1933 Act No. 333-37433
1940 Act No. 811-07246
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. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [X]
EVERGREEN FIXED INCOME 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:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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 FIXED INCOME TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 5
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 5 to Registrant's Registration Statement
No. 333-37433/811-07246 consists of the following pages, items of information
and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for Evergreen Diversified Bond Fund, Evergreen High
Yield Bond Fund, Evergreen Strategic Income Fund and
Evergreen U.S. Government Fund are contained herein.
Prospectuses for the following funds are contained in Registration
Statement No.333-37433/811-07246 filed on October 30, 1998: Evergreen
Short-Intermediate Bond Fund, Evergreen Intermediate Term Government Securities
Fund, Evergreen Capital Preservation and Income Fund and
Evergreen Intermediate Term Bond Fund.
PART B
------
The Statement of Additional Information for Evergreen Diversified
Bond Fund, Evergreen High Yield Bond Fund, Evergreen Strategic
Income Fund and Evergreen U.S. Government Fund are contained herein.
The Statement of Additional Information for the following funds is
contained in Registration Statement No.333-37433/811-07246 filed on October 30,
1998: Evergreen Short-Intermediate Bond Fund, Evergreen Intermediate Term
Government Securities Fund, Evergreen Capital Preservation and Income Fund and
Evergreen Intermediate Term Bond Fund.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN FIXED INCOME TRUST
PART A
PROSPECTUS
<PAGE>
Evergreen Long Term
Bond Funds
Evergreen Diversified Bond Fund
Evergreen High Yield Bond Fund
Evergreen Strategic Income Fund
Evergreen U.S. Government Fund
Class A
Class B
Class C
Class Y
Prospectus, September 1, 1999
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.
FUND SUMMARIES:
Evergreen Diversified Bond Fund 2
Evergreen High Yield Bond Fund 4
Evergreen Strategic Income Fund 6
Evergreen U.S. Government Fund 8
GENERAL INFORMATION:
The Funds' Investment Advisors 18
The Funds' Portfolio Managers 18
Calculating the Share Price 18
How to Choose an Evergreen Fund 18
How to Choose the Share Class
That Best Suits You 18
How to Buy Shares 19
How to Redeem Shares 20
Other Services 21
The Tax Consequences of
Investing in the Funds 22
Fees and Expenses of the Funds 23
Financial Highlights 24
Other Fund Practices 32
In general, Funds included in this prospectus seek to provide investors with a
selection of investment alternatives which seek to provide a high level of
current income.
Fund Summaries Key
Each 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?
Long Term
Bond Funds
typically rely on a combination of the following strategies:
o investing a portion of their assets in bonds and other debt instruments;
o investing in securities which produce a high level of income; and
o selling a portfolio investment when the issuer's investment fundamentals
begin to deteriorate, when the investment no longer appears to meet the
Fund's investment objective, when the Fund must meet redemptions, or for
other reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
o can tolerate the risks associated with the volatility of below investment
grade investing; or
o seek high current yields plus relative safety (US Government Fund).
Following this overview, you will find information on each Long Term Bond Fund's
specific investment strategies and risks.
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
o not guaranteed to achieve their investment goal
o not insured, endorsed or guaranteed by the FDIC, a bank or any government
agency
o subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an Evergreen Long Term Bond Fund could
fluctuate significantly in value over time and could result in a loss of money.
Here are the most important factors that may affect the value of your
investment:
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 your 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 your 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.
Foreign Investment Risk
If your Fund invests in non-U.S. securities it could be exposed to certain
unique risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. In addition, if the value of any foreign currency
in which the Fund's investments are denominated declines relative to the U.S.
dollar, the value of your investment in the Fund may decline as well. Certain
foreign countries have less developed and less regulated securities markets and
accounting systems than the U.S. This may make it harder to get accurate
information about a security or company, and increase the likelihood that an
investment will not perform as well as expected.
<PAGE>
Diversified Bond Fund
FUND FACTS:
Goal:
o Maximum income
Principal Investment:
o Investment Grade Bonds
o High Yield, High Risk Bonds
Classes of Shares Offered in this Prospectus:
o Class A
o Class B
o Class C
o Class Y
Investment Advisor:
o Evergreen Investment
Management Company
Portfolio Manager:
o Gary Pzegeo
NASDAQ Symbols:
o EKDLX (Class A)
o EKDMX (Class B)
Dividend Payment Schedule:
o Monthly
Investment Goal
The Fund seeks maximum income without undue risk of principal.
Investment Strategy
The following supplements the investment strategies discussed in the "Overview"
on page 1.
The Fund invests at least 65% of its total assets in bonds and other debt
obligations. The Fund invests in debt instruments that are normally
characterized by relatively liberal returns and moderate price fluctuations.
Such debt instruments, which include both secured and unsecured debt
obligations, will have a rating of BBB or higher by Standard & Poor's Ratings
Services ("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's"),
BBB or higher by Fitch IBCA, Inc. ("Fitch"), or, if not rated or rated under a
different system, will be of comparable quality to obligations so rated as
determined by another nationally recognized statistical ratings organization or
by the Fund's portfolio manager. As a group, such debt instruments usually
possess a fairly high degree of dependability of interest payments. While the
Fund's primary objective is income, the portfolio manager attempts to maintain
security of principal, marketability and diversification in the portfolio.
The Fund seeks to maximize return with respect to a portion of its assets. Such
maximum return is ordinarily associated with high yield, high risk bonds and
similar securities in the lower rating categories of the recognized rating
agencies or with securities that are unrated (high yield bonds). The degree to
which the Fund will hold such securities will depend on various factors,
including its portfolio manager's economic forecast and its judgment as to the
comparative values offered by high yield, high risk bonds and higher quality
issues. The Fund's investments in high yield, high risk bonds will not exceed
35% of its assets.
The Fund may invest up to 50% of its assets in foreign securities.
When selecting securities, the portfolio manager considers sector level research
and a macro economic approach which takes into account interest rate forecasts
and economic analysis. The portfolio manager's analysis of securities focuses
on factors such as interest or dividend coverage, asset values, earning
prospects and the quality of management of the company.
The Fund may invest 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"
on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
o Below Investment Grade Bond Risk
o Foreign Investment Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
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 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 (%)
1989 1990 1991 1992 1993
2.54% -2.13% 18.67% 9.72% 13.85%
1994 1995 1996 1997 1998
- -6.91% 14.70% 6.22% 11.11% 5.56
Best Quarter: 1st Quarter 1991 +6.84%
Worst Quarter: 3rd Quarter 1990 -3.60%
Year to date total return through 6/30/1999 is _ %.
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 12/31/1998), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund. At the bottom of the table you
can compare this performance with the Lehman Brothers Aggregate Bond Index
(LBABI), which is an unmanaged fixed-income index of U.S. government, corporate
and mortgage-backed securities; it is not an actual investment.
Average Annual Total Return
(for the period ended 12/31/1998)*
Inception Performance Since
Date of Class 1 year 5 year 10 year 9/11/1935
Class A 1/20/1998 1.30% 5.63% 7.46% 7.13%
Class B 9/11/1935 0.56% 5.57% 7.06% 6.98%
Class C 4/7/1998 4.58% 5.88% 7.08% 6.99%
Class Y 2/11/1998 5.86% 6.78% 8.17% 7.26%
LBABI 8.69% 7.27% 9.26% N/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. These historical returns for Classes A and Y have
been adjusted to eliminate the effect of the higher 12b-1 fees applicable to
Class B. The 12b-1 fee is 0.25% for Class A, 1.00% for Class B and 1.00% for
Class C. Class Y does not pay a 12b-1 fee. If these fees had not been
eliminated, returns would have been lower.
**The inception date of the LBABI is
12/31/1975. Performance since 1/20/1998 is 7.31%, since 2/11/1998 is 7.39% and
since 4/7/1998 is 7.02%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from your investment)
Shareholder Transaction Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum sales charge imposed on 4.75% None None None
purchases (as a % of offering price)
Maximum deferred sales charge None* 5.00% 1.00% None
(as a % of either the redemption
amount or initial investment whichever
is lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales charge,
but may be subject to a contingent deferred salescharge of 1.00% upon redemption
within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses+
Class A 0.54% 0.25% 0.44% 1.23%
Class B 0.54% 1.00% 0.44% 1.98%
Class C 0.54% 1.00% 0.44% 1.98%
Class Y 0.54% 0.00% 0.44% 0.98%
+Restated to reflect current fees for the fiscal year ended April 30, 1999.
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. Your actual costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption at Assuming
End of Period No Redemption
Class A Class B Class C ClassY Class B Class C
<S> <C> <C> <C> <C> <C> <C>
After 1 year $594 $701 $301 $100 $201 $201
After 3 years $847 $921 $621 $312 $621 $621
After 5 years $1,119 $1,268 $1,068 $542 $1,068 $1,068
After 10 years $1,893 $2,022 $2,306 $1,201 $2,022 $2,306
</TABLE>
High Yield Bond Fund
FUND FACTS:
Goal:
o Generous Income
Principal Investment:
o High Yield, High Risk Bonds
Classes of Shares Offered in this Prospectus:
o Class A
o Class B
o Class C
o Class Y
Investment Advisor:
o Evergreen Investment
Management Company
Portfolio Manager:
o Prescott B. Crocker
NASDAQ Symbols:
o EKHAX (Class A)
o EKHBX (Class B)
Dividend Payment Schedule:
o Monthly
Investment Goal
The investment objective of the Fund is generous income.
