendment No. 15 Filed on
September 28, 1999
(j)(2) Consent of KPMG LLP Incorporated by reference to Registrant's
National Municipal Funds Post-Effective Amendment No. 15
Filed on September 28, 1999
(j)(3) Consent of KPMG LLP Incorporated by reference to Registrant's
State Municipal Funds Post-Effective Amendment No. 12
Filed on July 29, 1999
(j)(4) Consent of PricewaterhouseCoopers LLP Incorporated by reference to Registrant's
Southern State Municipal Funds Post-Effective Amendment No. 18
Filed on December 22, 1999
(j)(5) Consent of KPMG LLP Incorporated by reference to Registrant's
Southern State Municipal Funds Post-Effective Amendment No. 18
Filed on December 22, 1999
(j)(6) Consent of KPMG LLP Incorporated by reference to Registrant's
Mentor Funds Post-Effective Amendment No. 20
Filed on January 28, 2000
(j)(7) Consent of KPMG LLP
(Tax-Free High Income Fund)
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(2) 12b-1 Distribution Plan for Class B
(m)(3) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-1) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(4) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-2) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(m)(5) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KCF/Evergreen) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(6) 12b-1 Distribution Plan for Class C
(m)(7) 12b-1 Distribution Plan for Class A
(Tax-Free High Income Fund)
(n) Not applicable
(o) Multiple Class Plan Incorporated by reference to
Registrant's Post-Effective Amendment No. 10
filed on April 1, 1999.
(p) Code of Ethics
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustees and
officers are also contained the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors are
contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust Company,
the Registrant's custodian, are contained in the Custodian Agreement between
State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
G. Kennedy Thompson President, First Union Corporation
President, First Union National Bank;
Mark C. Treanor Executive Vice President, Secretary & General
Counsel, First Union Corporation; Secretary
and Executive Vice President, First Union
National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
The information required by this item with respect to Meridian Investment
Company is incorporated by reference to the Form ADV (File No. 801-8327) of
Meridian Investment Company.
The information required by this item with respect to Mentor Investment
Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384)
of Mentor Investment Advisors, LLC.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series (except for Class J shares) thereof that
is a part of the Evergreen "fund complex" as such term is defined in Item 22(a)
of Schedule 14A under the Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
Dennis Sheehan Director, Chief Financial Officer
Maryann Bruce President
Kevin J. Dell Vice President, General Counsel and Secretary
Messrs. Sheehan, Huber and Dell are located at the following address:
Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10019.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the Principal Underwriters in the last fiscal year.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company, all located at 200 Berkeley
Street, Boston, Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Mentor Investment Advisors, LLC 901 East Byrd Street, Richmond, Virginia
23219
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Meridian Investment Co., 55 Valley Stream Parkway, Malvern, Pennsylvania
19355
Stamper Capital & Investments, Inc., 1011 Forty First Avenue, Santa Cruz,
California 95062.
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston, and State of Massachusetts, on the 20th day of March, 2000.
EVERGREEN MUNICIPAL TRUST
By: /s/ Michael H. Koonce
-----------------------------
Name: Michael H. Koonce
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 20th day of March, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William M. Ennis /s/ Carol Kosel /s/ Michael H. Koonce*
- ------------------------- ---------------------------- --------------------------------
William M. Ennis* Carol Kosel* Michael H. Koonce
President Treasurer (Principal Secretary
Financial and Accounting Officer)
/s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ----------------------------- -----------------------------
Laurence B. Ashkin* Charles A. Austin III*
Trustee Trustee
/s/ Arnold H. Dreyfuss /s/ K. Dun Gifford /s/ William Walt Pettit
- ---------------------------- ------------------------- ----------------------------------
Arnold H. Dreyfuss* K. Dun Gifford* William Walt Pettit*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Louis M. Moelchert, Jr.
- ------------------------------- ----------------------------- -------------------------------
Gerald M. McDonnell* Thomas L. McVerry* Louis M. Moelchert, Jr.*
Trustee Trustee Trustee
/s/ Michael S. Scofield /s/ David M. Richardson /s/ Russell A. Salton, III MD
- -------------------------------- ------------------------------ -------------------------------
Michael S. Scofield* David M. Richardson* Russell A. Salton, III MD*
Chairman of the Board Trustee Trustee
and Trustee
/s/ Leroy Keith, Jr. /s/ Richard J. Shima /s/ Richard K. Wagoner
- -------------------------------- ------------------------------ ---------------------------
Leroy Keith, Jr.* Richard J. Shima* Richard K. Wagoner*
Trustee Trustee Trustee
</TABLE>
*By: /s/ Michael H. Koonce
- -------------------------------
Michael H. Koonce
Attorney-in-Fact
*Michael H. Koonce, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Letter Exhibit
- -------- --------
(d)(3) Investment Advisory and Management
Agreement between the Registrant and Evergreen
Investment Management Company (formerly Keystone
Investment Management Company)
(d)(5) Sub-Advisory Agreement between the Evergreen
Investment Management Company and Stamper
Capital and Investments, Inc.
(Tax-Free High Income Fund)
(e)(1) Class A and Class C Principal Underwriting
Agreement between the Registrant and Evergreen
Distributor, Inc.
(e)(4) Class B Principal Underwriting Agreement
between the Registrant and Evergreen Distributor,
Inc.
(e)(5) Class Y Principal Underwriting Agreement
between the Registrant and Evergreen Distributor,
Inc.
(g)(2) Letter Amendment to Custodian Agreement between
Registrant and State Street Bank and Trust Company
(Tax-Free High Income Fund)
(h)(1) Administration Agreement between the Registrant
and Evergreen Investment Services, Inc.
(h)(4) Letter Amendment to Transfer Agent Agreement
between the Registrant and Evergreen Service
Company (Tax-Free High Income Fund)
(j)(7) Consent of KPMG LLP
(Tax-Free High Income Fund)
(m)(2) 12b-1 Distribution Plan for Class B
(m)(6) 12b-1 Distribution Plan for Class C
(m)(7) 12b-1 Distribution Plan for Class A
(Tax-Free High Income Fund)
(p) Code of Ethics
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 18th day of September 1997, by and between EVERGREEN
MUNICIPAL TRUST, a Delaware business trust (the "Trust") and KEYSTONE INVESTMENT
MANAGEMENT COMPANY, a Delaware corporation (the "Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this Agreement and
each series of shares subsequently issued by the Trust (each singly a "Fund" or
collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and administer
the operation of the Trust and each of its Funds, to supervise the provision of
the services to the Trust and each of its Funds by others, and to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund=s investment objectives and restrictions as may be set
forth from time to time in the Fund=s then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the A1934 Act@)) provided
to a Fund and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for a Fund which is in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Trust office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser=s organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such; and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation:
(a) all charges and expenses of any custodian or depository appointed
by the Trust for the safekeeping of the cash, securities and other property of
any of its Funds;
(b) all charges and expenses for bookkeeping and auditors;
(c) all charges and expenses of any transfer agents and registrars
appointed by the Trust; (d) all fees of all Trustees of the Trust who
are not affiliated with the Adviser or any of its
affiliates, or with any adviser retained by the Adviser;
(e) all brokers= fees, expenses, and commissions and issue and transfer
taxes chargeable to a Fund in connection with transactions involving securities
and other property to which the Fund is a party;
(f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 (A1940 Act@);
(g) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies;
(h) all costs of certificates representing shares of the Trust or its
Funds;
(i) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the ACommission@) and registering or qualifying the
Funds= shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities;
(j) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(k) all expenses of shareholders= and Trustees= meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(l) all charges and expenses of legal counsel for the Trust and its
Funds and for Trustees of the Trust in connection with legal matters relating to
the Trust and its Funds, including, without limitation, legal services rendered
in connection with the Trust and its Funds= existence, trust, and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state, and other laws, issues of securities,
expenses which the Trust and its Funds have herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Trust and its Funds, its Trustees, officers, employees, or agents;
(m) all charges and expenses of filing annual and other reports with
the Commission and other authorities; and
(n) all extraordinary expenses and charges of the Trust and its Funds.
In the event that the Adviser provides any of these services or pays
any of these expenses, the Trust and any affected Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser=s services to the Trust with respect
to each Fund during the period of this Agreement, the Trust will pay to the
Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser=s fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust=s fee with respect to a Fund shall be
payable in arrears at the end of each day or calendar month as the Adviser may
from time to time specify to the Trust. If and when this Agreement terminates,
any compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms (ASubAdviser@) to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser=s rights, obligations, and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust or any of its Funds in connection
with the performance of this Agreement, except a loss resulting from the
Adviser=s willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser=s duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its Funds to
be audited at least once each year by a reputable independent public accountant
or organization of public accountant or organization of public accountants who
shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of the
Trust, the governing documents of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the date
set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
10. On sixty days= written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of any Fund with respect to that Fund; and on sixty days=
written notice to the Trust, this Agreement may be terminated at any time
without the payment of any penalty by the Adviser with respect to a Fund. This
Agreement shall automatically terminate upon its assignment (as that term is
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postage prepaid, to the other party
at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A Amajority of the outstanding voting securities@ of the Trust or
the affected Funds shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed, and
enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------------
Name: John J. Pileggi
Title: President
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By: /s/ Albert H. Elfner, III
------------------------------------
Name: Albert H. Elfner, III
Title:Chief Executive Officer
<PAGE>
As of December 31, 1999
Schedule 1
Evergreen Pennsylvania Municipal Bond Fund
(formerly Evergreen Pennsylvania Tax Free Fund)
Evergreen Municipal Bond Fund
(formerly Evergreen Tax Free Fund)
Evergreen Tax-Free High Income Fund
(effective January 10, 2000)
<PAGE>
As of December 31, 1999
Schedule 2
As compensation for the Adviser's services to each Fund during the
period of this Agreement, each Fund will pay to the Adviser a fee at the annual
rate of:
I. Evergreen Pennsylvania Municipal Bond Fund (formerly Evergreen
Pennsylvania Tax Free Fund)
Aggregate Net Asset Value
Management Fee of Shares 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.
computed as of the close of business on each business day.
II. Evergreen Municipal Bond Fund (formerly Evergreen Tax Free
Fund)
Annual Aggregate Net Asset Value
Management Fee Income of Shares of the Fund
2.0% of Gross Dividend
and Interest Income Plus
0.50% of the first $100,000,000, 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.
III. Evergreen Tax-Free High Income Fund
Average Net Asset
Management Fee Value of Shares of the Fund
0.55% of the first $250,000,000, plus
0.50% of the next $250,000,000, plus
0.45% of amounts over $500,000,000.
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 17th day of March, 2000, by and between
Evergreen Investment Management Company, (the "Adviser"), and Stamper Capital &
Investments, Inc. (the "Sub-adviser").
WHEREAS, the Adviser serves as investment adviser of the Evergreen Tax
Free High Income Fund ("Fund"), a series of Evergreen Municipal Trust (the
"Trust"), a Delaware business trust which has filed a registration statement
under the Investment Company Act of 1940, as amended (the "1940 Act") and the
Securities Act of 1933 (the "Registration Statement"); and
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is the Fund; and
WHEREAS, the Adviser desires to avail itself of the services, advice
and assistance of the Sub-adviser to assist the Adviser in providing investment
advisory services to the Fund; and
WHEREAS, the Sub-adviser is registered under the Investment Advisers
Act of 1940, as amended (the "Sub-advisers Act"), is engaged in the business of
rendering investment advisory services to investment companies and other
institutional clients and desires to provide such services to the Adviser;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follow:
1. Employment of the Sub-adviser. The Adviser hereby employs the
Sub-adviser to manage the investment and reinvestment of the Fund's assets,
subject to the control and direction of the Trust=s Board of Trustees, for the
period and on the terms hereinafter set forth. The Sub-adviser hereby accepts
such employment and agrees during such period to render the services and to
assume the obligations herein set forth for the compensation herein provided.
The Sub-adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Adviser, the Fund
or the Trust in any way. The Sub-adviser may execute Fund documentation,
agreements, contracts and other documents requested by brokers, dealers,
counterparties and other persons in connection with its providing advisory
services to the Fund.
2. Obligations of Services to be Provided by the Sub-adviser. The
Sub-adviser undertakes to provide the following services and to assume the
following obligations:
a. The Sub-adviser shall manage the investment and reinvestment of the
portfolio assets of the Fund, all without prior consultation with the Adviser,
subject to and in accordance with (i) the investment objective and policies of
the Fund set forth in the Fund=s Prospectus and Statement of Additional
Information as from time to time in effect (the AGoverning Documents@), (ii) the
requirements applicable to registered investment companies under applicable
laws, including without limitation the 1940 Act and Subchapter M of the Internal
Revenue Code of 1986, as amended (the ACode@) and (iii) any written instructions
which the Adviser or the Trust=s Board of Trustees may issue from time-to-time.
The Sub-adviser also agrees to conduct its activities hereunder in accordance
with any applicable procedures or policies adopted by the Trust=s Board of
Trustees as from time to time in effect (the AProcedures@). The Adviser has
provided to the Sub-adviser copies of all Governing Documents and Procedures and
shall promptly provide to the Sub-adviser any amendments or supplements thereto.
Subject to and in pursuance of the foregoing, the Sub-adviser shall make all
determinations with respect to the purchase and sale of portfolio securities and
shall take such action necessary to implement the same. The Sub-adviser shall
render such reports to the Trust=s Board of Trustees and the Adviser as they may
reasonably request concerning the investment activities of the Fund. Unless the
Adviser gives the Sub-adviser written instructions to the contrary, the
Sub-adviser shall, in good faith and in a manner which it reasonably believes
best serves the interests of the Fund=s shareholders, direct the Fund=s
custodian as to how to vote such proxies as may be necessary or advisable in
connection with any matters submitted to a vote of shareholders of securities
held in the Fund.
b. Absent instructions of the Adviser to the contrary, the Sub-adviser
shall, in the name of the Fund, place orders for the execution of portfolio
transactions with or through such brokers, dealers or other financial
institutions as it may select. The Sub-adviser shall use its best efforts to
obtain Abest execution@ on all portfolio transactions executed on behalf of the
Fund, provided that, so long as the Sub-adviser has complied with Section 28(e)
of the Securities Exchange Act of 1934, the Sub-adviser may cause the Fund to
pay a commission on a transaction in excess of the amount of commission another
broker-dealer would have charged.
c. In connection with the placement of orders for the execution of the
portfolio transactions of the Fund, the Sub-adviser shall create and maintain
all records pertaining to the purchase and sale of securities by the Sub-adviser
on behalf of the Fund required by Rule 31a-1(b)(5) and (9) under the 1940 Act.
All such records shall be the property of the Trust and shall be available for
inspection and use by the Securities and Exchange Commission (ASEC@), the Trust,
the Adviser or any person retained by the Trust at all reasonable times. Where
applicable, such records shall be maintained by the Sub-adviser for the periods
and in the places required by Rule 31a-2 under the 1940 Act.
d. The Sub-adviser shall bear its expenses of providing services
pursuant to this Agreement.
3. Compensation of the Sub-adviser. In full consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-adviser a fee
at the annual rate set forth in Schedule A hereto of the value of the Fund=s
average daily net assets. Such fee shall be accrued daily and paid monthly as
soon as practicable after the end of each month. If the Sub-adviser shall serve
for less than the whole of any month, the foregoing compensation shall be
prorated. For the purpose of determining fees payable to the Sub-adviser, the
value of the Fund=s net assets shall be computed at the times and in the manner
determined by the Trust's Board of Trustees and set forth in the Governing
Documents.
4. Other Activities of the Sub-adviser. The services of the Sub-adviser
hereunder are not to be deemed exclusive, and the Sub-adviser shall be free to
render similar services to others and to engage in other activities, so long as
the services rendered hereunder are not impaired.
5. Use of Names. The Adviser shall not use the name of the Sub-adviser
or any of its affiliates in any prospectus, sales literature or other material
relating to the Trust or the Fund in any manner not approved prior thereto by
the Sub-adviser; provided, however, that the Adviser may use the name of the
Sub-adviser and its affiliates in any such material that merely refers in
accurate terms to the Sub-adviser=s appointment hereunder. The Sub-adviser shall
not use the name of the Trust or the Adviser in any material relating to the
Sub-adviser in any manner not approved prior thereto by the Adviser; provided,
however, that the Sub-adviser may use the name of the Adviser or the Trust in
any material that merely refers in accurate terms to the appointment of the
Sub-adviser hereunder.
6. Liability of the Sub-adviser. Absent willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations or duties hereunder on
the part of the Sub-adviser, the Sub-adviser shall not be liable for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security. Subject to the foregoing, nothing herein shall constitute a waiver of
any rights or remedies which the Trust may have under any federal or state
securities laws.
7. Limitation of Trust's Liability. The Sub-adviser acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Agreement and Declaration of Trust. The Sub-adviser agrees that
any of the Trust's obligations shall be limited to the assets of the Fund and
that the Sub-adviser shall not seek satisfaction of any such obligation from the
shareholders of the Trust nor from any Trust officer, employee or agent of the
Trust
8. Renewal, Termination and Amendment. This Agreement shall continue in
effect, unless sooner terminated as hereinafter provided, for a period of two
years from the date hereof and shall continue in full force and effect for
successive periods of one year thereafter, but only so long as each such
continuance is specifically approved at least annually by vote of the holders of
a majority of the outstanding voting securities of the Fund or by vote of a
majority of the Trustees who are not parties to this Agreement or interested
persons of any such party, cast in accordance with the provisions of the 1940
Act. This Agreement may be terminated at any time without payment of any
penalty, by the Trust=s Board of Trustees, or by a vote of a majority of the
outstanding voting securities of the Fund upon 60 days prior written notice to
the Sub-adviser or by the Sub-adviser upon 90 days= prior written notice to the
Adviser, or upon such shorter notice as may be mutually agreed upon. This
Agreement shall terminate automatically and immediately upon termination of the
Management Agreement between the Adviser and the Trust. This Agreement shall
terminate automatically and immediately in the event of its assignment. The
terms Aassignment@ and Avote of a majority of the outstanding voting securities@
shall have the meaning set forth for such terms in the 1940 Act. This Agreement
may be amended at any time by the Sub-adviser and the Adviser, subject to
approval by the Trust's Board of Trustees and, if required by applicable SEC
rules and regulations, a vote of a majority of the Fund=s outstanding voting
securities.
9. Confidential Relationship. Any information and advice furnished by
either party to this Agreement to the other shall be treated as confidential and
shall not be disclosed to third parties without the consent of the other party
hereto except as required by law, rule or regulation. The Manger hereby consents
to the disclosure to third parties of investment results and other data of the
Fund in connection with providing composite investment results and related
information of the Sub-adviser.
10. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
11. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The captions in this
Agreement are included for convenience only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in several counterparts, all of which together shall
for all purposes constitute one Agreement, binding on the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
EVERGREEN INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael Koonce
_______________________________
Authorized Officer
STAMPER CAPITAL & INVESTMENTS, INC.
By: /s/ B. Clark Stamper
_______________________________
Authorized Officer
6682301
SCHEDULE A
<TABLE>
<CAPTION>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
Subadvisory Fee Average Aggregate Daily Net Assets of the Fund
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
0.195% on the first $250 million
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
0.180% on the next $250 million
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
0.165% on amounts over $500 million
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
EVERGREEN MUNICIPAL TRUST
CLASS A AND C SHARES
AGREEMENT made this 18th day of September, 1997 by and between
Evergreen Municipal Trust on behalf of its series listed on Exhibit A attached
hereto and made a part hereof (such Trust and series referred to herein as
"Fund" individually or "Funds" collectively) and Evergreen Distributor, Inc., a
Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
("Shares") as an independent contractor upon the terms and conditions
hereinafter set forth. Except as the Fund may from time to time agree, Principal
Underwriter will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund=s acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive fees for sales of
Class A and C Shares as set forth on Exhibit B attached hereto and made a part
hereof.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the AMaster Sale Agreement@).
6. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within (3) business days
after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such 3-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
7. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
9. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
10. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal
Underwriter.
12. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called Ablue sky@ laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 (A1940 Act@). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called Ablue sky@ laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund and the direct expenses of the issue of
Shares.
13. To the extent required by the Fund=s 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. This Agreement shall become effective as of the date of the
commencement of operations of the Fund and shall remain in force for two years
unless sooner terminated or continued as provided below. This Agreement shall
continue in effect after such term if its continuance is specifically approved
by a majority of the Trustees of the Fund and a majority of the 12b-1 Trustees
referred to in the 12b-1 Plans of the Fund (ARule 12b-1 Trustees@) at least
annually in accordance with the 1940 Act and the rules and regulations
thereunder.
This Agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
shall pass, in Boston, Massachusetts.
16. The Fund is a series of a Delaware business trust established under
a Declaration of Trust, as it may be amended from time to time. The obligations
of the Fund are not personally binding upon, nor shall recourse be had against,
the private property of any of the Trustees, shareholders, officers, employees
or agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, as of the day and year first written above.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------------
Name: John J. Pileggi
Title: President
EVERGREEN DISTRIBUTOR, INC.
By: /s/ William J. Tomko
----------------------------------
Name: William J. Tomko
Title: Treasurer
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
DATED
SEPTEMBER 18, 1997
Schedule of Payments
Class A Shares Up to 0.25% annually of the average daily
net asset value of Class A shares of a Fund
A sales charge, the difference between the
current offering price of Shares, as set
forth in the current prospectus for each
Fund, and the net asset value, less any
reallowance that is payable in accordance
with the sales charge schedule in effect at
any given time with respect to the Shares
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares of a
Fund, consisting of 12b-1 fees at the annual
rate of 0.75% of the average daily net asset
value of a Fund and service fees of 0.25% of
the average daily net asset value of a Fund
<PAGE>
EXHIBIT A
As of March 20, 2000
EVERGREEN MUNICIPAL TRUST
Single State Tax Free Funds
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund**
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund**
Evergreen New Jersey Municipal Bond Fund**
Evergreen North Carolina Municipal Bond Fund**
Evergreen Pennsylvania Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund**
Evergreen Virginia Municipal Bond Fund**
National Tax Free Funds
Evergreen High Grade Municipal Bond Fund**
Evergreen Municipal Bond Fund
Evergreen Short-Intermediate Municipal Fund**
Evergreen Tax-Free High Income Fund
** Class C Shares authorized but not issued
PRINCIPAL UNDERWRITING AGREEMENT
EVERGREEN MUNICIPAL TRUST
CLASS B SHARES
AGREEMENT, made as of the 18th day of September, 1997, by and between
Evergreen Municipal Trust (the "Trust") and Evergreen Distributor, Inc. ("EDI")
WHEREAS, The Trust, has adopted one or more Plans of Distribution with
respect to certain Classes of shares of its separate investment series (each a
"Plan", or collectively the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act") which Plans authorize the Trust
on behalf of the Funds to enter into agreements regarding the distribution of
such Classes of shares (the "Shares") of the separate investment series of the
Trust (the "Funds") set forth on Exhibit A; and
WHEREAS, the Trust has agreed that Evergreen Distributor, Inc. (the
"Distributor"), a Delaware corporation, shall act as the distributor of the
Shares; and
WHEREAS, the Distributor agrees to act as distributor of the Shares for the
period of this Distribution Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the agreements hereinafter contained,
it is agreed as follows:
1. SERVICES AS DISTRIBUTOR.
1.1. The Distributor agrees to use appropriate efforts to promote each Fund
and to solicit orders for the purchase of Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation. The services to be performed hereunder by the Distributor are
described in more detail in Section 7 hereof. In the event that the Trust
establishes additional investment series with respect to which it desires to
retain the Distributor to act as distributor for Class B shares hereunder, it
shall promptly notify the Distributor in writing. If the Distributor is willing
to render such services it shall notify the Trust in writing whereupon such
portfolio shall become a Fund and its Class B shares shall become Shares
hereunder.