Investment Strategy
The following supplements the investment strategies discussed in the "Overview"
on page 1.
The generous income sought by the Fund is ordinarily associated with high yield,
high risk bonds and similar securities in the lower rating categories of the
nationally recognized statistical rating agencies or with securities that are
unrated. While growth of capital is not a Fund objective, the Fund may purchase
securities that offer the possibility of capital appreciation in addition to
income, provided the acquisition of such securities does not conflict with the
Fund's objective of generous income.
The Fund intends to invest at least 65% of its total assets in bonds, debentures
and other income obligations that are rated by S&P or Moody's as below
investment grade, i.e., S&P rating below BBB and Moody's rating below Baa. The
Fund may purchase securities with any rating or may purchase unrated securities,
which are not necessarily of lower quality than rated securities, but may not be
as attractive to as many buyers.
The Fund may invest up to 50% of its assets in bonds that are principally traded
in securities markets located outside the U.S.
The Fund may invest 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"
on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
o Below Investment Grade Bond Risk
o Foreign Investment Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
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 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 (%)
1989 1990 1991 1992 1993
- -5.21% -21.79% 41.79% 18.10% 26.22%
1994 1995 1996 1997 1998
- -12.19% 9.79% 10.60% 12.96% -2.53%
Best Quarter: 1st Quarter 1991 +13.03%
Worst Quarter: 4th Quarter 1990 -11.65%
Year to date total return through 6/30/1999 is _ _%.
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 12/31/1998), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund. At the bottom of the table you
can compare this performance with the Lehman Brothers Aggregate Bond Index
(LBABI) and the Merrill Lynch High Yield Master Index (MLHYMI). The LBABI is an
unmanaged fixed-income index of U.S. government, corporate and mortgage-backed
securities and the MLHYMI is a broad-based measure of the performance of the
non-investment grade U.S. domestic bond market. Neither is an actual investment.
Average Annual Total Return
(for the period ended 12/31/1998)*
Inception Performance Since
Date of Class 1 year 5 year 10 year 9/11/1935
Class A 1/20/1998 -6.46% 3.02% 6.64% 8.45%
Class B 9/11/1935 -7.03% 2.99% 6.28% 8.32%
Class C 1/21/1998 -3.43% 3.26% 6.30% 8.29%
Class Y 4/14/1998 -1.47% 4.31% 7.43% 8.60%
LBABI 8.69% 7.27% 9.26% N/A**
MLHYMI 3.66% 9.01% 11.08% N/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. These
historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fee is 0.25%
for Class A, 1.00% for Class B and 1.00% for Class C. Class Y does not pay a
12b-1 fee. If these fees had not been eliminated, returns for would have been
lower.
**The inception date of the LBABI is 12/31/1975. Performance since
1/20/1998 is 7.31% and since 4/14/1998 is 7.02%.
***The inception date of the
MLHYMI is 10/31/1984. Performance since 1/20/1998 is 2.04% and since 4/14/1998
is 0.85%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from your investment)
Shareholder Transaction Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C>
Maximum sales charge imposed on 4.75% None None None
purchases (as a % of offering price)
Maximum deferred sales charge None* 5.00% 1.00% None
(as a % of either the redemption
amount or initial investment whichever
is lower)
</TABLE>
* 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)+
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses++
Class A 0.61% 0.25% 0.47% 1.33%
Class B 0.61% 1.00% 0.47% 2.08%
Class C 0.61% 1.00% 0.46% 2.07%
Class Y 0.61% 0.00% 0.47% 1.08%
+Actual for the fiscal year ended April 30, 1999.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse a Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The annual operating expenses do not
reflect fee waivers and expense reimbursements. Including current fee waivers
and expense reimbursements and restating to reflect current fees, Total Fund
Operating Expenses would have been 1.21% for Class A, 1.96% for Class B, 1.95%
for Class C and 0.96% for Class Y.
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. Your actual costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption at Assuming
End of Period No Redemption
Class A Class B Class C Class Y Class B Class C
<S> <C> <C> <C> <C> <C> <C>
After 1 year $604 $711 $310 $110 $211 $210
After 3 years $876 $952 $649 $343 $652 $649
After 5 years $1,169 $1,319 $1,114 $595 $1,119 $1,114
After 10 years $2,000 $2,129 $2,400 $1,317 $2,129 $2,400
</TABLE>
Strategic Income Fund
FUND FACTS:
Goal:
o High Current Income
o Capital Growth
Principal Investment:
o Domestic High Yield, High Risk Bonds
o Foreign Debt Securities
o U.S. Government Securities
Classes of Shares
Offered in this
Prospectus:
o Class A
o Class B
o Class C
o Class Y
Investment Advisor:
o Evergreen Investment Management Company
Portfolio
Manager:
o Prescott B. Crocker
NASDAQ Symbols:
o EKSAX (Class A)
o EKSBX (Class B)
o EKSCX (Class C)
Dividend Payment Schedule:
o Monthly
Investment Goal
The Fund seeks high current income from interest on debt securities.
Secondarily, the Fund considers potential for growth of capital in selecting
securities.
Investment Strategy
The following supplements the investment strategies discussed in the "Overview"
on page 1.
The Fund intends to allocate its assets principally between eligible domestic
high yield, high risk bonds and debt securities (which may be denominated in
U.S. dollars or in non-U.S. currencies) of foreign governments and foreign
corporations. In addition, the Fund will, from time to time, allocate a portion
of its assets to U.S. government securities, including zero-coupon U.S. Treasury
securities, mortgage-backed securities and money market instruments. This
allocation will be made on the basis of the investment advisor's assessment of
global opportunities for high income and high investment return. From time to
time, the Fund may invest 100% of its assets in either U.S. or foreign
securities. While the Fund may invest in securities of any maturity, it is
currently expected that the Fund will not invest in securities with maturities
of more than 30 years. The Fund's portfolio manager takes an aggressive approach
to investing but seeks to control risk through diversification, credit analysis,
economic analysis, interest rate forecasts and review of sector and industry
trends.
The Fund may invest 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"
on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
o Below Investment Grade Bond Risk
o Foreign Investment Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
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 A shares of the Fund
in the past ten calendar years. It should give you a general idea of 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 A Shares (%)
1989 1990 1991 1992 1993
0.27% -25.36% 44.10% 19.41% 31.69%
1994 1995 1996 1997 1998
- -9.64% 10.90% 11.05% 8.77% 3.49%
Best Quarter: 1st Quarter 1991 +15.46%
Worst Quarter: 4th Quarter 1990 -13.14%
Year to date total return through 6/30/1999 is _____%.
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 12/31/1998), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund. At the bottom of the table you
can compare this performance with the Lehman Brothers Aggregate Bond Index
(LBABI), which is an unmanaged fixed-income index of U.S. government, corporate
and mortgage-backed securities; it is not an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)*
Inception Performance Since
Date of Class 1 year 5 year 10 year 4/14/1987
Class A 4/14/1987 -1.48% 3.60% 7.31% 7.00%
Class B 2/1/1993 -2.24% 3.50% 7.27% 6.98%
Class C 2/1/1993 1.61% 3.79% 7.26% 6.97%
Class Y 1/13/1997 3.65% 4.12% 7.57% 7.24%
LBABI 8.69% 7.27% 9.26% 8.95%**
*Historical performance shown for
Classes B, C and Y prior to their inception is based on the performance of Class
A, the original class offered. These historical returns for Classes B, C and Y
have not been adjusted to reflect the effect of each Class' 12b-1 fees. The
12b-1 fee is 0.25% for Class A, 1.00% for Class B and 1.00% for Class C. Class Y
does not pay a 12b-1 fee. If these fees had been reflected, returns for Classes
B and C would have been lower while returns for Class Y would have been higher.
**Performance since 1/13/1997 is 9.17% and since 2/1/1993 is 7.44%.
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) Shareholder
Transaction Expenses Class A Class B Class C Class Y
Maximum sales charge imposed on 4.75% None None None
purchases (as a % of offering price)
Maximum deferred sales charge None* 5.00% 1.00% None
(as a % of either the redemption
amount or initial investment whichever
is lower)
* 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) +
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses++
Class A 0.62% 0.25% 0.42% 1.29%
Class B 0.62% 1.00% 0.41% 2.03%
Class C 0.62% 1.00% 0.41% 2.03%
Class Y 0.62% 0.00% 0.41% 1.03%
+Actual for the fiscal year ended April 30, 1999.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse a Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The annual operating expenses do not
reflect fee waivers and expense reimbursements. Including current fee waivers
and expense reimbursements and restating to reflect current fees, Total Fund
Operating Expenses would have been 1.02% for Class A, 1.76%for Class B, 1.76%
for Class C and 0.76% for Class Y.