1.2. All activities by the Distributor and its agents and employees as the
distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the 1940 Act by the Securities and Exchange Commission (the
"Commission") or any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.3 In selling the Shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor, any selected
dealer or any other person is authorized by the Trust to give any information or
to make any representations, other than those contained in the Trust's
registration statement (the "Registration Statement") or related Fund prospectus
and statement of additional information ("Prospectus and Statement of Additional
Information") and any sales literature specifically approved by the Trust.
1.4 The Distributor shall adopt and follow procedures, as approved by the
officers of the Trust, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
1.5. The Distributor will transmit any orders received by it for purchase
or redemption of Shares to the transfer agent and custodian for the applicable
Fund.
1.6. Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind, the
Trust's officers may decline to accept any orders for, or make any sales of
Shares until such time as those officers deem it advisable to accept such orders
and to make such sales.
1.7. The Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others. The
Distributor shall offer and sell Shares only to such selected dealers as are
members, in good standing, of the NASD.
1.8 The Distributor agrees to adopt compliance standards, in a form
satisfactory to the Trust, governing the operation of the multiple class
distribution system under which Shares are offered.
2. DUTIES OF THE TRUST.
2.1. The Trust agrees at its own expense to execute any and all documents
and to furnish, at its own expense, any and all information and otherwise to
take all actions that may be reasonably necessary in connection with the
qualification of Shares for sale in such states as the Trust and the Distributor
may designate.
2.2. The Trust shall furnish from time to time, for use in connection with
the sale of Shares such information with respect to the Funds and the Shares as
the Distributor may reasonably request; and the Trust warrants that any such
information shall be true and correct. Upon request, the Trust shall also
provide or cause to be provided to the Distributor: (a) unaudited semi-annual
statements of each Fund's books and accounts, (b) quarterly earnings statements
of each Fund, (c) a monthly itemized list of the securities in each Fund, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional. information regarding each Fund's
financial condition as the Distributor may reasonably request.
3. REPRESENTATIONS OF THE TRUST.
3.1. The Trust represents to the Distributor that it is registered under
the 1940 Act and that the Shares of each of the Funds have been registered under
the Securities Act of 1933, as amended (the "Securities Act"). The Trust will
file such amendments to its Registration Statement as may be required and will
use its best efforts to ensure that such Registration Statement remains
accurate.
4. INDEMNIFICATION.
4.1 The Trust shall indemnify and hold harmless the Distributor, its
Officers and Directors, and each person, if any, who controls the Distributor
within the meaning of Section 15 of the Securities Act against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith), which the
Distributor or such Officer and Director or controlling person may incur under
the Securities Act or under common law or otherwise, arising out of or based
upon any untrue statement, or alleged untrue statement, of a material fact
contained in the Registration Statement, as from time to time amended or
supplemented, any prospectus or annual or interim report to shareholders of the
Trust, or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Trust in
connection therewith by or on behalf of the Distributor, provided, however, that
in no case (i) is the indemnification of the Trust in favor of the Distributor,
its Officer and Directors, or any such controlling persons to be deemed to
protect such Distributor, any Officer or Director thereof, or any such
controlling persons thereof against any liability to the Trust of each Fund or
any securities holders thereof to which the Distributor any Officer or Director
thereof, or any such controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of the reckless disregard of their obligations and duties
under this Agreement; or (ii) is the Trust to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling person, as the case maybe, shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Trust of any such claim shall not relieve it
from any liability which it may have to the person against whom such action it
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Trust elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Trust elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case the Trust does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Trust shall
promptly notify the Distributor of the commencement of any litigation or
proceeding against it or any of its officers or directors in connection with the
issuance or sale of any of the shares.
4.2 The Distributor shall indemnify and hold harmless the Trust and each of
its directors and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in paragraph 4.1, but only with respect to statements or
omissions made in reliance upon , and in conformity with, information furnished
to the Trust in writing by or on behalf of the Distributor for uses in
connection with the Registration Statement, as from time to time amended, or the
annual or interim reports to shareholders. In case any action shall be brought
against the Trust or any persons so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have rights and
duties given to the Trust, and the Trust and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
paragraph 4.1.
5. OFFERING OF SHARES.
5.1. None of the Shares shall be offered by either the Distributor or the
Trust under any of the provisions of this Agreement, and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust, if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus and statement of
additional information as required by Section 10(b)(2) of the Securities Act, as
amended, is not on file with the Commission; provided, however, that nothing
contained in this paragraph 5.1 shall in any way restrict or have any
application to or bearing upon the Trust's obligation to repurchase Shares from
any shareholder in accordance with the provisions of the prospectus of each Fund
or the Trust's prospectus or Declaration of Trust.
6. AMENDMENTS TO REGISTRATION STATEMENT AND OTHER MATERIAL EVENTS.
6.1. The Trust agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor: (a) of any
request or action taken by the Commission which is material to the Distributor's
obligations hereunder or (b) any material fact of which the Trust becomes aware
which affects the Distributor's obligations hereunder.
For purposes of this section, informal requests by or acts of the Staff of
the Commission shall not be deemed actions of or requests by the Commission.
7. COMPENSATION OF DISTRIBUTOR.
7.1 (a) On all sales of Shares of the Fund shall receive the current net
asset value. The Trust in respect of each Fund shall pay to the Distributor the
Distributor's Allocable Portion (as defined below) of a fee (the "Distribution
Fee") in respect of the Shares of each such Fund at the rate of .75% per annum
of the average daily net asset value of the Shares of such Fund, subject to the
limitation on the maximum amount of such fees under the Business Conduct Rules
as applicable to such Distribution Fee on the date hereof, as compensation to
the Distributor for its services in connection with the offer and sale of Shares
and shall also pay to the Distributor contingent deferred sales charges ("CDSC")
as set forth in the Fund's current Prospectus and Statement of Additional
Information, and as required by this Agreement. The Distributor shall also
receive payments consisting of shareholder service fees ("Service Fees") at the
rate of .25% per annum of the average daily net asset value of the Shares. The
Distributor may allow all or a part of said Distribution Fee and CDSCs received
by it (and not paid to others as hereinafter provided) to such brokers, dealers
or other persons as Distributor may determine. The Distributor may also pay
Service Fees to brokers, dealers or other persons providing services to
shareholders.
(b) The provisions of this Section 7.1 shall be applicable to the extent
necessary to enable the Trust to comply with its obligations in respect of each
Fund to pay Distributor its Allocable Portion (as hereinafter described) of the
Distribution Fee paid in respect of Shares of such Fund, and shall remain in
effect with respect to the Shares so long as any payments are required to be
made by the Trust with respect to the Shares of a Fund pursuant to the
irrevocable payment instructions as defined in the Purchase and Sale Agreement
dated as of May 31, 1995 (as amended and supplemented, the "Purchase Agreement")
among the Distributor, Evergreen Keystone Investment Services, Inc., Citibank,
N.A. and Citicorp North America, Inc. and the Amended and Restated Master Sale
Agreement between the Distributor and Mutual Fund Funding 1994-1 dated as of May
5, 1997, as amended and supplemented from time to time (the "Master Sale
Agreement") (the "Irrevocable Payment Instructions").
(c) As promptly as possible after the first Business Day (as defined in the
Prospectus) following the twentieth day of each month, the Trust shall pay to
the Distributor the Distributor's Allocable Portion of the Distribution Fee, any
CDSCs and any Service Fees that may be due in respect of each Fund.
(d) The Distributor's Allocable Portion of the Distribution Fee paid by the
Trust in respect of Shares of a Fund shall mean the portion of the Asset Based
Sales Charge allocable to Distributor Shares of such Fund (as defined in
Schedule I to this Agreement) in accordance with Schedule I hereto. The Trust
agrees to cause its transfer agent to maintain the records and arrange for the
payments on behalf of the trust in respect of each Fund at the times and in the
amounts and to the accounts required by Schedule I hereto, as the same may be
amended from time to time. It is acknowledged and agreed that by virtue of the
operation of Schedule I hereto the Distributor's Allocable Portion of the
Distribution Fee paid by the Trust in respect of Shares of each Fund, may, to
the extent provided in Schedule I hereto, take into account the Distribution Fee
payable by such Fund in respect of other existing and future classes and/or
sub-classes of shares of such Fund which would be treated as "Shares: under
Schedule I hereto. The trust will limit amounts paid to any subsequent principal
underwriters of Shares of a Fund to the portion of the Asset Based Sales Charge
paid in respect of Shares attributable to such Shares which are Post-Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
The Trust shall cause the transfer agent and sub-transfer agents for each
Fund to withhold from redemption proceeds payable to holders of Shares of such
Fund on redemption thereof the CDSCs payable upon redemption thereof as set
forth in the then current Prospectus and/or Statement of Additional Information
of such Fund and to pay to the Distributor the Distributor's Allocable Portion
of such CDSCs paid in respect of Class B Shares of such Fund which shall be
equal to the portion thereof allocable to Distributor Shares of such Fund (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
(e) The Distributor shall be considered to have completely earned the right
to the payment of its Allocable Portion of the Distribution Fee and the right to
payment over to it of its Allocable Portion of the CDSC in respect of Shares of
a Fund as provided for hereby upon the completion of the sales of each
Commission Share of such Fund (as defined in Schedule I hereto) taken into
account as a Distributor Share in computing the Distributor's Allocable Portion
in accordance with Schedule I hereto.
(f) Except as provided in Section 7(g) below in respect of the Distribution
Fee only, the Trust's obligation to pay the Distributor the Distribution Fee in
respect of a Fund and to pay over to the Distributor CDSCs provided for hereby
shall be absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever (it being understood that nothing in this
sentence shall be deemed a waiver by the trust of its right separately to pursue
any claims it may have against the Distributor with respect to a Fund and
enforce such claims against any assets (other than the Distributor's right to
its Allocable Portion of the Distribution Fee and CDSCs (the "Collection
Rights")) of the Distributor.
(g) Notwithstanding anything in this Agreement to the contrary, the Trust
in respect of each Fund shall pay to the Distributor its Allocable Portion of
the Distribution Fee provided for hereby notwithstanding its termination as
Distributor for the Shares of such Fund or any termination of this Agreement and
such payment of such Distribution fee, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Business Conduct Ruled, in each case enacted or promulgated
after May 1, 1997, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 7, "Complete Termination" means in
respect of a Fund a termination of such Fund's Rule 12b-1 plan for Class B
Shares involving the cessation of payments of the Distribution Fee, and the
cessation of payments of Distribution Fee pursuant to every other Rule 12b-1
plan of such Fund for every existing or future B-Class-of-Shares (as hereinafter
defined) and the Fund's discontinuance of the offering of every existing or
future B-Class-of-Shares, which conditions shall be deemed satisfied when they
are first complied with hereafter and so long thereafter as they are complied
with prior to the date upon which all of the Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted. For
purposes of this Section 7, the term B-Class-of-Shares means the Shares of each
Fund and each other class of shares of such Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the B Class of Shares taking into account the total
sales charge, CDSC or other similar charges borne directly or indirectly by the
holder of the shares of such class. The parties agree that the existing C Class
of Shares of any Fund does not have substantially similar economic
characteristics to the B-Class-of-Shares taking into account the total sales
charges, CDSCs or other similar charges borne directly or indirectly by the
holder of such shares. For purposes of clarity the parties to the Agreement
hereby state that they intend that a new installment load class of shares which
may be authorized by amendment to Rule 6(c)-10 under the 1940 Act will be
considered to be a B-class-of-Shares if it has economic characteristics
substantially similar to the economic characteristics of the existing Class B
Shares taking into account the total sale charge, CDCSs or other similar charges
borne directly or indirectly by the holder of such charges and will not be
considered to be a B-Class-of-Shares if it has economic characteristics
substantially similar to the economic characteristics of the existing Class C
shares of the Fund taking into account the total sales charge, CDSCs or other
similar charges home directly or indirectly by the holder of such shares.