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. Your actual costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption at Assuming
End of Period No Redemption
Class A Class B Class C Class Y Class B ClassC
<S> <C> <C> <C> <C> <C> <C>
After 1 year $600 $706 $306 $105 $206 $206
After 3 years $865 $937 $637 $328 $637 $637
After 5 years $1,149 $1,293 $1,093 $569 $1,093 $1,093
After 10 years $1,958 $2,079 $2,358 $1,259 $2,079 $2,358
</TABLE>
<PAGE>
U.S. Government Fund
FUND FACTS:
Goal:
o Current Income
o Stability of Principal
Principal Investment:
U.S. Government Securities
Classes of Shares
Offered in this
Prospectus:
o Class A
o Class B
o Class C
o Class Y
Investment Advisor:
o First Capital Group
Portfolio Manager:
o Rollin C. Williams
NASDAQ Symbols:
o EUSAX (Class A)
o EUSBX (Class B)
o EUSYX (Class Y)
Dividend Payment Schedule:
o Monthly
Investment Goal
The Fund seeks to achieve a high level of current income consistent with
stability of principal.
Investment Strategy
The following supplements the investment strategies discussed in the "Overview"
on page 1.
The Fund will invest at least 65% of its total assets in debt instruments issued
or guaranteed by the U.S. government, its agencies, or i nstrumentalities. The
Fund also invests in mortgage-backed securities, asset-backed securities and
collateralized mortgage obligations ("CMOs"). The Fund's portfolio manager
evaluates the strength of each particular issue of asset-backed security, taking
into account the structure of the issue and its credit support. The Fund will
invest only in CMOs which are rated AAA by a nationally recognized statistical
rating organization. The Fund may invest up to 20% of its total assets in (i)
CMOs and commercial paper which mature in 270 days or less so long as at least
two of its ratings are high quality ratings by nationally recognized statistical
rating organizations (i.e., A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or
F-1 or F-2 by Fitch), and (ii) bonds and other debt securities rated Baa or
higher by Moody's or BBB or higher by S&P, or which, if unrated, are considered
to be of comparable quality by the portfolio manager.
The Fund may invest 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"
on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
In addition, the Fund may also be subject to the risks associated with investing
in mortgage-backed and other asset-backed securities. Asset-backed securities
are created by the grouping of certain government-related loan receivables and
other lender assets, such as mortgages, into pools. Interests in these pools are
sold as individual securities. Because the loans held in the asset pool often
may be prepaid without penalty or premium, asset-backed and mortgage-backed
securities are generally subject to higher prepayment risks than most other
types of debt instruments. Prepayment risks in mortgage-backed securities tend
to increase during periods of declining interest rates, because many borrowers
refinance their mortgages to take advantage of the more favorable rates.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
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 A shares of the Fund
in each calendar year since the Class A shares' inception on 1/11/1993. It
should give you a general idea of how the Fund's return has varied from
year-to-year. This graph includes the effects of Fund expenses but not the sales
charges. Returns would be lower if sales charges were included.
Year-by-Year Total Return for Class A Shares (%)
1994 1995 1996 1997 1998
- -3.18% 16.57% 3.03% 8.56% 8.20%
Best Quarter: 4th Quarter 1998 +0.22%
Worst Quarter: 1st Quarter 1994 -2.79%
Year to date total return through 6/30/1999 is ____%.
This next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1998), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund. At the bottom of the table you
can compare this performance with the Lehman Brothers Intermediate Term
Government Bond Index (LBITGBI), which is an unmanaged fixed-income index of
U.S. government securities with maturities of less than ten years; it is not an
actual investment.
Average Annual Total Return
(for the period ended 12/31/1998)*
Inception Performance Since
Date of Class1 year 5 year 10 year 1/11/1993
Class A 1/11/1993 3.10% 5.41% N/A 5.77%
Class B 1/11/1993 2.40% 5.36% N/A 5.79%
Class C 9/2/1994 6.40% 5.75% N/A 6.06%
Class Y 9/2/1993 8.47% 6.70% N/A 6.88%
LBITGBI 8.49% 6.45% 8.34% 6.50%**
*Historical performance shown for Classes C and Y prior to their inception is
based on the performance of Class A, one of the original classes offered along
with Class B. These historical returns for Classes C and Y have not been
adjusted to reflect the effect of each Class' 12b-1 fees. The 12b-1 fee is 0.25%
for Class A, 1.00% for Class B and 1.00% for Class C. Class Y does not pay a
12b-1 fee. If these fees had been reflected, returns for Class C would have been
lower while returns for Class Y would have been higher. **Performance since
9/2/1994 is 7.69% and since 9/2/1993 is 6.15%.
[GRAPHIC OMITTED] 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)
Shareholder Transaction Expenses Class A Class B Class C Class Y
Maximum sales charge imposed on 4.75% None None None
purchases (as a % of offering price)
Maximum deferred sales charge None* 5.00% 1.00% None
(as a % of either the redemption
amount or initial investment whichever
is lower)
*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) +
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Class A 0.50% 0.25% 0.20% 0.95%
Class B 0.50% 1.00% 0.21% 1.71%
Class C 0.50% 1.00% 0.20% 1.70%
Class Y 0.50% 0.00% 0.21% 0.71%
+Actual for the fiscal year ended April 30, 1999.
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. Your actual costs may be higher or lower.
Example of Fund Expenses
Assuming Redemption at Assuming
End of Period No Redemption
Class A Class B Class C Class Y Class B Class C
After 1 year $567 $674 $273 $73 $174 $173
After 3 years $763 $839 $536 $227 $539 $536
After 5 years $976 $1,128 $923 $395 $928 $923
After 10
years $1,586 $1,723 $2,009 $883 $1,723 $2,009
<PAGE>
The Funds' Investment Advisors
The investment advisor manages a Fund's investments and supervises its daily
business affairs. There are two investment advisors for the Evergreen Long Term
Bond Funds. All investment advisors for the Evergreen Funds are subsidiaries of
First Union Corporation, the sixth largest bank holding company in the United
States, with over $____billion in consolidated assets as of __/__/1999. First
Union Corporation is located at 301 South College Street, Charlotte, North
Carolina 28288-0630.
Evergreen Investment Management Company (EIMC) is the investment advisor to:
o Evergreen Diversified Bond Fund
o Evergreen High Yield Bond Fund
o Evergreen Strategic Income Fund
EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $___ billion in assets for ___ of the Evergreen Funds.
EIMC is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
For the fiscal year ended 4/30/1999, aggregate advisory fees paid to EIMC by the
Funds were as follows:
% of the Fund's average
Fund daily net assets
- ---- -------------------------
Diversified Bond 0.54%
High Yield Bond 0.49%
Strategic Income 0.36%
First Capital Group (FCG) is the investment advisor to:
o Evergreen U.S. Government Fund
FCG, a division of First Union National Bank ("FUNB"), has been managing money
for over 50 years and currently manages $_____ billion in investment assets,
including ___ of the Evergreen Funds. FCG is located at 201 South College
Street, Charlotte, North Carolina 28288-0630.
For the fiscal year ended 4/30/1999, the aggregate advisory fee paid to FCG by
the Fund was as follows:
% of the Fund's average
Fund daily net assets
- ----- -----------------------
U.S. Government 0.50%
Year 2000 Compliance
The investment advisors and other service providers for the Evergreen Funds are
taking steps to address any potential Year 2000-related computer problems.
However, there is some risk that these problems could disrupt the Funds'
operations or financial markets generally. In addition, issuers of securities,
especially foreign issuers, in which the Funds invest may be adversely affected
by Year 2000 problems. Such problems could negatively impact the value of the
Funds' securities.
THE FUNDS' PORTFOLIO MANAGERS
Diversified Bond Fund
The day-to-day management of the Fund is handled by Gary Pzegeo. Mr. Pzegeo has
been the portfolio manager of the Fund since January 1999. Mr. Pzegeo is a Vice
President and portfolio manager in the fixed income group with EIMC. Mr. Pzegeo
has been an investment professional at EIMC since 1990. He became a senior cash
manager in 1993, a senior research associate in 1994, an analyst in 1996 and a
portfolio manager in September 1997.
High Yield Bond Fund and Strategic Income Fund
The day-to-day management of the Funds is handled by Prescott B. Crocker, CFA.
Mr. Crocker is a Senior Vice President, senior portfolio manager and head of the
high yield bond team at EIMC. Mr. Crocker joined EIMC in February 1997 and
initially served as the manager of the domestic high yield bond portion of the
High Yield Bond Fund's portfolio. From 1993 until he joined EIMC, Mr. Crocker
held various positions at Boston Security Counsellors, including President and
Chief Investment Officer. Mr. Crocker has been in fixed income investment
management since 1974.
U.S. Government Fund
The day-to-day management of the Fund is handled by Rollin C. Williams, CFA. In
addition to managing First Union Corporation's Diversified Bond Group Trust, Mr.
Williams is also responsible for the management of over $2.6 billion in fixed
income portfolios. Mr. Williams was the head of fixed income investment at
Dominion Trust Company in Roanoke, Virginia when Dominion was acquired by First
Union in 1993. He started with Dominion in 1988. Mr. Williams joined FUNB as a
Vice President and senior portfolio manager, and became a Senior Vice President
in September 1997. Mr. Williams has been in banking and investment management
since 1969.
Calculating The Share Price
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated on each day the New York Stock Exchange is open as of the time the
Exchange closes (normally 4:00 p.m. Eastern time). The Fund calculates its 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 a 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 Funds' 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:
o Most importantly, read the prospectus to see if the Fund is suitable for
you.
o 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.
o Request any additional information you want about the Fund, such as the
Statement of Additional Information, Annual Report or Semi-annual Report by
calling 1-800-343-2898.
How To Choose The Share
Class That Best Suits You
After choosing a Fund, you select a share class. Each Evergreen Long Term Bond
Fund 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%. This charge is deducted from your investment before it is invested. The
actual charge depends on the amount invested, as shown below:
As a % of As a % Dealer
Your NAV excluding of your commission
Investment sales charge investment as a % of NAV
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% 0% 1.00 to .25%
Although no front-end sales charge applies to purchases of $1,000,000 and over,
you will pay a 1% 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.
Each Fund may also sell Class A shares at net asset value without any initial or
contingent 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., 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 the 12b-1 fee. 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 are held, as shown below:
Contingent Deferred
Time Held Sales Charge
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%
After 7 years Converts to Class A
Dealer Allowance 4.00%
The deferred sales charge percentage is applied to the value of the shares when
purchased or when redeemed, whichever is less. No deferred sales charge is paid
on shares purchased through dividend or capital gain reinvestments or on any
gain in the value of your shares.
Class C
Class C shares are similar to Class B shares, except the deferred sales charge
is less and only applies if shares are redeemed within the first year after the
month of purchase. Also, these shares do not convert to Class A shares and so
the higher 12b-1 fee continues for the life of the account.
Time Held Deferred Sales Charge
Month of Purchase + Less than 1 year 1.00%
Month of Purchase + 1 year or more 0%
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:
o When the shares were purchased through reinvestment of dividends/capital
gains
o Death or disability
o Lump-sum distribution from a 401(k) plan or other benefit plan qualified under
ERISA
o Automatic IRA withdrawals if your age is at least 59 1/2
o Automatic withdrawals of up to 1.0% of the account balance per month
o Loan proceeds and financial hardship distributions from a retirement plan
o Returns of excess contributions or excess deferral amounts made to a
retirement plan participant
Class Y
Each 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 a 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).
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
<PAGE>
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<S> <C> <C>
By Mail or through o Complete and sign the account application. o Make your check payable to
an Investment o Make the check payable to Evergreen Funds. Evergreen Funds.
Professional o Mail the application and your check to the address o Write a note specifying:
below: - The Fund name
Evergreen Service Company Overnight Address: - Share class
P.O. Box 2121 - Your account number
Evergreen Service Company - The name(s) in which the account is
Boston, MA 02106-2121 200 Berkeley St. registered.
o Mail to the address to the left or
Boston, MA 02116-5039 deliver to your investment o Or
deliver them to your investment representative
representative.
(provided he or she has a broker/dealer arrangement
with Evergreen Distributor, Inc.)
By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express Line at
and get wiring instructions (call before 12 noon if 1-800-346-3858 24 hours a day or
you want wired funds to be credited that day). 1-800-343-2898 between 8 a.m. and 6
o Instruct your bank to wire or transfer your p.m. Eastern time, on any business
purchase (they may charge a wiring fee). day.
o Complete the account application and mail to: o If your bank account is set up on
Evergreen Service Company Overnight Address: file, you can request either:
P.O. Box 2121 Evergreen - Federal Funds Wire (offers
Service Company immediate access to funds) or
Boston, MA 02106-2121 200 Berkeley St. - Electronic transfer through the
Automated Clearing House which avoids
Boston, MA 02116-5039 wiring fees.
o Wires received after 4 p.m. Eastern time on market
trading days will receive the next market day's
closing price.**
By Exchange o You can make an additional investment by
exchange from an existing Evergreen Fund's account
by contacting your investment representative or
calling the Evergreen Express Line at
1-800-346-3858.*
o You can only exchange shares within the same class.
o There is no sales charge or redemption fee when
exchanging Funds within the Evergreen Funds family.
o 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).**
o Exchanges are limited to three per calendar quarter,
but in no event no more than five per calendar year.
o Exchanges between accounts which do not have
identical ownership must be made in writing with a
signature guarantee (see below).
Systematic o You can transfer money automatically from your bank account o To establish automatic
Investment Plan into your Fund on a monthly basis. investing for an existing
(SIP) o Initial investment minimum is $50 if you invest at least $25 account, call
per month with this service. 1-800-343-2898 for an
o To enroll, check off the box on the account application and application.
provide: o The minimum is $25 per
- Your bank account information month or $75 per quarter.
- The amount and date of your monthly investment. o You can also establish
an investing program
through direct deposit
from your paycheck. Call
1-800-343-2898 for details.
</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 who have a service agreement with the Fund, which are also investment
dealers. 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.
<PAGE>
How To Redeem Shares
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
<CAPTION>
Methods Requirements
<S> <C>
Call Us o 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.
o This service must be authorized ahead of time, and is only
available for regular accounts.* o All authorized requests
made before 4 p.m. Eastern time on market trading days will be
processed at
that day's closing price. Requests after 4 p.m. will be processed the following business day.**
o We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank
account via the Automated Clearing House service - mail
you a check.
o All telephone calls are recorded for your protection. We
are not responsible for acting on telephone orders we
believe are genuine.
o See exceptions list below for requests that must be made in
writing.
Write Us o 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
o 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).
o See exceptions list below for requests that must be
signature guaranteed.
o To redeem from an IRA or other retirement account, call
1-800-346-3858 for a special application.
Sell Your o You may also redeem your shares through participating broker-dealers by delivering a letter as
Shares in Person described above to your broker-dealer.
o A fee may be charged for this service.
Systematic o You can transfer money automatically from your Fund account on a monthly or quarterly basis
Withdrawal without redemption fees.
Plan (SWP) o The withdrawal can be mailed to you, or deposited directly to your bank account.
o The minimum is $75 per month.
o The maximum is 1% of your account per month or 3% per quarter.
o To enroll, call 1-800-343-2898 for an application.
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 in 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:
o You are redeeming more than $50,000.
o You want the proceeds transmitted to a bank account not listed on the
account.
Who Can Provide A Signature
Guarantee:
o You want the proceeds payable to anyone other than the registered owner(s) of
the account. o Commercial Bank
o Either your address or the address of your bank account has been changed within o Trust Company
30 days. o Savings Association
o The account is registered in the name of a fiduciary corporation or any other o Credit Union
organization. o Member of a U.S. stock
exchange
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
</TABLE>
<PAGE>
Other Services
Evergreen Express Line
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find a 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 4:00 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 (NAV).
The Tax Consequences of Investing in the Funds
You may be taxed in two ways:
o On Fund distributions (dividends and capital gains)
o 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 Funds will distribute two types of taxable income to you:
oDividends. To the extent the 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. Each Fund pays a monthly
dividend from the dividends, interest and other income on the securities in
which it invests.
o Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. Evergreen Long Term Bond Funds generally distribute
capital gains 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, on sales made
after January 1, 1998).
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 each Fund during the previous calendar year.
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
or occurred in a money market fund. 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 gains or
losses 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 Funds.
Retirement Plans
You may invest in each 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 FUNDS
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 Fee
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Class A, Class B and Class C shares. These fees increase the cost of your
investment. The purpose of the 12b-1 fee is to promote the sale of more shares
of the Funds to the public. The Funds might use this fee 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) a Fund's advisor may waive a portion of the Fund's expenses
for a period of time, reducing its expense ratio.
<PAGE>
Financial Highlights
This section looks in detail at the results for one share in each share class of
the Funds -- 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 [the auditors], the
Funds' independent auditors. For a more complete picture of the Funds' financial
statements, please see the Funds' Annual Report as well as the Statement of
Additional Information.
Financial highlights will go here:
OTHER FUND PRACTICES
The Funds may invest in futures and options. The Funds may also engage in short
sales. Such practices are used to hedge a Fund's portfolio to protect against
changes interest rates and to adjust the portfolio's duration. Although this is
intended to increase returns, these practices may actually reduce returns or
increase volatility.
If the Fund invests in foreign securities, which may include foreign currency
transactions, the value of the Fund's shares will be affected by changes in
exchange rates. To manage this risk, the Fund may enter into currency futures
contracts and forward currency exchange contracts. Although the Fund uses these
contracts to hedge the U.S. dollar value of a security it already owns, the Fund
could lose money if it fails to predict accurately the future exchange rates.
The Fund may engage in hedging and cross hedging with respect to foreign
currencies to protect itself against a possible decline in the value of another
foreign currency in which certain of the Fund's investments are denominated. A
cross hedge cannot protect against exchange rate risks perfectly, and if a Fund
is incorrect in its judgement of future exchange rate relationships, the Fund
could be in a less advantageous position than if such a hedge had not been
established.
Please consult the Statement of Additional Information for more information
regarding these and other investment practices used by the Funds, including
risks.