(h) The Distributor may assign, sell or otherwise transfer any part of its
Allocable Portions of the Distribution Fees and CDSCs and obligations of the
Trust with respect to a Fund related thereto (but not the Distributor's
obligations to the Trust with respect to such Fund provided for in this
Agreement) to any person (an "assignee") and any such assignment shall be
effective upon written notice to the Trust by the Distributor. In connection
therewith the Trust shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Distributor in the Irrevocable Payment Instructions, as the same may be amended
from time to time with the consent of the Trust, and the trust shall be without
liability to any person of it pays such amounts when and as so directed, except
for underpayments of amounts actually due without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fee and CDSCs results
in an increase in the maximum amount allowable under the NASD Business Conduct
Rules, which increases daily at a rate of prime plus one percent per annum.
Each Fund will not, to the extent it may otherwise be empowered to do so,
change or waive any CDSC with respect to Class B Shares, except as provided in
the Fund's Prospectus or Statement of Additional Information without the
Distributor's or Assignee's consent, as applicable. Notwithstanding anything to
the contrary in this Agreement or any termination of this Agreement or the
Distributor as principal underwriter for the Shares of the Funds, the
Distributor shall be entitled to be paid its Allocable Portion of the CDSCs
whether or not a Fund's Rule 12b- 1 plan for B Shares is terminated and whether
or not any such termination is a Complete Termination, as defined above.
(i) Under this Agreement, the Distributor shall: (i) make payments to
securities dealers and others engaged in the sale of Shares; (ii) make payments
of principal and interest in connection with the financing of commission
payments made by the Distributor in connection with the sale of Shares (iii)
incur the expense of obtaining such support services, telephone facilities and
shareholder services as may reasonably be required in connection with its duties
hereunder; (iv) formulate and implement marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (v) prepare, print and
distribute sales literature; (vi) prepare, print and distribute Prospectuses of
the Funds and reports for recipients other than existing shareholders of the
Funds; and (vii) provide to the Trust such information, analyses and opinions
with respect to marketing and promotional activities as the Trust may, from time
to time, reasonably request.
(j) The Distributor shall prepare and deliver reports to the Treasurer of
the Trust on a regular, at least monthly, basis, showing the distribution
expenditures incurred by the Distributor in connection with its services
rendered pursuant to this Agreement and the Plan and the purposes therefor, as
well as any supplemental reports as the Trustees, from time to time, may
reasonably request.
(k) The Distributor may retain the difference between the current offering
price of Shares, as set forth in the current prospectus for each Fund, and net
asset value, less any reallowance that is payable in accordance with the sales
charge schedule in effect at any given time with respect to the Shares.
(l) The Distributor may retain any CDSCs payable with respect to the
redemption of any Shares, provided however, that any CDSCs received by the
Distributor shall first be applied by the Distributor or its Assignee to any
outstanding amounts payable or which may in the future be payable by the
Distributor or its Assignee under financing arrangements entered into in
connection with the payment of commissions on the sale of Shares.
8. CONFIDENTIALITY, NON-EXCLUSIVE AGENCY.
8.1. The Distributor agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and other
information relative to the Funds and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and to obtain approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where the Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust.
8.2. Nothing contained in this Agreement shall prevent the Distributor, or
any affiliated person of the Distributor, from performing services similar to
those to be performed hereunder for any other person, firm, or corporation or
for its or their own accounts or for the accounts of others.
9. TERM.
9.1. This Agreement shall continue for two years from the date of
commencement of operations and thereafter for successive annual periods,
provided such continuance is specifically approved at least annually by (i) a
vote of the majority of the Trustees of the Trust and (ii) a vote of the
majority of those Trustees of the Trust who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan, in this Agreement or any agreement related to the Plan (the
"Independent Trustees") by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable at any time,
with respect to the Trust, without penalty, (a) on not less than 60 days'
written notice by vote of a majority of the Independent Trustees, or by vote of
the holders of a majority of the outstanding voting securities of the Trust, or
(b) upon not less than 60 days' written notice by the Distributor. This
Agreement may remain in effect with respect to a Fund even if it has been
terminated in accordance with this paragraph with respect to one or more other
Funds of the Trust. This Agreement will also terminate automatically in the
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons," and "assignment" shall
have the same meaning as such terms have in the 1940 Act.)
10. MISCELLANEOUS.
10.1. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the Shares shall
pass, in Boston, Massachusetts.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
10.3 The obligations of the Trust hereunder are not personally binding
upon, nor shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust and only the Trust's
property shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------------
Name: John J. Pileggi
Title: President
EVERGREEN DISTRIBUTOR, INC.
By: /s/ J. David Huber
---------------------------------
Name: J. David Huber
Title: President
<PAGE>
EXHIBIT A
As of March 20, 2000
EVERGREEN MUNICIPAL TRUST
Single State Tax Free Funds
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen New Jersey Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen Pennsylvania Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
National Tax Free Funds
Evergreen High Grade Municipal Bond Fund
Evergreen Municipal Bond Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Tax-Free High Income Fund
PRINCIPAL UNDERWRITING AGREEMENT
EVERGREEN MUNICIPAL TRUST
CLASS Y SHARES
AGREEMENT made this 18th day of September, 1997 by and between
Evergreen Municipal Trust on behalf of its series listed on Exhibit A attached
hereto (such Trust and series referred to herein as "Fund" individually or
"Funds" collectively) and Evergreen Distributor, Inc., a Delaware corporation
("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class Y shares of beneficial interest of the Fund ("Shares")
as an independent contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, Principal Underwriter
will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such brokers,
dealers or other persons shall have any authority to act as agent for the Fund;
such brokers, dealers or other persons shall act only as principal in the sale
of Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares. Principal Underwriter shall have
the right to sell Shares at net asset value, if such sale is permissible under
and consistent with applicable statutes, rules, regulations and orders. All
orders shall be subject to acceptance by the Fund, and the Fund reserves the
right, in its sole discretion, to reject any order received. The Fund shall not
be liable to anyone for failure to accept any order.
4. On all sales of Shares, the Fund shall receive the current net asset
value.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within three (3) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such three-day period, the Fund reserves the
right, without further notice, forthwith to cancel its acceptance of any such
order. The Fund shall pay such issue taxes as may be required by law in
connection with the issuance of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed
information approved by the Fund as information supplemental to such prospectus
and statement of additional information. Copies of the then current prospectus
and statement of additional information and any such printed supplemental
information will be supplied by the Fund to Principal Underwriter in reasonable
quantities upon request.
7. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost
of any legal fees incurred in connection therewith) which the Fund, its
officers, Trustees or any such controlling person may incur under the 1933 Act,
under any other statute, at common law or otherwise arising out of the
acquisition of any Shares by any person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issuance
of Shares.
12. This Agreement shall become effective as of the date of the
commencement of operations of the Fund and shall remain in force for two years
unless sooner terminated or continued as provided below. This Agreement shall
continue in effect after such term if its continuance is specifically approved
by a majority of the Trustees of the Fund at least annually in accordance with
the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Trustees or by a vote of a majority of the
Fund's outstanding Shares on not more than sixty (60) days written notice to any
other party to the Agreement; and shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
13. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
<PAGE>
14. The Fund is a series of a Delaware business trust established under
a Declaration of Trust, as it may be amended from time to time. The obligations
of the Fund are not personally binding upon, nor shall recourse be had against,
the private property of any of the Trustees, shareholders, officers, employees
or agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, as of the day and year first written above.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------------
Name: John J. Pileggi
Title: President
EVERGREEN DISTRIBUTOR, INC.
By: /s/ William J. Tomko
----------------------------------
Name: William J. Tomko
Title: Treasurer
<PAGE>
EXHIBIT A
As of March 20, 2000
EVERGREEN MUNICIPAL TRUST
SOUTHERN STATE MUNICIPAL BOND FUNDS
Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen Maryland Municipal Bond Fund (series added 2/28/98)
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
STATE MUNICIPAL BOND FUNDS
Evergreen Connecticut Municipal Bond Fund*
Evergreen New Jersey Municipal Bond Fund
(fka Evergreen New Jersey Tax Free Income Fund)
Evergreen Pennsylvania Municipal Bond Fund*
(fka Evergreen Pennsylvania Tax Free Fund)
NATIONAL MUNICIPAL BOND FUNDS
Evergreen High Grade Municipal Bond Fund*
(fka Evergreen High Grade Tax Free Fund)
Evergreen Municipal Bond Fund*
(fka Evergreen Tax Free Fund)
Evergreen Short-Intermediate Municipal Fund
Evergreen Tax-Free High Income Fund
(effective 1/10/00, merged with Davis Tax-Free
High Income 3/17/00)
*authorized but not issued
State Street Bank and Trust Company
Lafayette Corporate Center
LCC/3SW
2 Avenue de Lafayette
Boston, MA 02111
Re: EVERGREEN TAX-FREE HIGH INCOME FUND
To: William E. Monaghan, II, Vice President
This is to advise you that Evergreen Municipal Trust ("the Trust") has
established a new series of shares to be known as EVERGREEN TAX-FREE HIGH INCOME
FUND. In accordance with the Additional Funds provision of Section 18 of the
Custodian Contract dated 9/18/97 between the Evergreen Funds and State Street
Bank and Trust Company, the Trust hereby requests that you act as Custodian for
the new series under the terms of the contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Fund and retaining one copy for your
records.
Evergreen Municipal Trust
By: /s/ Elizabeth A. Boisvert-Smith
----------------------------------
Elizabeth A. Boisvert-Smith
Title: Assistant Secretary
------------------------------
State Street Bank and Trust Company
By: /s/ William Monaghan, III
_____________________________
Title: Vice President
Agreed to this 20th day of March, 2000.
ADMINISTRATIVE SERVICES AGREEMENT
EVERGREEN MUNICIPAL TRUST
This Administrative Services Agreement is made as of this 18th day of
September, 1997 between Evergreen Municipal Trust, a Delaware business trust
(herein called the "Trust"), and Evergreen Investment Services, Inc., a Delaware
corporation (herein called "EIS").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust consisting of one or
more portfolios which operates as an open-end management investment company and
is so registered under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain EIS as its Administrator to
provide it with administrative services, and EIS is willing to render such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints EIS as
administrator of the Trust and each of its portfolios listed on SCHEDULE A
attached hereto on the terms and conditions set forth in this Agreement; and EIS
hereby accepts such appointment and agrees to perform the services and duties
set forth in Section 2 of this Agreement in consideration of the compensation
provided for in Section 4 hereof.
2. SERVICES AND DUTIES. As Administrator, and subject to the supervision and
control of the Trustees of the Trust, EIS will hereafter provide facilities,
equipment and personnel to carry out the following administrative services for
operation of the business and affairs of the Trust and each of its portfolios:
(1) prepare, file and maintain the Trust=s governing documents,
including the Declaration of Trust (which has previously been
prepared and filed), the By-laws, minutes of meetings of
Trustees and shareholders, and proxy statements for meetings
of shareholders;
(2) prepare and file with the Securities and Exchange Commission
and the appropriate state securities authorities the
registration statements for the Trust and the Trust=s shares
and all amendments thereto, reports to regulatory authorities
and shareholders, prospectuses, proxy statements, and such
other documents as may be necessary or convenient to enable
the Trust to make a continuous offering of its shares;
(3) prepare, negotiate and administer contracts on behalf of the
Trust with, among others, the Trust=s distributor, custodian
and transfer agent;
(4) supervise the Trust=s fund accounting agent in the maintenance
of the Trust=s general ledger and in the preparation of the
Trust=s financial statements, including oversight of expense
accruals and payments and the determination of the net asset
value of the Trust=s assets and of the Trust=s shares, and of
the declaration and payment of dividends and other
distributions to shareholders;
(5) calculate performance data of the Trust for dissemination to
information services covering the investment company industry;
(6) prepare and file the Trust=s tax returns;
(7) examine and review the operations of the Trust=s custodian and transfer
agent;
(8) coordinate the layout and printing of publicly disseminated
prospectuses and reports;
(9) prepare various shareholder reports;
(10) assist with the design, development and operation of new portfolios of
the Trust;
(11) coordinate shareholder meetings;
(12) provide general compliance services; and
(13) advise the Trust and its Trustees on matters concerning the Trust and
its affairs.