<PAGE>
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 Municipal Money Market Fund
Municipal Bond
Short Intermediate
Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
Diversified Bond Fund
High Yield Bond Fund
Strategic Income Fund
U.S. Government Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Domestic Growth
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Tax Strategic Equity Fund
Masters Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
<PAGE>
1. Evergreen Express Line
Call 1-800-346-3858
24 hours a day to
o check your account
o order a statement
o get a Fund's current price, yield and
total return
o buy, redeem or exchange Fund shares
2. Non-retirement account holders
Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m. Eastern time to
o buy, redeem or exchange shares
o order applications
o 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
o to buy, redeem or exchange shares
o to change the registration on your account
o for general correspondence
5. For express, registered, certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
6. Contact us on-line:
www.evergreen-funds.com
7. Regular communications you will receive:
Account Statements -- You will receive quarterly statements for each Fund
you own.
Confirmation Notices -- We send a confirmation of any transaction you make
within five days of the transaction.
Annual and Semiannual reports -- You will receive a detailed financial
report on your Funds twice a year.
Tax Forms -- Each January you will receive any tax forms you need to file
in your taxes as well as the Evergreen Tax Information Guide.
<PAGE>
For More Information About the Evergreen Long Term Bond Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each 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 Funds. 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.
Information about these Funds (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov, or, for a duplication fee,
by writing the SEC Public Reference Section, Washington DC 20549-6009. This
material can be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. For more information, call the SEC at 1-800-SEC-0330.
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.: 811-07246
<PAGE>
EVERGREEN FIXED INCOME TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN LONG TERM BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1999
Evergreen Diversified Bond Fund ("Diversified Fund")
Evergreen High Yield Bond Fund ("High Yield Fund")
Evergreen Strategic Income Fund ("Strategic Fund")
Evergreen U.S. Government Fund ("U.S. Government Fund")
(Each a "Fund," together, the "Funds")
Each Fund is a series of an open-end management investment company
known as Evergreen Fixed Income Trust (the "Trust")
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but should
be read in conjunction with the prospectus dated September 1, 1999 for the Fund
in which you are interested. The Funds are offered through the prospectus
offering Class A, Class B, Class C, and Class Y shares.
Certain information may be incorporated by reference to the Funds'
Annual Report dated April 30, 1999. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898.
o:/efit-de/n-1a/sai'ltbf.doc
<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.................................. ................................1-11
PERFORMANCE............................... ................................1-15
COMPUTATION OF CLASS A OFFERING PRICE .....................................1-18
SERVICE PROVIDERS..........................................................1-18
FINANCIAL STATEMENTS.......................................................1-20
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES...............2-1
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................2-14
SALES CHARGE WAIVERS AND REDUCTIONS........................................2-16
PERFORMANCE CALCULATIONS...................................................2-19
PRINCIPAL UNDERWRITER......................................................2-21
DISTRIBUTION EXPENSES UNDER RULE 12b-1.....................................2-22
TAX INFORMATION............................................................2-25
BROKERAGE..................................................................2-28
ORGANIZATION...............................................................2-29
INVESTMENT ADVISORY AGREEMENT..............................................2-30
MANAGEMENT OF THE TRUST....................................................2-32
CORPORATE AND MUNICIPAL BOND RATINGS.......................................2-34
ADDITIONAL INFORMATION.....................................................2-46
<PAGE>
PART 1
TRUST HISTORY
The Evergreen Fixed Income Trust is an open-end management investment
company, which was organized as a Delaware business trust on September 18, 1997.
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 foregoing is qualified
in its entirety by reference to the Declaration of Trust.
INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the"1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
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
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversified Funds:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect 75% of its total
assets, a diversified investment company may not invest more that 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 that 10% of the
outstanding voting securities securities of any one issuer, determined at the
time of purchase. These limitations do not apply to investments in securities
issued or guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:.
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a 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, a 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 a 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.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections under
"Additional Information on Securities and Investment Practices" in Part 2 of
this SAI:
Defensive Investments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Options
Futures Transactions
Foreign Securities (Diversified Fund, High Yield Fund and Strategic Fund)
Foreign Currency Transactions (Diversified Fund, High Yield Fund and Strategic
Fund)
High Yield, High Risk Bonds (Diversified Fund, High Yield Fund and Strategic
Fund)
Illiquid and Restricted Securities
Investment in Other Investment Companies
Short Sales
Zero Coupon "Stripped" Bonds
Mortgage-Backed or Asset-Backed Securities
Limited Partnerships (Diversified Fund, High Yield Fund and Strategic Fund)
PRINCIPAL HOLDERS OF FUND SHARES
As of May 31, 1999, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of May 31, 1999.
------------------------------------------------------
Diversified Fund Class A
------------------------------------------------------
----------------------------------------- ------------
MLPF&S For the sole benefit of its 10.01%
customers
Attn: Fund Administration #97TU7
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
Diversified Fund Class B
------------------------------------------------------
----------------------------------------- ------------
MLPF&S For the sole benefit of its 17.06%
customers
Attn: Fund Administration #98295
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
Diversified Fund Class C
------------------------------------------------------
----------------------------------------- ------------
Salomon Smith Barney Inc 21.80%
00123805490
333 West 34th St-3rd Fl
New York, NY 10001
----------------------------------------- ------------
----------------------------------------- ------------
MLPF&S For the sole benefit of its 10.02%
customers
Attn: Fund Administration #97TU8
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
----------------------------------------- ------------
NFSC FEBO # OKA-068993 8.28%
Edwin D Fortini TTEE
Edwin D Fortini Rev Living TR
U/A 1/6/93
776 89th Ave N
St. Petersburg, FL 33702
----------------------------------------- ------------
----------------------------------------- ------------
Edward Registrato TTEE 8.07%
Margaret S Pahutka Trust
U/A DTD 5 4 92
10104 West Coggins Dr
Sun City, AZ 85351
----------------------------------------- ------------
----------------------------------------- ------------
Salomon Smith Barney Inc 6.63%
00123805489
333 West 34th St-3rd Fl
New York, NY 10001
----------------------------------------- ------------
----------------------------------------- ------------
Donaldson Lufkin Jenrette 6.16%
Securities Corporation Inc
PO Box 2052
Jersey City, NJ 07303-9998
----------------------------------------- ------------
----------------------------------------- ------------
Salomon Smith Barney Inc 5.18%
00123812200
333 West 34th St-3rd Fl
New York, NY 10001
----------------------------------------- ------------
------------------------------------------------------
Diversified Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
First Union National BK 97.01
Trust Accounts
Attn: Ginny Batten
CMG-1151 11th FL
301 S. Tyron Street
Charlotte, NC 28202-1910
----------------------------------------- ------------
<PAGE>
------------------------------------------------------
High Yield Fund Class A
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 7.62%
customers
Attn: Fund Administration #97TW1
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
High Yield Fund Class B
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 23.16%
customers
Attn: Fund Administration #98296
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
High Yield Fund Class C
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 25.99%
customers
Attn: Fund Administration #97TW2
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
----------------------------------------- ------------
Painewebber for the benefit of William 6.00%
E Arnold 550
Garfield Unit 303 Cocoa Beach, FL 32931
----------------------------------------- ------------
----------------------------------------- ------------
NFSC FEBO # CPD-299049 5.97%
NFSC/FMTC IRA
FBO Eric J. Falken
PO Box 1090
Clinton, WA 98236
----------------------------------------- ------------
----------------------------------------- ------------
First Union Brokerage Services 5.56%
Louis E. Iozzino and A/C
4509-6433
13009 Boca Ciega Ave
Madeira Beach, FL 33708
----------------------------------------- ------------
------------------------------------------------------
High Yield Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
First Union National Bank/EB/INT 97.35%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tyron St, 3rd FL CMG 1151
Charlotte, NC 28202-1911
----------------------------------------- ------------
<PAGE>
------------------------------------------------------
Strategic Fund Class A
------------------------------------------------------
----------------------------------------- ------------
None
----------------------------------------- ------------
------------------------------------------------------
Strategic Fund Class B
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 7.54%
customers
Attn: Fund Administration #97A19
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
Strategic Fund Class C
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 22.58%
customers
Attn: Fund Administration #97A20
4800 Deer Lake DR. E 2nd Fl.
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
Strategic Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
First Union National Bank 54.49%
Cash Account
Attn: Trust Operation Fund Group
401 S. Tyron St 3rd Fl
Charlotte, NC 28202-1911
----------------------------------------- ------------
----------------------------------------- ------------
First Union National Bank 35.49%
Re-invest Account
Attn: Trust Operation Fund Group
401 S. Tyron St 3rd Fl
Charlotte, NC 28202-1911
----------------------------------------- ------------
------------------------------------------------------
US Government Fund Class A
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 9.44%
customers
Attn: Fund Administration #97H24
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
----------------------------------------- ------------
------------------------------------------------------
US Government Fund Class B
------------------------------------------------------
----------------------------------------- ------------
None
----------------------------------------- ------------
------------------------------------------------------
US Government Fund Class C
------------------------------------------------------
----------------------------------------- ------------
MLPF&S for the sole benefit of its 26.64%
customers
Attn: Fund Administration #97H43
4800 Deer Lake Dr E 2nd FL
Jacksonville, Fl 32246-6484
----------------------------------------- ------------
----------------------------------------- ------------
First Union National Bank 9.82%
TTEE Evangelical Lutheran
Acct: 1519206689 CMG-NC1151
1525 West WT Harris Blvd.
Charlotte, NC 28288-1151
----------------------------------------- ------------
<PAGE>
------------------------------------------------------
US Government Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
First Union National Bank 58.97%
Trust Accounts
Attn: Ginny Batten
11th Fl CMG-151
301 S. Tyron Street
Charlotte, NC 28288
----------------------------------------- ------------
----------------------------------------- ------------
Wachovia Bank NA 20.54%
Dir Trustee for First Union Corp.