The foregoing, along with any additional services that EIS shall agree
in writing to perform for the Trust hereunder, shall hereafter be referred to as
AAdministrative Services.@ Administrative Services shall not include any duties,
functions, or services to be performed for the Trust by the Trust=s investment
adviser, distributor, custodian or transfer agent pursuant to their agreements
with the Trust.
3. EXPENSES. EIS shall be responsible for expenses incurred in providing office
space, equipment and personnel as may be necessary or convenient to provide the
Administrative Services to the Trust. The Trust shall be responsible for all
other expenses incurred by EIS on behalf of the Trust, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees who are not EIS employees, and trade
association dues.
4. COMPENSATION. For the Administrative Services provided, the Trust hereby
agrees to pay and EIS hereby agrees to accept as full compensation for its
services rendered hereunder an administrative fee, calculated daily and payable
monthly, at an annual rate determined in accordance with the table below.
- ---------------------------- --- -----------------------------------------------
Aggregate Daily Net Assets of Funds
Administered by EIS for Which Any Affiliate of
Administrative Fee First Union National Bank Serves as Investment
Adviser
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.050% on the first $7 billion
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.035% on the next $3 billion
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.030% on the next $5 billion
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.020% on the next $10 billion
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.015% on the next $5 billion
- ---------------------------- --- -----------------------------------------------
- ---------------------------- --- -----------------------------------------------
.010% on assets in excess of $30 billion
- ---------------------------- --- -----------------------------------------------
Each portfolio of the Trust shall pay a portion of the administrative fee equal
to the rate determined above times that portfolio=s average annual daily net
assets.
5. RESPONSIBILITY OF ADMINISTRATOR. EIS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from
wilful misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and duties
under this Agreement. EIS shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, director, partner, employee or
agent of EIS, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting on any
business of the Trust (other than services or business in connection with the
duties of EIS hereunder) to be rendering such services to or acting solely for
the Trust and not as an officer, director, partner, employee or agent or one
under the control or direction of EIS even though paid by EIS.
6. DURATION AND TERMINATION.
(1) This Agreement shall continue in effect from year to year
thereafter, provided it is approved, at least annually, by a
vote of a majority of Trustees of the Trust including a
majority of the disinterested Trustees.
(2) This Agreement may be terminated at any time, without payment
of any penalty, on sixty (60) day=s prior written notice by a
vote of a majority of the Trust=s Trustees or by EIS.
7. AMENDMENT. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. NOTICES. Notices of any kind to be given to the Trust hereunder by EIS shall
be in writing and shall be duly given if delivered to the Trust and to its
investment adviser at the following address: First Union National Bank, One
First Union Center, Charlotte, North Carolina 28288. Notices of any kind to be
given to EIS hereunder by the Trust shall be in writing and shall be duly given
if delivered to EIS at 200 Berkeley Street, Boston, Massachusetts 02116.
Attention: Chief Administrative Officer.
9. LIMITATION OF LIABILITY. EIS is hereby expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust and agrees that
the obligations pursuant to this Agreement of a particular portfolio and of the
Trust with respect to that particular portfolio be limited solely to the assets
of that particular portfolio, and EIS shall not seek satisfaction of any such
obligation from the assets of any other portfolio, the shareholders of any
portfolio, the Trustees, officers, employees or agents of the Trust, or any of
them.
10. MISCELLANEOUS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Delaware law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Administrative
Services Agreement to be executed by their officers designated below as of the
day and year first above written.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------------
Name: John J. Pileggi
Title: President
EVERGREEN INVESTMENT SERVICES, INC.
By: /s/ Gordon Forrester
---------------------------------
Name: Gordon Forrester
Title: Chief Accounting Officer
<PAGE>
SCHEDULE A
(As of January 10, 2000)
EVERGREEN MUNICIPAL TRUST
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen Maryland Municipal Bond Fund
Evergreen New Jersey Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund
Evergreen Tax-Free High Income Fund
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
January 10, 2000
Evergreen Service Company
200 Berkeley Street
Boston, Massachusetts 02116
To Whom It May Concern:
Pursuant to Paragraph 1 of the Master Transfer and Recordkeeping Agreement dated
September 18, 1997 between Evergreen Service Company and various Funds (the
"Agreement"), as defined in the Agreement, this is to notify Evergreen Service
Company that the Evergreen Tax-Free High Income Fund, a series of Evergreen
Municipal Trust, hereby elect to become Fund parties to such Agreement.
EVERGREEN MUNICIPAL TRUST
on behalf of:
Evergreen Tax-Free High Income Fund
By: /s/ Anthony J. Fischer
_________________________________
Anthony J. Fischer
President
Accepted and Agreed:
EVERGREEN SERVICE COMPANY
By: /s/ Ann Marie Becker
___________________________________
Name: Ann Marie Becker
Title: Managing Director
Dated as of January 10, 2000
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Municipal Trust
Evergreen Tax-Free High Income Fund
(formerly Davis Tax-Free High Income Fund):
We consent to the use of our report dated November 5, 1999, incorporated herein
by reference, and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "Independent Auditors" in the Statement of
Additional Information.
KPMG LLP
Denver, Colorado
March 17, 2000
DISTRIBUTION PLAN OF CLASS B SHARES
EVERGREEN MUNICIPAL TRUST
Section 1. The Evergreen Municipal Trust (the "Trust"), individually and/or
on behalf of its series (each a "Fund") referred to in Exhibit A to this 12b-1
Distribution Plan (the "Plan") may act as the distributor of certain securities
of which it is the issuer, pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") according to the terms of this Plan.
Section 2. The Fund may expend daily amounts at an annual rate of 1.00% of
the average daily net asset value of its Class B Shares to finance any activity
which is principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund ("Principal Underwriter") or others in order: (i) to enable payments to
be made by the Principal Underwriter or others for any activity primarily
intended to result in the sale of Shares, including, without limitation, (a)
compensation to public relations consultants or other persons assisting in, or
providing services in connection with, the distribution of Shares, (b)
advertising, (c) printing and mailing of prospectuses and reports for
distribution to persons other than existing shareholders, (d) preparation and
distribution of advertising material and sales literature, (e) commission
payments, and principal and interest expenses associated with the financing of
commission payments, made by the Principal Underwriter in connection with the
sale of Shares and (f) conducting public relations efforts such as seminars;
(ii) to enable the Principal Underwriter or others to receive, pay or to have
paid to others who have sold Shares, or who provide services to holders of
Shares, a maintenance or other fee in respect of services provided to holders of
Shares, at such intervals as the Principal Underwriter or such others may
determine, in respect of Shares previously sold and remaining outstanding during
the period in respect of which such fee is or has been paid; and/or (iii) to
compensate the Principal Underwriter or such others for their efforts in respect
of sales of Shares since inception of the Plan or any predecessor plan.
Appropriate adjustments shall be made to the payments made pursuant to this
Section 2 to the extent necessary to ensure that no payment is made by the Fund
with respect to any Class in excess of any limit imposed on asset based, front
end and deferred sales charges under any rule or regulations adopted by the
National Association of Securities Dealers, Inc. (the "NASD Rules"). In
addition, to the extent any amounts paid hereunder fall within the definition of
an "asset based sales charge" under said NASD Rules such payments shall be
limited to .75 of 1% of the aggregate net asset value of the Shares on an annual
basis and, to the extent that any such payments are made in respect of
"shareholder services" as that term is defined in the NASD Rules, such payments
shall be limited to .25 of 1% of the aggregate net asset value of the Shares on
an annual basis and shall only be made in respect of shareholder services
rendered during the period in which such amounts are accrued.
Section 3. This Plan shall not take effect with respect to any Fund until
it has been approved by votes of a majority of (a) the outstanding Shares of
such Fund, (b) the Trustees of the Trust, and (c) those Trustees of the Trust
who are not "interested persons" (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or any
agreements of the Trust related hereto or any other person related to this Plan
("Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan. In addition, any agreement related to this Plan and
entered into by the Trust on behalf of the Fund in connection therewith shall
not take effect until it has been approved by votes of a majority of (a) the
Board of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust.
Section 4. Unless sooner terminated pursuant to Section 6, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect for additional periods that shall not exceed
one year so long as such continuance is specifically approved by votes of a
majority of both (a) the Board of Trustees of the Trust and (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan, provided that payments for services theretofore
provided or for reimbursement of expenses theretofore incurred or accrued prior
to termination of this Plan in accordance with Section 2 may be continued by the
Fund to the extent provided for in Section 6, below, as applicable.
Section 5. Any person authorized to direct the disposition of monies paid
or payable pursuant to this Plan or any related agreement shall provide to the
Trust's Board and the Board shall review at least quarterly a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 6. Payments with respect to services provided by the Principal
Underwriter or others pursuant to Section 2, above, shall be authorized
hereunder, whether or not this Plan has been otherwise terminated, if such
payments are for services theretofore provided or for reimbursement of expenses
theretofore incurred or accrued prior to termination of this Plan in other
respects and if such payment is or has been so approved by the Board, including
the Disinterested Trustees, or agreed to by the Fund with such approval, all
subject to such specific implementation as the Board, including the
Disinterested Trustees, may approve; provided that, at the time any such payment
is made, whether or not this Plan has been otherwise terminated, the making of
such payment will not cause the limitation upon such payments set forth in
Section 2 to be exceeded. Without limiting the generality of the foregoing, the
Fund may pay to, or on the order of, any person who has served from time to time
as Principal Underwriter amounts for distribution services pursuant to a
principal underwriting agreement or otherwise. Any such principal underwriting
agreement may, but need not, provide that such Principal Underwriter may be paid
for distribution services to Class B Shares and/or other specified classes of
shares of the Fund (together the "B-Class-of-Shares"), a fee which may be
designated a Distribution Fee and may be paid at a rate per annum up to .75 % of
the average daily net asset value of such B-Class-of-Shares of the Fund and may,
but need not, also provide: (I) that a Principal Underwriter will be deemed to
have fully earned its "Allocable Portion" of the Distribution Fee upon the sale
of the Commission Shares (as defined in the Allocation Schedule) taken into
account in determining its Allocable Portion; (II) that the Fund's obligation to
pay such Principal Underwriter its Allocable Portion of the Distribution Fee
shall be absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever (it being understood that such provision
is not a waiver of the Fund's right to pursue such Principal Underwriter and
enforce such claims against the assets of such Principal Underwriter other than
its right to its Allocable Portion of the Distribution Fee and CDSCs (as defined
below); (III) that the Fund's obligation to pay such Principal Underwriter its
Allocable Portion of the Distribution Fee shall not be changed or terminated
except to the extent required by any change in applicable law, including without
limitation, the 1940 Act, the Rules promulgated thereunder by the Securities and
Exchange Commission and the Business Conduct Rules of the National Association
of Securities Dealers, Inc., in each case enacted or promulgated after May 5,
1997, or in connection with a "Complete Termination" (as hereinafter defined);
(IV) that the Fund will not waive or change any contingent deferred sales charge
("CDSC") in respect of the Distributor's Allocable Portion thereof, except as
provided in the Fund's prospectus or statement of additional information without
the consent of the Principal Underwriter or any assignee of such Principal
Underwriter's rights to its Allocable Portion; (V) that the termination of the
Principal Underwriter, the principal underwriting agreement or this Plan will
not terminate such Principal Underwriter's rights to its Allocable Portion of
the CDSCs; and (VI) that any Principal Underwriter may assign its rights to its
Allocable Portion of the Distribution Fee and CDSCs (but not such Principal
Underwriter's obligations to the Fund under its principal underwriting
agreement) to raise funds to make expenditures described in Section 2 above and
in connection therewith, and upon receipt of notice of such assignment, the Fund
shall pay to the assignee such portion of the Principal Underwriter's Allocable
Portion of the Distribution Fee and CDSCs so assigned. For purposes of such
principal underwriting agreement, the term Allocable Portion of Distribution Fee
as applied to any Principal Underwriter may mean the portion of the Distribution
Fee allocable to Distributor Shares in accordance with the "Allocation Schedule"
attached to such Principal Underwriter's principal underwriting agreement. For
purposes of such principal underwriting agreement, the term Allocable Portion of
CDSCs as applied to any Principal Underwriter may mean the portion of the CDSCs
allocable to Distributor Shares in accordance with the Allocation Schedule
attached to such Principal Underwriter's principal underwriting agreement. For
purposes of such principal underwriting agreement, the term "Complete
Termination" may mean a termination of this Plan involving the cessation of
payments of the Distribution Fee thereunder, the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares and the cessation of the offering by the
Fund of existing or future B-Class-of-Shares, which conditions shall be deemed
to be satisfied when they are first complied with and so long thereafter as they
are complied with prior to the earlier of (i) the date upon which all of the B
Shares which are Distributor Shares pursuant to the Allocation Schedule shall
have been redeemed or converted or (ii) a specified date, after either of which
times such conditions need no longer be complied with. For purposes of such
principal underwriting agreement, the term "B-Class-of-Shares" may mean the B
Class of Shares of the Fund and each other class of shares of the Fund hereafter
issued which would be treated as "Shares" under such Allocation Schedule or
which has economic characteristics substantially similar to those of the B Class
of Shares taking into account the total sales charge, CDSC or other similar
charges borne directly or indirectly by the holder of the shares of such
classes.
The parties may agree that the existing C Class of Shares of the Fund does
not have substantially similar economic characteristics to the B Classes of
Shares taking into account the total sales charge, CDSC or other similar charges
borne directly or indirectly by the holder of such shares. For purposes of
clarity the parties to such principal underwriting agreement may state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B Class of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fee
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 7. This Plan may be terminated at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees, or by vote of a majority of
the Shares of the Fund, provided that payments for services theretofore provided
or for reimbursement of expenses theretofore incurred or accrued prior to
termination of this Plan in accordance with Section 2 may be continued by the
Fund to the extent provided for in Section 6, above, as applicable.
Section 8. Any agreement of the Trust, with respect to any Fund, related to
this Plan shall be in writing and shall provide:
A. That such agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by vote of a majority of the Disinterested
Trustees or by a vote of a majority of the outstanding Shares of such Fund on
not more than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 with respect to a Fund unless
such amendment is approved by a vote of at least a majority (as defined in the
1940 Act) of the outstanding Shares of such Fund, and no material amendment to
this Plan shall be made unless approved by votes of a majority of (a) the Board
of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such amendment.
DATED:
September 18, 1997
<PAGE>
EXHIBIT A
As of March 20, 2000
EVERGREEN MUNICIPAL TRUST
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen Maryland Municipal Bond Fund
Evergreen New Jersey Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen Pennsylvania Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund
Evergreen Municipal Bond Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Tax-Free High Income Fund
DISTRIBUTION PLAN OF CLASS C SHARES
EVERGREEN MUNICIPAL TRUST
SECTION 1. The Evergreen Municipal Trust (the ATrust@) individually
and/or on behalf of its series (the AFund@) referred to in Exhibit A to this
Rule 12b-1 Plan of Distribution (the APlan@) may act as the distributor of
securities which are issued in respect of the Fund's Class C shares (AShares@),
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the A1940 Act@)
according to the terms of this Plan.
SECTION 2. The Trust on behalf of each Fund may expend daily amounts at
an annual rate of 1.00% of the average daily net asset value of the Shares. Such
amounts may be expended to finance activity which is principally intended to
result in the sale of Shares including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund (APrincipal
Underwriter@) or others in order (i) to make payments to the Principal
Underwriter or others of sales commissions, other fees or other compensation for
services provided or to be provided, to enable payments to be made by the
Principal Underwriter or others for any activity primarily intended to result in
the sale of Shares, to pay interest expenses associated with payments in
connection with the sale of Shares and to pay any expenses of financing
permitted by this clause (i); (ii) to enable the Principal Underwriter or others
to receive, pay or to have paid to others who have sold Shares, or who provide
services to holders of Shares, a service fee, maintenance or other fee in
respect of such services, at such intervals as the Principal Underwriter or such
others may determine, in respect of Shares previously sold and remaining
outstanding during the period in respect of which such fee is or has been paid;
and/or (iii) to compensate the Principal Underwriter or others for efforts
(including without limitation any financing of payments under (i) and (ii) for
the sale of shares) in respect of sales of Shares since inception of the Plan or
any predecessor plan. Appropriate adjustments shall be made to the payments made
pursuant to this Section 2 to the extent necessary to ensure that no payment is
made by the Trust on behalf of any Fund with respect to the Class in excess of
the applicable limit imposed on asset based, front end and deferred sales
charges under subsection (d) of Rule 2830 of the Business Conduct Rules of the
National Association of Securities Dealers Regulation, Inc. (The ANASDR@). In
addition, to the extent any amounts paid hereunder fall within the definition of
an Aasset based sales charge@ under said NASDR Rule, such payments shall be
limited to 0.75 of 1% of the aggregate net asset value of the Shares on an
annual basis and, to the extent that any such payments are made in respect of
Ashareholder services@ as that term is defined in the NASDR Rule, such payments
shall be limited to .25 of 1% of the aggregate net asset value of the Shares on
an annual basis and shall only be made in respect of shareholder services
rendered during the period in which such amounts are accrued.
SECTION 3. This Plan shall not take effect until it has been approved
together with any related agreements by votes of a majority of both (a) the
Board of Trustees of the Trust and (b) those Trustees of the Trust who are not
Ainterested persons@ of the Trust (as said term is defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of this Plan
or any agreements of the Fund or any other person related to this Plan (the
ARule 12b-1 Trustees@), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 4. Unless sooner terminated pursuant to Section 6 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 3 hereof.
SECTION 5. Any person authorized to direct the disposition of monies
paid or payable by the Trust on behalf of each Fund pursuant to this Plan or any
related agreement shall provide to the Trust=s Board of Trustees and the Board
shall review at least quarterly a written report of the amounts so expended and
the purposes for which such expenditures were made.
SECTION 6. This Plan may be terminated with respect to any Fund at any
time by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority
of such Fund=s outstanding Shares.
SECTION 7. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of such Fund=s
outstanding Shares on not more than sixty days written notice
to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
SECTION 8. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the 1940
Act) of each Fund=s outstanding Shares, and no material amendment to this Plan
shall be made unless approved in the manner provided for in Section 3 hereof.
<PAGE>
EXHIBIT A
As of March 20, 2000
EVERGREEN MUNICIPAL TRUST
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen Maryland Municipal Bond Fund
Evergreen New Jersey Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen Pennsylvania Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund
Evergreen Municipal Bond Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Tax-Free High Income Fund
DISTRIBUTION PLAN OF CLASS A SHARES
THE EVERGREEN MUNICIPAL TRUST
SECTION 1. The Evergreen Municipal Trust (the "Trust") individually
and/or on behalf of its series, the Evergreen Tax-Free High Income Fund (the
"Fund"), may act as the distributor of securities which are issued in respect of
the Fund's Class A shares ("Shares"), pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") according to the terms of this
Rule 12b-1 Plan of Distribution (the "Plan").
SECTION 2. The Trust on behalf of each Fund may expend daily amounts at
an annual rate of 0.25% of the average daily net asset value of Class A shares
("Shares") of the Fund. Such amounts may be expended to finance activity which
is principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund ("Principal Underwriter") or others in order (i) to make payments to
the Principal Underwriter or others of sales commissions, other fees or other
compensation for services provided or to be provided, to enable payments to be
made by the Principal Underwriter or others for any activity primarily intended
to result in the sale of Shares, to pay interest expenses associated with
payments in connection with the sale of Shares and to pay any expenses of
financing permitted by this clause (i); (ii) to enable the Principal Underwriter
or others to receive, pay or to have paid to others who have sold Shares, or who
provide services to holders of Shares, a service fee, maintenance or other fee
in respect of such services, at such intervals as the Principal Underwriter or
such others may determine, in respect of Shares previously sold and remaining
outstanding during the period in respect of which such fee is or has been paid;
and/or (iii) to compensate the Principal Underwriter or others for efforts
(including without limitation any financing of payments under (i) and (ii) for
the sale of shares) in respect of sales of Shares since inception of the Plan or
any predecessor plan. Appropriate adjustments shall be made to the payments made
pursuant to this Section 2 to the extent necessary to ensure that no payment is
made by the Trust on behalf of any Fund with respect to the Class in excess of
the applicable limit imposed on asset based, front end and deferred sales
charges under subsection (d) of Rule 2830 of the Business Conduct Rules of the
National Association of Securities Dealers Regulation, Inc. (The "NASDR"). In
addition, to the extent any amounts paid hereunder fall within the definition of
an "asset based sales charge" under said NASDR Rule such payments shall be
limited to 0.75 of 1% of the aggregate net asset value of the Shares on an
annual basis and, to the extent that any such payments are made in respect of
"shareholder services" as that term is defined in the NASDR Rule, such payments
shall be limited to .25 of 1% of the aggregate net asset value of the Shares on
an annual basis and shall only be made in respect of shareholder services
rendered during the period in which such amounts are accrued.
SECTION 3. This Plan shall not take effect until it has been approved
together with any related agreements by votes of a majority of both (a) the
Board of Trustees of the Trust and (b) those Trustees of the Trust who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or any
agreements of the Fund or any other person related to this Plan ("Rule 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 4. Unless sooner terminated pursuant to Section 6, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 3.
SECTION 5. Any person authorized to direct the disposition of monies
paid or payable by the Trust on behalf of each Fund pursuant to this Plan or any
related agreement shall provide to the Trust's Board of Trustees and the Board
shall review at least quarterly a written report of the amounts so expended and
the purposes for which such expenditures were made.
SECTION 6. This Plan may be terminated at any time with respect to any
Fund by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority
of such Fund's outstanding Shares.
SECTION 7. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of such Fund's
outstanding Shares on not more than sixty days written notice
to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
SECTION 8. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the 1940
Act) of each Fund's outstanding Shares, and no material amendment to this Plan
shall be made unless approved in the manner provided for in Section 3 hereof.
December 17, 1999
CODE OF ETHICS
Evergreen Select Fixed Income Trust
Evergreen Select Equity Trust
Evergreen Select Money Market Trust
Evergreen Municipal Trust
Evergreen Equity Trust
Evergreen Fixed Income Trust
Evergreen International Trust
Evergreen Money Market Trust
Evergreen Variable Annuity Trust
Mentor Funds
Mentor Cash Resource Trust
Mentor Income Fund, Inc.
1. Definitions
(A) "Access Person" -- any trustee or officer of the Evergreen
Trusts.
(B) The "Act" -- the Investment Company Act of 1940.
(C) "Beneficial Ownership" -- A direct or indirect financial
interest in an investment giving a person the opportunity
directly or indirectly to participate in the risks and rewards
of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership
include, but are not limited to:
(1) Securities owned by a spouse, by or for
minor children or by relatives of the person
or his/her spouse who live in his/her home,
including Securities in trusts of which such
persons are beneficiaries;
(2) A proportionate interest in Securities held
by a partnership of which the person is a
general partner;
(3) Securities for which a person has a right to
dividends that is separated or separable
from the underlying securities; and
(4) Securities that a person has a right to
acquire through the exercise or conversion
of another Security.