Non-Qualified ret. plan U/A DTD
083194, Invest acc 021871232
PO Box 3073
301 Main St MC NCC 31057
Winston-Salem, NC 27150
----------------------------------------- ------------
----------------------------------------- ------------
First Union National Bank 11.40%
Trust Accounts
Attn: Ginny Batten
11th Fl CMG-151
301 S. Tyron Street
Charlotte, NC 28288
----------------------------------------- ------------
----------------------------------------- ------------
Wachovia Bank NA Directed TTEE for 7.75%
First Union Corp. Ret Tr for Non Empl
Dir
U/A/D 10-24-94 Investment-021872218
PO Box 3073
301 Main Street MC:NC 31057
Winston Salem, NC 27101-3819
----------------------------------------- ------------
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Investment Management Company ("EIMC") is the investment
advisor to the Diversified Fund, High Yield Fund and Strategic Fund. EIMC is
entitled to receive a fee from each Fund an annual fee of 2.0% of gross dividend
and interest income, plus the following:
---------------------- ---------------------
Average Daily Net Fee
Assets
---------------------- ---------------------
---------------------- ---------------------
First $100 million 0.50%
---------------------- ---------------------
---------------------- ---------------------
Next $100 million 0.45%
---------------------- ---------------------
---------------------- ---------------------
Next $100 million 0.40%
---------------------- ---------------------
---------------------- ---------------------
Next $100 million 0.35%
---------------------- ---------------------
---------------------- ---------------------
Next $100 million 0.30%
---------------------- ---------------------
---------------------- ---------------------
Over $500 million 0.25%
---------------------- ---------------------
Evergreen Investment Management ("EIM") (formerly known as Capital
Management Group, or CMG), a division of First Union National Bank, is the
investment advisor to the U.S. Government Fund. EIM is entitled to receive a fee
from the Fund at the annual rate of 0.50% of the Fund's average daily net
assets.
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
------------------------------------------------------ ======================
Fund/Fiscal Year or Period Advisory Fee Paid Advisory Fees Waived
------------------------------------------------------ ======================
=============================================================================
Year or Period Ended 1999
==============================================================================
------------------------------------------------------ ======================
Diversified Fund $2,871,113 $0
------------------------------------------ ---------- ======================
------------------------------------------------------ ======================
High Yield Fund $2,688,068 $538,084
------------------------------------------------------ ======================
------------------------------------------------------ ======================
Strategic Fund $1,852,515 $798,523
------------------------------------------------------ ======================
------------------------------------------ ----------- ======================
U.S. Government Fund $1,817,699 $0
------------------------------------------------------- ======================
=============================================================================
Year or Period Ended 1998
==============================================================================
------------------------------------------------------- ======================
Diversified Fund(a) $1,847,478 $0
------------------------------------------------------- ======================
------------------------------------------------------ ======================
High Yield Fund(b) $2,300,383 $0
------------------------------------------------------- ======================
------------------------------------------------------ ======================
Strategic Fund(c) $1,406,494 $0
------------------------------------------------------- ======================
------------------------------------------------------- ======================
U.S. Government Fund(d) $1,601,407 $0
------------------------------------------------------ ======================
=============================================================================
Year or Period Ended 1997
==============================================================================
------------------------------------------------------ ======================
Diversified Fund(e) $2,835,152 $0
------------------------------------------------------ ======================
------------------------------- ----------------------- ======================
High Yield Fund(f) $3,259,222 $0
------------------------------------------------------ ======================
------------------------------------------------------- ======================
Strategic Fund(g) $1,017,082 $0
------------------------------------------------------- ======================
------------------------------------------------------- ======================
U.S. Government Fund(h) $1,258,319 $0
------------------------------------------------------- ======================
(a)For the eight months ended 4/30/98.
(b)For the nine months ended 4/30/98.
(c)For the year ended 4/30/98.
(d)For the year ended 4/30/98.
(e)For the year ended 8/31/97.
(f)For the year ended 7/31/97.
(g)For the nine months ended 4/30/97.
(h)For the ten months ended 4/30/97.
Brokerage Commissions
Below are the brokerage commissions paid by each Fund for the last
three fiscal years or periods.
- ------------------------------------- --------------- --------- ---------------
Fund 1999 1998 1997
- ------------------------------------- --------------- --------- ================
- ------------------------------------- --------------- --------- ================
Diversified Fund $0 (8) $0 (1) $0 (4)
- ------------------------------------- --------------- --------- ================
- ------------------------------------- --------------- --------- ================
High Yield Fund $37,490 (8) $1,046 (2) $3,488 (5)
- ------------------------------------- --------------- --------- ===============
- ------------------------------------- --------------- --------- ===============
Strategic Fund $3,698 (8) $0 (3) $2,864 (6)
- ------------------------------------- --------------- --------- ===============
- ------------------------------------- --------------- --------- ===============
U.S. Government Fund $33,456 (8) $0 (3) $6,838 (7)
- ------------------------------------- --------------- --------- ================
(1) Eight months ended 4/30/98.
(2) Nine months ended 4/30/98.
(3) Year ended 4/30/98.
(4) Year ended 8/31/97.
(5) Year ended 7/31/97.
(6) Nine months ended 4/30/97.
(7) Ten months ended 4/30/97.
(8) Year ended 4/30/99.
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last three fiscal periods.
For more information, see "Principal Underwriter" in Part 2 of this SAI.
- ------------------------------------------------------------ ------------------
Total Underwriting Underwriting
Fund/Fiscal Year or Period Commissions Commissions
Retained
- ------------------------------------------------------------- ==================
================================================================================
Year or Period Ended 1999
================================================================================
- ------------------------------------------------------------- ==================
Diversified Fund $454,686 $8,812
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------ ==================
High Yield Fund $479,457 $0
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------- ==================
Strategic Fund $1,616,086 $18,294
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------- ==================
U.S. Government Fund $572,454 $0
- ------------------------------------------------------------- ==================
================================================================================
Year or Period Ended 1998
================================================================================
- ------------------------------------------------------------- ==================
Diversified Fund(a) $243,811 $2,432
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------- ==================
High Yield Fund(b) $272,412 $4,722
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------- ==================
Strategic Fund(c) $970,715 $39,544
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------- ==================
U.S. Government Fund(d) $266,278 $5,752
- ------------------------------------------------------------- ==================
================================================================================
Year or Period Ended 1997
================================================================================
- ------------------------------------------------------------ ==================
Diversified Fund(e) $612,244 $3,159
- ------------------------------------------------------------ ==================
- ------------------------------------------------------------- ==================
High Yield Fund(f) $4,909,107 $4,122,547
- ------------------------------------------ ------------- ==================
- ------------------------------------------------------------ ==================
Strategic Fund(g) $133,622 $9,140
- ------------------------------------------------------------- ==================
- ------------------------------------------------------------ ==================
U.S. Government Fund(h) $32,391 $32,391
- ------------------------------------------------------------- ==================
(a)For the eight months ended 4/30/98.
(b)For the nine months ended 4/30/98.
(c)For the year ended 4/30/98.
(d)For the year ended 4/30/98.
(e)For the year ended 8/31/97.
(f)For the year ended 7/31/97.
(g)For the nine months ended 4/30/97.
(h)For the ten months ended 4/30/97.
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year or
period ended April 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
================================= ================================== ===============================
---------------- ---------------- ---------------- ----------------- ---------------- ==============
Fund Distribution Service Fees Distribution Service Fees Distribution Service Fees
Fees Fees Fees
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
Diversified Fund $0 $1,178,170 $474,984 $158,328 $1,960 $653
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
High Yield Fund $0 $907,463 $529,673 $176,558 $9,900 $3,300
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
Strategic Fund $0 $428,399 $818,527 $272,842 $129,034 $43,011
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
U.S. Government Fund $0 $109,595 $959,460 $319,820 $42,511 $14,170
- ------------------------------- ---------------- ---------------- ---------------- ----------------- ---------------- ==============
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust
individually and by the Trust and the eight other trusts in the Evergreen Fund
Complex for the twelve months ended April 30, 1999. The Trustees do not receive
pension or retirement benefits from the Funds. For more information, see
"Management of the Trust" in Part 2 of this SAI.
<TABLE>
<CAPTION>
------------------------------- ------------------------------ =============================
Trustee Aggregate Compensation from Total Compensation from
Trust Trust and Fund Complex Paid
to Trustees*
<S> <C> <C>
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,414 $75,000
Laurence B. Ashkin
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,414 $75,000
Charles A. Austin, III
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,345 $72,917
K. Dun Gifford
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$3,040 $97,500
James S. Howell
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,345 $72,917
Leroy Keith Jr.
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,414 $75,000
Gerald M. McDonnell
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,758 $86,000
Thomas L. McVerry
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,523 $72,917
William Walt Pettit
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,150 $72,500
David M. Richardson
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,414 $77,502
Russell A. Salton, III
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,500 $81,671
Michael S. Scofield
------------------------------- ------------------------------ =============================
------------------------------- ------------------------------ =============================
$2,345 $72,917
Richard J. Shima
------------------------------- ------------------------------ =============================
</TABLE>
*Certain Trustees have elected to defer all or part of their
total compensation for the twelve months ended April 30, 1999.
The amounts listed below will be payable in later years to the
respective Trustees:
Austin $11,000
Howell $76,133
McDonnell $73,333
McVerry $84,333
Pettit $71,250
Salton $75,167
Scofield $16,500
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of April 30, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
- ----------------------- -------------------- --------------------- -------------------- =====================
Fund/Class One Year Five Years Ten Years or Since Inception Date of
Inception Class
<S> <C> <C> <C> <C>
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Diversified Fund(a)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A (1.54)% 6.40% 7.48% 1/20/98
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B (2.29)% 6.33% 7.09% 9/11/35
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 1.60% 6.63% 7.07% 4/7/98
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 2.99% 7.55% 8.19% 2/11/98
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
High Yield Fund(a)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A (6.79)% 4.37% 6.90% 1/20/98
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B (7.27)% 4.34% 6.55% 9/11/35
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C (3.69)% 4.61% 6.55% 1/21/98
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y (1.81)% 5.60% 7.65% 4/14/98
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Strategic Fund(b)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A (3.26)% 4.90% 7.21% 4/14/87
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B (4.14)% 4.82% 7.15% 2/1/93
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C (0.39)% 5.09% 7.14% 2/1/93
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 1.83% 5.50% 7.52% 1/13/97
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
U.S. Government Fund(c)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 0.41% 6.04% 5.32% 1/11/93
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B (0.37)% 5.98% 5.42% 1/11/93
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 3.61% 6.34% 5.56% 9/2/94
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 5.66% 7.35% 6.38% 9/2/93
- ----------------------- -------------------- --------------------- -------------------- =====================
</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.
These historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fee is 0.25%
for Class A, 1.00% for Class B and 1.00% for Class C. Class Y does not pay a
12b-1 fee. If these fees had not been eliminated, returns would have been lower.
(b) Historical performance shown for Classes B, C, and Y prior to their
inception is based on the performance of Class A, the original class offered.
These historical returns for Classes B, C, and Y have not been adjusted to
reflect the effect of each Class' 12b-1 fees. The fee is 0.25% for Class A,
1.00% for Class B and 1.00% for Class C. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns for Classes B and C would have been lower
while returns for Class Y would have been higher.
(c) Historical performance shown for Classes C and Y prior to their inception is
based on the performance of Class A, one of the original classes offered along
with Class B. These historical returns for Classes C and Y have not been
adjusted to reflect the effect of each Class' 12b-1 fees. The fee is 0.25% for
Class A, 1.00% for Class B and 1.00% for Class C. Class Y does not pay a 12b-1
fee. If these fees had been reflected, returns for Class C would have been lower
while returns for Class Y would have been higher.
Yields
Below are the current yields of the Funds for the 30-day period ended
April 30, 1999. For more information, see "30-Day Yield" under "Performance
Calculations" in Part 2 of this SAI.
<TABLE>
<CAPTION>
======================================================================================================
30-Day Yield
======================================================================================================
Fund Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
- ------------------------------------- --------------- -------------- ----------------- ===============
- ------------------------------------- --------------- -------------- ----------------- ===============
Diversified Fund 5.59% 5.12% 5.12% 6.15%
- ------------------------------------- --------------- -------------- ----------------- ===============
- ------------------------------------- --------------- -------------- ----------------- ===============
High Yield Fund 7.82% 7.45% 7.45% 8.46%
- ------------------------------------- --------------- -------------- ----------------- ===============
- ------------------------------------- --------------- -------------- ----------------- ===============
Strategic Fund 7.81% 7.44% 7.44% 8.45%
- ------------------------------------- --------------- -------------- ----------------- ===============
- ------------------------------------- --------------- -------------- ----------------- ===============
U.S. Government Fund 4.96% 4.45% 4.45% 5.47%
- ------------------------------------- --------------- -------------- ----------------- ===============
</TABLE>
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase of Class A shares of each Fund aggregating
less than $100,000 based upon the NAV of each Fund' Class A shares at the end of
April, 1999. For more information, see "Purchase, Redemption and Pricing of
Shares."
<TABLE>
<CAPTION>
- -------------------------------------- --------------------- -------------------- ====================
Net Asset Value Per Offering Price Per
Fund Share Sales Charge Share
<S> <C> <C> <C>
- -------------------------------------- --------------------- -------------------- ====================
- -------------------------------------- --------------------- -------------------- ====================
Diversified Fund $15.48 4.75% $16.25
- -------------------------------------- --------------------- -------------------- ====================
- -------------------------------------- --------------------- -------------------- ====================
High Yield Fund $4.06 4.75% $4.26
- -------------------------------------- --------------------- -------------------- ====================
- -------------------------------------- --------------------- -------------------- ====================
Strategic Fund $6.79 4.75% $7.13
- -------------------------------------- --------------------- -------------------- ====================
- -------------------------------------- --------------------- -------------------- ====================
U.S. Government Fund $9.63 4.75% $10.11
- -------------------------------------- --------------------- -------------------- ====================
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
U.S. Government 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 a fee from the Fund based on the total
assets of all mutual funds for which EIS serves as administrator and a First
Union Corporation subsidiary serves as investment advisor. The fee paid to EIS
is calculated in accordance with the following schedule:
---------------------- =================
Assets Fee
---------------------- =================
---------------------- =================
First $7 billion 0.050%
---------------------- =================
---------------------- =================
Next $3 billion 0.035%
---------------------- =================
---------------------- =================
Next $5 billion 0.030%
---------------------- =================
---------------------- =================
Next $10 billion 0.020%
---------------------- =================
---------------------- =================
Next $5 billion 0.015%
---------------------- =================
---------------------- =================
Over $30 billion 0.010%
---------------------- =================
EIS also provides facilities, equipment and personnel to Diversified
Fund, High Yield Fund and Strategic Fund on behalf of the investment advisor.
Transfer Agent
Evergreen Service Company ("ESC"), 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 transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. 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. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is 90
Park Avenue, New York, New York 10016.
Independent Auditors
[The auditors],________ Street, Boston, Massachusetts 02110, audits
the financial statements of each Fund.
Custodian
State Street Bank and Trust Company keeps custody of each Fund's
securities and cash and performs other related duties. The custodian's address
is 225 Franklin Street, Boston, Massachusetts 02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds.
Its address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
<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 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.
Defensive Investments
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 advisor, market conditions warrant a temporary defensive
investment strategy. Evergreen Fund for Total Return 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
(vi) 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 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.
Options
An option is a right to buy or sell a security for a specified price
within a limited time period. The option buyer pays the option seller (known as
the "writer") for the right to buy, which is a "call" option, or the right to
sell, which is a "put" option. Unless the option is terminated, the option
seller must then buy or sell the security at the agreed-upon price when asked to
do so by the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If the Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised resulting in a
potential loss of value to the Fund.
Futures Transactions
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.
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.
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.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Inc. ("Fitch") or below Baa by Moody's Investors Service, Inc. ("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
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% 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
determine 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 it 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.
Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the Virgin
Islands, Guam and Puerto Rico to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which 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 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 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 commercial paper discussed in this statement of additional
information (which limits such investments to commercial paper 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. Coupon 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 coupon 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 coupon zero
coupon bonds representing 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
services 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
rated 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 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.
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.
Limited Partnerships
Each 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 Internal
Revenue Code of 1986, as amended (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, REDEMPTION AND PRICING OF SHARES
You may buy shares of the Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. The Fund offers up to 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.
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.
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 the Distributor. 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 of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
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 Evergreen
Investment Management ("EIM"), Evergreen Asset Management Corp. ("EAMC"),
Evergreen Investment Management Company ("EIMC"), Meridian Investment Company
("MIC"), First International Advisors, Ltd. ("FIA"), or their affiliates. Class
Y shares are offered at net asset value without a front-end or back-end sales
charge and do not bear any Rule 12b-1 distribution expenses.
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, Institutional Service and Charitable 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. ("NASD"), paid to the Distributor or its
predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional and
Institutional Service shares.
If you 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, the Distributor, any
broker-dealer with whom the Distributor, 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, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as Trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, 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 a 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 an 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 offer 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.
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily 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.
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:
n
P(1 + T) = ERV
P = initial payment of $1,000
T = average 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:
6
Yield=2[(a - b + 1) - 1
-----
cd
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:
365/7
Effective Yield = [(base period return)] + 1) ] - 1
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:
Tax Equivalent Yield = Yield
-------------------
1 - Income Tax Rate
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
The Distributor 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 the Distributor
with respect to each class of the Fund. The Distributor is a subsidiary of The
BISYS Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the 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.