(D) "Compliance Officer" - James Angelos, Compliance Department,
Evergreen Investment Management Company, 200 Berkeley Street,
Boston, MA 02116 - (617)210-3690.
(E) "Disinterested Trustee" -- a trustee of any Evergreen Trust
who is not an "interested person" of the Evergreen Trust
within Section 2(a)(19) of the Act.
(F) "Fund" -- any portfolio established by any of the Evergreen
Trusts.
(G) "Purchase or sale of a security" -- includes the writing of an
option to purchase or sell a security.
(H) "Security" -- the same meaning as it has in Section 2(a)(36)
of the Act, but excluding securities issued by the United
States Government, bankers= acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
2. Prohibited Securities Transactions
(A) No Access Person shall, in connection with the purchase or
sale, directly or indirectly, by such person of a Security
held or to be acquired by any Fund:
(1) Employ any device, scheme or artifice to defraud the
Fund;
(2) Make to the Trust in connection with any Fund any
untrue statement of a material fact or omit to state
a material fact necessary in order to make the
statements made, in light of the circumstances under
which they are made, not misleading;
(3) Engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit
upon any Fund; or
(4) Engage in any manipulative practice with respect to
any Fund.
(B) Inside Information
It is a violation of Federal Securities Laws to enter into
transactions when in possession of material non-public
information (i.e. inside information). Inside Information is
information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC
filing or widely distributed news release, and which a
reasonable investor would consider important in making an
investment decision or which is reasonably likely to impact
the trading price of the Security. Inside Information
includes, but is not limited to, information about (i)
dividend changes, (ii) earnings estimates and changes to
previously released estimates, (iii) other changes in
financial status, (iv) proposed mergers or acquisitions, (v)
purchases or sales of material amounts of assets, (vi)
significant new business, products or discoveries or losses of
business, (vii) litigation or investigations, (viii) liquidity
difficulties or (ix) management changes
From time to time, Trustees may learn about transactions in
which a Fund may engage and other information that may be
considered Inside Information.
(C) No Access Person shall purchase or sell, directly or
indirectly, any security in which he or she has or thereby
acquires any direct or indirect Beneficial Ownership and which
to his or her actual knowledge at the time of such purchase or
sale is being purchased or sold by any Fund or has been
recommended or is being purchased or sold by any Fund.
(D) Section 2(B) shall not apply to the following:
(1) Transactions for any account over which the Access
Person has no direct or indirect influence or
control.
(2) Involuntary transactions by the Access Person or any
Fund.
(3) Purchases under an automatic dividend reinvestment
plan.
(4) Purchases effected by the exercise of rights, issued
by an issuer pro-rata to all holders of a class of
its securities, to the extent such rights were
acquired from such issuer, and sale of such rights.
(5) Transactions approved in advance in writing by the
Chairman of the Board of any Trust (and in his
absence or unavailability by the President of the
Trust) which he or she finds to be:
(a) Only remotely potentially harmful to a Fund
because they would be very unlikely to
affect a highly institutional market, or
(b) Clearly not related economically to the
securities to be purchased, sold or held by
a Fund.
3. Reports
(A) Subject to subsection (B) below, each Access Person shall make
the reports required by section 270.17j-1(d) of the rules and
regulations issued under the Act.
(B) A Disinterested Trustee of any Fund need only report a
transaction in a Security if he or she knows at the time of
such transaction or, in the ordinary course of fulfilling his
or her official duties as trustee, should have known that
during the 15 day period immediately preceding or after the
date of the transaction, such Security was or would be
purchased or sold by any Fund or was or would be considered
for purchase or sale by any Fund or its investment adviser.
4. Enforcement
(A) Each violation of or issue arising under this Code shall be
reported to the Board of Trustees at or before the next
regular meeting of the Boards.
(B) The Board of Trustees may impose such sanctions or penalties
upon a violator of this Code as it deems appropriate
circumstances.
(C) The Compliance Officer shall review reports filed under the
Code to determine whether any violation may have occurred.
5. Recordkeeping
The Compliance Officer shall maintain the appropriate records and
reports of the Code, any violations and/or sanctions for at least 5
years.
<PAGE>
CODE OF ETHICS
CAPITAL MANAGEMENT GROUP OF FIRST UNION NATIONAL BANK
EVERGREEN INVESTMENT MANAGEMENT
FIRST CAPITAL GROUP
FIRST INVESTMENT ADVISORS
EVERGREEN ASSET MANAGEMENT CORP.
EVERGREEN INVESTMENT MANAGEMENT COMPANY
LIEBER & COMPANY MENTOR INVESTMENT ADVISORS MENTOR PERPETUAL ADVISORS MERIDIAN
INVESTMENT COMPANY TATTERSALL ADVISORY GROUP, INC.
Effective December 17, 1999
As an Employee of any of the CMG Covered Companies, you are required to read,
understand and abide by this Code of Ethics. The Code contains affirmative
requirements as well as prohibitions that you are required to adhere to in
connection with securities transactions effected on your behalf and on behalf of
clients (including the Evergreen Funds). Such requirements include, among other
things, (i.) notifying the Compliance Department upon establishing a personal
securities account with a broker/dealer, (ii.) in certain cases, obtaining
permission prior to engaging in a personal securities transaction, and (iii.)
reporting personal securities transactions to the Compliance Department. FAILURE
TO ADHERE TO THE CODE COULD RESULT IN SANCTIONS, INCLUDING DISMISSAL FROM
EMPLOYMENT, AND COULD ALSO IN CERTAIN CASES EXPOSE YOU TO CIVIL OR CRIMINAL
PENALTIES SUCH AS FINES AND/OR IMPRISONMENT.
No written code can explicitly cover every situation that possibly may arise.
Even in situations not expressly described, the Code and your fiduciary
obligations generally require you to put the interests of your clients ahead of
your own. If you have any questions regarding the appropriateness of any action
under this Code or under your fiduciary duties generally, you should contact
your Compliance Officer or Assistant General Counsel to discuss the matter
before taking the action in question. Similarly, you should consult with your
Compliance or Legal officer if you have any questions concerning the meaning or
interpretation of any provision of the Code.
Finally, as an Employee of First Union Corporation or one of its divisions or
subsidiaries, you should consult First Union's Code of Conduct contained in your
Employee Handbook. This Code uses many defined terms that are defined in Section
V.
I. PROHIBITED ACTIVITIES
A. No Employee shall engage in any Security transactions, activity or
relationship that creates or has the appearance of creating a conflict of
interest (financial or other) between the Employee and a Covered Company or a
Client Account. Each Employee shall always place the financial and business
interests of the Covered Companies and Client Accounts before his or her own
personal financial and business interests.
B. No Employee shall:
(1) employ any device, scheme or artifice to defraud a Client Account;
(2) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Client Account; or
(3) engage in any fraudulent, deceptive or manipulative practice with
respect to a Client Account.
C. No Employee shall purchase or sell, directly or indirectly, any Security for
any Personal Account, any Client Account, the account of a Covered Company, or
any other account, while in possession of Inside Information concerning that
Security or the issuer without the prior written approval of the Compliance
Officer and the Assistant General Counsel and (per First Union's Code of
Conduct) First Union's Conflict of Interest Committee, which approval shall
specifically determine that such trading would not constitute an improper use of
such Inside Information. Employees possessing Inside Information shall take
reasonable precautions to ensure that such information is not disseminated
beyond those Employees with a need to know such information. Any questions
should be directed to the Compliance Officer or Assistant General Counsel.
D. No Employee shall recommend or cause a Covered Company or Client Account to
take action or refrain from taking action for the Employee's own personal
benefit.
E. It is presumed that Employees in one geographic location will not have
knowledge of transactions effected in another geographic location, but use of
any such information would likewise be prohibited.
(1) No Employee shall purchase or sell any Security for any Personal
Account if he or she knows such Security (i.) is being purchased or
sold for any Covered Company or Client Account or (ii.) is being
actively considered for purchase or sale by any Covered Company or
Client account.
(2) A Covered Company shall not purchase or sell any Security for its own
account if the Employee making such purchase or sale knows such
Security (i.) is being purchased or sold for any Client Account or
(ii.) is being actively considered for purchase or sale by any Client
Account.
The prohibitions contained in E.(1) and E.(2) shall not apply to:
(a) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder
or depositor;
(b) purchases of Securities through the exercise of rights issued to
the Employee as part of a pro rata issue to all holders of such
Securities, and the sale of such rights;
(c) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long
as collateral was not withdrawn from such account within 10 days
prior to the call; and
(d) transactions previously approved in writing by the Compliance
Officer that have been determined not to be harmful to any Client
Account because of the volume of trading in the Security.
F. No Employee shall purchase a Security for any Personal Account in an initial
public offering, except for initial public offerings where the individual has a
right to purchase the Security based on a preexisting status as a security
holder, policy holder or depositor.
G. No Employee shall maintain or open a brokerage account constituting a
Personal Account unless duplicate confirmations and statements of all account
activity are forwarded to the Compliance Officer.
H. No Employee shall use any Derivative to evade the restrictions of this Code
of Ethics.
I. No Investment Person shall be a director of a publicly traded company other
than First Union Corporation without prior written approval of the Compliance
Officer. Approval generally will not be granted.
J. No Access Person shall make investments for any Personal Account in any
investment club without prior written approval from the Compliance Officer.
K. No Access Person may purchase a Security for any Personal Account in a
private offering without prior written approval of the person's Chief Investment
Officer or the Compliance Officer. In considering whether to grant such
approval, the Compliance Officer or Chief Investment Officer will consider
several factors, including but not limited to:
(1) whether the investment opportunity should be reserved for a Client
Account; and
(2) whether the opportunity is being offered to the Access Person by virtue
of his or her position with respect to a Client Account or a Covered
Company.
If approval is granted, the Access Person must disclose the investment to the
appropriate Chief Investment Officer before participating in any way in any
decision as to whether a Client Account should invest in such Security or in
another Security issued by the same issuer. In such circumstances, the Chief
Investment Officer will conduct a review by investment personnel with no
interest in the issuer prior to a purchase on behalf of a Client Account. The
Compliance Officer shall retain a record of this approval and the rationale
supporting it.
L. No Access Person may offer investment advice or manage any person's portfolio
in which he or she does not have Beneficial Ownership other than a Client
Account without prior written approval from the Compliance Officer.
M. No Investment Person may profit from the purchase and sale or sale and
purchase of the same (or equivalent) Securities (other than securities issued by
First Union Corporation) in a Personal Account within 60 calendar days. Any
resulting profits will be disgorged as instructed by the Compliance Officer.
N. No Investment Person may buy or sell a Security for any Personal Account
within seven calendar days before or after a Client Account that he or she
manages, or provides information or advice to, or executes investment decisions
for, trades in that Security, except:
(1) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder or
depositor;
(2) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(3) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call; and
(4) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
Any related profits from such transaction will be disgorged as instructed by
the Compliance Officer.
O. No Employee shall, directly or indirectly, in connection with any purchase or
sale of any Security by a Client Account or a Covered Company or in connection
with the business of a Client Account or a Covered Company, accept or receive
from a third party any gift or other thing of more than de minimis value, other
than (i.) business entertainment such as meals and sporting events involving no
more than ordinary amenities and (ii.) unsolicited advertising or promotional
materials that are generally available. An Employee also should consult First
Union Corporation's Code of Conduct relating to acceptance of gifts from
customers and suppliers. An Employee shall refer questions regarding the
permissibility of accepting items of more than de minimis value to the
Compliance Officer.