The Distributor has agreed that it will, in all respects, duly conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (I) by a vote of a
majority of the Trust's 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 the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
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" or "distribution 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 shares and
Institutional Service shares, as applicable, the Fund may incur expenses for
distribution costs 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. 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 the Distributor
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 the Distributor 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 the Distributor 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. The Distributor may assign its rights to receive compensation under the
Plans to secure such financings. FUNB or its affiliates may finance payments
made by the Distributor 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 the Distributor under the Agreements may be paid by the
Fund's Distributor to the acquired fund's distributor or its predecessor.
Since the Distributor's compensation under the Agreements is not
directly tied to the expenses incurred by the Distributor, 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 the Distributor.
Distribution expenses incurred by the Distributor in one fiscal year that exceed
the compensation paid to the Distributor 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 monthly on Class
A, Class B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
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 Securities and Exchange
Commission ("SEC") make payments for distribution services to the Distributor;
the latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Each Plan and 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 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 the Distributor with respect to that class or classes, and
(ii) the Fund would not be obligated to pay the Distributor for any amounts
expended under the Distribution Agreement not previously recovered by the
Distributor from distribution 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 the
Distributor. 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 the Distributor. 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 Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, 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
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 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 Municipal Bond Fund Shareholders
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) 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.
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 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
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.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
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.
("MFS"), OppenheimerFunds, Inc. ("Oppenheimer") and Putnam Investment
Management, Inc. ("Putnam").
The Trust and FUNB have received an order from, the SEC that will
permit 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, James Howell, Vice Chairman of the Board, Michael Scofield, 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: 2/2/28) President of Centrum Equities and Centrum Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; former
(DOB: 10/23/34) Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice);
Director, The Andover Companies (Insurance); and Trustee,
Arthritis Foundation of New England
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) 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; former
Managing Partner, Roscommon Capital Corp.; former Chief
Executive Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates (environmental
consulting)
James S. Howell Chairman of the Board Former Chairman of the Distribution Foundation for the
(DOB: 8/13/24) of Trustees Carolinas; and former Vice President of Lance Inc. (food
manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series
Fund; and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc. (steel
(DOB: 7/14/39) producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR
(DOB: 9/14/41) International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc., and J&M
Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Vice Chairman of the Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) Board of Trustees
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant, Drake Beam Morin, Inc.
(executive outplacement); Director of Connecticut
Natural Gas Corporation, Hartford Hospital, Old State
House Association, Middlesex Mutual Assurance Company,
and Enhance Financial Services, Inc.; Chairman, Board
of Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former
Trustee, Kingswood-Oxford School; and former Managing
Director and Consultant, Russell Miller, Inc.
Anthony D. Fischer* President and Treasurer Vice President/Operations, BISYS Fund Services.
(DOB:2/10/59)
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 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: 90 Park Avenue, 10th Floor, New York, New York 10016
**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 of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P 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 the
Distributor, 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 FIXED INCOME TRUST
PART C
Item 23 Exhibits
Unless otherwise indicated, each of the Exhibits listed below is filed
herewith.
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997
(b) By-laws Incorporated by reference to
Registrant's Registration Statement
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 Registration Statement
are contained in the Declaration of Trust Filed on October 8, 1997
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII.
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Registrant's Registration Statement
Union National Bank Filed on August 31, 1998
(d)(2) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Registrant's Registration Statement
Evergreen Investment Management Company Filed on August 31, 1998
(formerly Keystone Investment Management
Company)
(e)(1) Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Registration Statement
Distributor, Inc. Filed on August 31, 1998
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Investment Registrant's Registration Statement
Services, Inc. (B-1) Filed on August 31, 1998
(e)(3) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Registration Statement
Inc. (B-2) Filed on August 31, 1998
(e)(4) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Registration Statement
Inc. (Evergreen/KCF) Filed on August 31, 1998
(e)(5) Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Registration Statement
Inc. Filed on August 31, 1998
(e)(8) Specimen Copy of Dealer Agreement used by Incorporated by reference to
Evergreen Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(f) Form of Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Registrant's Registration Statement
Filed on August 31, 1998
(h)(1) Administration Agreement between Evergreen Incorporated by reference to
Investment Services, Inc. and the Registrant Registrant's Registration Statement
Filed on August 31, 1998
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Registrant's Registration Statement
Filed on August 31, 1998
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Registrant's Registration Statement
Filed on August 31, 1998
(m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-1) Registrant's Registration Statement
Filed on August 31, 1998
(m)(3) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-2) Registrant's Registration Statement
Filed on August 31, 1998
(m)(4) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KCF/Evergreen) Registrant's Registration Statement
Filed on August 31, 1998
(m)(5) 12b-1 Distribution Plan for Class C Incorporated by reference to
Registrant's Registration Statement
Filed on August 31, 1998
(n) Not applicable
(o) Not applicable
(p) Multiple Class Plan
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustees and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of the 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
Anthony P. Terracciano President, First Union Corporation; President
First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, First Union National Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
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.
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
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address: Evergreen
Distributor, Inc., 90 Park Avenue, New York, New York 10016.
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 (formerly Keystone Investment
Management Company), all located at 200 Berkeley Street, Boston,
Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Trust has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Columbus, and State of Ohio, on the 28th day of June, 1999.
EVERGREEN EQUITY TRUST
By: /s/ Anthony D. Fischer
-----------------------------
Name: Anthony D. Fischer
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of June, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Anthony D. Fischer /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
Anthony D. Fischer Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Chairman of the Board Trustee
and Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonnell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Vice Chairman of the Board
and Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ------------------------------ ------------------------------- --------------------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.
Trustee Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Cathy E. Foley
- -------------------------------
Cathy E. Foley
Attorney-in-Fact
*Cathy E. Foley, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
(p) Multiple Class Plan
MULTIPLE CLASS PLAN
FOR THE
EVERGREEN FUNDS
As of March 12, 1998
Each Fund in the Evergreen group of mutual funds currently offers one or more of
the following nine classes of shares with the following class provisions and
current offering and exchange characteristics. Additional classes of shares
(such classes being shares having characteristics referred to in Rule 18f-3
under the Investment Company Act of 1940, as amended (the "1940 Act")), when
created, may have characteristics that differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act (a "12b-1 Distribution Plan") and/or a shareholder
services plan. The plans provide for annual payments of distribution and/or
shareholder service fees that are based on a percentage of average daily net
assets of Class A shares, as described in a Fund's current prospectus.
2. Class A Shares are offered with a front-end sales load,
except that purchases of Class A Shares made under certain circumstances are not
subject to the front-end load or may be subject to a contingent deferred sales
charge ("CDSC"), as described in a Fund's current prospectus.
3. Shareholders may exchange Class A Shares of a Fund for Class
A Shares of any other fund named in a Fund's prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class B shares, as described in a Fund's current
prospectus.
2. Class B Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Class B Shares automatically convert to Class A Shares without a sales
load or exchange fee after designated periods.
4. Shareholders may exchange Class B Shares of a Fund for Class B Shares of
any other fund described in a Fund's prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class C shares, as described in a Fund's current
prospectus.
2. Class C Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Shareholders may exchange Class C Shares of a Fund for Class
C Shares of any other fund named in a Fund's prospectus.
D. Class J Shares
1. Class J Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder service fees that are based on a percentage of
average daily net assets of Class J shares, as described in a Fund's current
prospectus.
2. Class J Shares are offered with a front-end sales load,
except that purchases of Class J Shares made under certain circumstances are not
subject to the front-end load or may be subject to a CDSC, as described in a
Fund's current prospectus.
3. Shareholders may exchange Class J Shares of a Fund for Class
J Shares of any other fund named in a Fund's prospectus.
E. Class Y Shares
1. Class Y Shares have no distribution or shareholder services plans.
2. Class Y Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Class Y Shares of a Fund for Class
Y Shares of any other fund described in a Fund's prospectus.
F. Institutional Service Shares
1. Institutional Service Shares have adopted a 12b-1
Distribution Plan and/or shareholder services plan. .The plans provide for
annual payments of distribution and/or shareholder services fees that are based
on a percentage of average daily net assets of Institutional Service Shares, as
described in a Fund's current prospectus.
2. Institutional Service Shares are offered at net asset value
without a front-end sales load or CDSC.
3. Shareholders may exchange Institutional Service Shares
of a Fund for Institutional Service Shares of any other fund named in a Fund's
prospectus, to the extent they are offered by a Fund.
G. Institutional Shares
1. Institutional Shares have no distribution or shareholder services
plans.
2. Institutional Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a Fund for
Institutional Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
H. Charitable Shares
1. Charitable Shares have no distribution or shareholder
services plans.
2. Charitable Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Charitable Shares of a Fund for
Charitable Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or shareholder
services plan. Class J Shares shall also bear that portion of the Transfer
Agency fees and other expenses allowed by Rule 18f-3 that are attributable to
them due to distribution outside of the United States. There currently are no
other class specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses not
assigned to a class will be allocated to each class based on the relative net
asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter
submitted to its shareholders that relates solely to its class
arrangement.
B. Each class will have separate voting rights on any matter
submitted to shareholders where the interests of one class
differ from the interests of any other class.
C. In all other respects, each class has the same rights and obligations as
each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