II. PRE-CLEARING PERSONAL TRADES
Pre-Clearance Procedures and Standards
A. No Access Person may engage in a Securities transaction (other than a
transaction described in Section B. below) involving a Personal Account unless
he/she has first pre-cleared the transaction by completing a Personal Investment
Pre-Clearance Form and had the form signed and/or initialed as set forth
therein. Approval shall be indicated by the Access Person's Chief Investment
Officer or other designated supervisor signing and dating the Form where
indicated at the bottom. Any such approval shall only be valid until the end of
the next trading day. The time allotment is limited to the actual time of
purchase or sale of the Security. If execution of the trade does not take place
by the end of the next trading day, then another pre-clearance request must be
processed and approved. "Good till cancelled" orders are forbidden and "no -
limit" orders must be cancelled or pre-cleared again by the end of the next
trading day after the approval if the trade is not executed.
B. The following transactions are excluded from the pre-clearance requirement:
(1) any transactions in Securities traded on a national securities exchange
or NASDAQ NMS with an aggregate amount of (i.) 500 shares or less or
(ii.) $25,000 or less (whichever is a lessor amount) of a particular
security within a seven-day window. The de minimis is not valid for an
Investment Person who has knowledge of recent purchases and sales of
the same security within Client accounts.
(2) purchases pursuant to a dividend reinvestment program (DRIP) or
purchases based upon preexisting status as a security holder, policy
holder or depositor;
(3) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(4) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call;
(5) transactions in Securities issued by First Union Corporation;
(6) transactions by an Investment Person in a Security that all Client
Accounts for which the person makes or executes investment decisions or
recommendations are prohibited under their investment guidelines from
purchasing; and
(7) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
C. Failure to receive pre-approval on applicable trades will result in the
following actions:
(1) First Failure: Letter of Reprimand;
(2) Second Failure: $100.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(3) Third Failure: $250.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(4) Fourth Failure: Referral to appropriate management for action.
D. All employees should consult the First Union Code of Conduct regarding the
permissibility of investing in other financial institutions.
III. REPORTING REQUIREMENTS
A. Each year every Employee must sign an acknowledgment stating that he/she has
received and reviewed and will comply with this Code of Ethics. New Employees
should read and sign the policy within 30 days of employment.
B. Each Employee shall give written instructions to every broker with whom he or
she transacts for any Personal Account to provide duplicate confirmation for all
purchases and sales of Securities to:
For First Union Capital Management Group, First Capital Group, and Evergreen
Investment Management (not EIMCO) Employees:
First Union National Bank
201 South College St./CP3
Charlotte, NC 28202-0137
ATTN: CMG Compliance
For Lieber & Company and Evergreen Asset Management Corp. Employees:
Evergreen Funds
2500 Westchester Avenue
Purchase, NY 10577
ATTN: Compliance Department
For Evergreen Investment Management Company, Inc. Employees:
Evergreen Funds
200 Berkeley Street
Boston, MA 02116
ATTN: Compliance Department
For Mentor Investment Advisor and Mentor Perpetual Advisors Employees:
Evergreen Funds
901 E. Byrd St.
Richmond, VA 23219
ATTN: Compliance Department
For Tattersall Advisory Group, Inc. Employees:
Tattersall Advisory Group, Inc.
6802 Paragon Place, Suite 200
Richmond, VA 23230
ATTN: Compliance Department
For Meridian Investment Company Employees:
Vicki Calhoun
First Union National Bank/Trust Compliance
PO Box 7558
Philadelphia, PA 19101-7558
C. Employees who are not Investment Persons or Access Persons must report all
transactions for their Personal Account annually for each year ending December
31 by the following January 31.
D. Each Access Person must report all Securities holdings in all Personal
Accounts upon commencement of employment (or within ten days of becoming an
Access Person) and thereafter annually, for each year ending December 31 by the
following January 31. A separate holdings list need not be provided if all
personal security holdings are otherwise listed on copies of brokerage
statements received by Compliance.
E. Each Access Person shall file with the Compliance Officer within ten calendar
days after the end of each calendar quarter (March 31, June 30, September 30,
December 31) a report listing each Security transaction (including those exempt
from the pre-clearance requirements) effected during the quarter for any
Personal Account; provided, however, a Security transaction need not be
separately reported under this paragraph if a copy of a broker confirmation for
the transaction was forwarded to the appropriate Compliance Officer as required
under Section 1.G.
F. Any Employee who becomes aware of any person trading on or communicating
Inside Information (or contemplating such actions) must report such event to the
Compliance Officer or the Assistant General Counsel.
G. Any Employee who becomes aware of any person violating this Code of Ethics
must report such event to the Compliance Officer or the Assistant General
Counsel.
IV. ENFORCEMENT
A. Review - The Compliance Officer shall review reports filed under the Code of
Ethics to determine whether any violation of this Code of Ethics may have
occurred.
B. Investigation - The Assistant General Counsel shall investigate any
substantive alleged violation of the Code of Ethics. An Employee allegedly
involved in a violation of the Code of Ethics may be required to deliver to the
Assistant General Counsel or his/her designee all tax returns involving any
Personal Account or any Securities for which the Employee has Beneficial
Ownership for all years requested. Failure to comply may result in termination.
C. Sanctions - In determining the sanctions to be imposed for a violation of
this Code of Ethics, the following factors, among others, may be considered:
(1) the degree of willfulness of the violation;
(2) the severity of the violation;
(3) the extent, if any, to which an Employee profited or benefited from the
violation;
(4) the adverse effect, if any, of the violation on a Covered Company or a
Client Account; and
(5) any history of prior violation of the Code.
The following sanctions, among others, may be considered:
(1) disgorgement of profits;
(2) fines;
(3) letter of reprimand;
(4) suspension or termination of employment; and
(5) such other actions as the Compliance Officer in concert with
appropriate legal counsel, or the Boards of Trustees of the Evergreen
Funds, shall determine.
D. All violations of the Code of Ethics involving Employees with
responsibilities relating to the Evergreen Funds or otherwise involving the
Evergreen Funds, and any sanctions imposed shall be reported to the Boards of
Trustees of the Evergreen Funds. All violations of the Code and any sanctions
also shall be reported to the Employee's supervisor, and any regulatory agency
requiring such reporting, and shall be filed in the Employee's personnel record.
E. Potential Legal Penalties for Misuse of Inside Information
(1) civil penalties up to three times the profit gained or loss avoided;
(2) disgorgement of profits;
(3) injunctions, including being banned from the securities industry;
(4) criminal penalties up to $1 million; and/or
(5) jail sentences.
V. DEFINITIONS
ACCESS PERSON: Access Person includes: (i.) any director of a Covered Company or
any officer of a Covered Company with the title of Vice President or above, but
excluding any such director or officer excluded in writing by the Covered
Company's Compliance Officer with the approval of the Assistant General Counsel;
(ii.) any Investment Person, but excluding any such person excluded in writing
by the appropriate person's Compliance Officer with the approval of the
Assistant General Counsel; and (iii.) any Employee of a Covered Company who, in
connection with his or her regular duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by a Client Account or
a Covered Company. Upon being notified of the hiring of a new Employee or of a
change in an Employee's job title or responsibilities, the appropriate
Compliance Officer will determine and notify the Employee as to whether he/she
is or has become an Access Person under the Code.
ASSISTANT GENERAL COUNSEL: Michael H. Koonce - 617/210-3663
BENEFICIAL OWNERSHIP: A direct or indirect financial interest in an investment
giving a person the opportunity directly or indirectly to participate in the
risks and rewards of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership include, but are not
limited to:
(1) securities owned by a spouse, by or for minor children, or by relatives
of the person or his/her spouse who live in his/her home, including
Securities in trusts of which such persons are beneficiaries;
(2) a proportionate interest in Securities held by a partnership of which
the person is a general partner;
(3) securities for which a person has a right to dividends that are
separated or separable from the underlying securities; and
(4) securities that a person has a right to acquire through the exercise or
conversion of another Security.
CLIENT ACCOUNT: Any account of any person or entity (including an investment
company) for which a Covered Company provides investment advisory or investment
management services. Client Account does not include brokerage or other accounts
not involving investment advisory or management services.
COMPLIANCE OFFICER: The Compliance Officers for each Covered Company are set
forth below:
First Union Capital Management Group
Evergreen Investment Management, and
First Capital Group
------------------------------------
Clint Lackey 704/374-3476
Karen Knudtsen 704-374-2249
Joni McCabe 704/374-6404
Donna Mooney 704/383-8197
Vicki Calhoun 215/985-8742
Evergreen Asset Management Corp.
Lieber & Company
-------------------------------
Christina Carroll 914/641-2301
Jim Angelos 617/210-3690
Evergreen Investment Management Company, Inc.
--------------------------------------------
Cathy White 617/210-3606
Jim Angelos 617/210-3690
Meridian Investment Company
---------------------------
Vicki Calhoun 215/985-8742
Tattersall Advisory Group
-------------------------
Margaret Corwin 804/289-2663
Mentor Investment Advisors
Mentor Perpetual Advisors
--------------------------
Taylor Nelson 804/782-3209
COVERED COMPANY: Includes Evergreen Asset Management Company, Evergreen
Investment Management Company, Inc., Lieber & Company, Mentor Investment
Advisors, Mentor Perpetual Advisors, Meridian Investment Company, Tattersall
Advisory Group, Inc. and the investment groups included within the Capital
Management Group of First Union National Bank, which currently include Evergreen
Investment Management, First Capital Group, and First Investment Advisors.
Covered Company also includes any CMG advisors that are acquired during the time
this Code is in effect.
DERIVATIVE: Every financial arrangement whose value is linked to, or derived
from, fluctuations in the prices of stock, bonds, currencies or other assets.
Derivatives include but are not limited to futures, forward contracts, options
and swaps on interest rates, currencies, and stocks.
DIRECT OR INDIRECT INFLUENCE OR CONTROL: The power on the part of an Employee,
his/her spouse or a relative living in his/her home to directly or indirectly
influence the selection or disposition of investments.
EMPLOYEE: Any director, officer, or employee of a Covered Company, including
temporary or part-time employees and employees on short-term disability or leave
of absence. Independent contractors and their employees providing services to a
Covered Company, if designated by the Compliance Officer, shall be treated as
Employees under this Code.
EVERGREEN FUNDS: The open and closed-end investment companies advised or
administered by the Covered Companies.
INSIDE INFORMATION: Information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC filing or widely
distributed news release, and which a reasonable investor would consider
important in making an investment decision or which is reasonably likely to
impact the trading price of the Security. Inside Information includes, but is
not limited to, information about (i.) dividend changes, (ii.) earnings
estimates and changes to previously released estimates, (iii.) other changes in
financial status, (iv.) proposed mergers or acquisitions, (v.) purchases or
sales of material amounts of assets, (vi.) significant new business, products or
discoveries or losses of business, (vii.) litigation or investigations, (viii.)
liquidity difficulties or (ix.) management changes.
INVESTMENT PERSON: An Employee who is a portfolio manager, securities analyst,
or trader, or who otherwise makes recommendations regarding or effects the
purchase or sale of securities by a Client Account.
PERSONAL ACCOUNT: Any holding of Securities constituting Beneficial Ownership,
other than a holding of Securities previously approved by the Compliance Officer
over which the Employee has no Direct Influence or Control. A Personal Account
is not limited to securities accounts maintained at brokerage firms, but also
includes holdings of Securities owned directly by an Employee.
SECURITY: Any type of equity or debt instrument and any rights relating
thereto, such as derivatives, warrants and convertible securities.
Unless otherwise noted, Security does not include:
(1) US Government Securities (see definition below);
(2) commercial paper, certificates of deposit, repurchase agreements,
bankers' acceptances, or any other money market instruments;
(3) shares of registered open-end investment companies (i.e., mutual
funds);
(4) commodities (except the Security that does include options on
individual equity or debt securities);
(5) real estate investment trusts;
(6) guaranteed insurance contracts/ bank investment contracts; or
(7) index based securities;
(8) derivatives based on any instruments listed above.
Shares issued by all closed end funds (excluding index-based derivatives) are
included in the definition of Security.
U.S. Government Securities: All direct obligations of the U.S. Government and
its agencies and instrumentalities (for instance, obligations of GNMA, FHLCC, or
FHLBs).
