1933 Act Registration No. 33-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
FIRST UNION FUNDS
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (412) 288-1900
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
----------------------------------------------------------------
(Address of Principal Executive Offices)
John W. McGonigle, Esquire
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
The Registrant has previously registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 2-94560); accordingly, no fee is payable herewith.
Registrant is filing as an exhibit to this Registration Statement a copy of an
earlier declaration under Rule 24f-2. Pursuant to Rule 429, this Registration
Statement relates to the aforementioned registration statement on Form N-1A. A
Rule 24f-2 Notice for the Registrant's most recent fiscal year ended December
31, 1994 was filed with the Commission on February 15, 1995.
It is proposed that this filing will become effective on April 26, 1995
pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
FIRST UNION FUNDS
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Cross Reference Sheet; Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Fee Table, Synopsis and Risk Cover Page; Summary; Risks
Factors
4. Information about the Transaction Summary; Reasons for the
Reorganization; Information about
the Reorganization; Description of
Shares of High Grade and National;
Federal Income Tax Consequences;
Comparative Information on
Shareholders' Rights
5. Information about the Registrant Cover Page; Summary; Comparison of
Investment Objectives and Policies;
Description of Shares of High
Grade and National; Federal Income
Tax Consequences; Comparative
Information on Shareholders'Rights;
Additional Information
6. Information about the Company Cover Page; Summary; Comparison of
Being Acquired Investment Objective and Policies;
Description of Shares of High Grade
and National; Federal Income Tax
Consequences; Comparative Information
on Shareholders' Rights;
Additional Information
7. Voting Information Cover Page;Summary; Information about
the Reorganization; Voting
Information
8. Interest of Certain Persons and Financial Statements and Experts,
Experts Legal Matters
9. Additional Information Required Inapplicable
for Reoffering Inapplicable by
Persons Deemed to be Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of High Grade dated February 28, 1995
13. Additional Information about the Statement of Additional Information
Company Being Acquired of National dated January 3, 1995
14. Financial Statements Incorporated by reference and
commencing on page 2; Pro Forma
Financial Statements
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part A
Caption "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
EVERGREEN ASSET MANAGEMENT CORP.
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
April __, 1995
Dear Shareholders of Evergreen National Tax Free Fund:
As you are aware, Evergreen Asset Management Corp. ("Evergreen Asset"),
investment adviser to Evergreen National Tax Free Fund ("National"), and Lieber
& Company, which provides sub-advisory services to Evergreen Asset in connection
with its activities as investment adviser to National, were acquired on June 30,
1994 by First Union National Bank of North Carolina ("FUNB-NC"). As I have
mentioned before, one of the expected benefits of the transaction with FUNB-NC
to existing shareholders in the Evergreen Funds, was the prospect that Evergreen
Asset and FUNB-NC would be able to combine their investment management resources
and thereby complement each other's strengths. The proposal contained in the
accompanying proxy statement provides, in effect, for the combination of
National and First Union High Grade Tax Free Portfolio ("High Grade"), funds
with similar investment objectives and policies. Under the proposed Agreement
and Plan of Reorganization (the "Plan"), High Grade will acquire substantially
all of the assets of National in exchange for shares of High Grade. I believe
this combination achieves our goal and serves the interests of National's
shareholders.
As discussed more fully in the accompanying proxy statement, James T.
Colby, III, the current manager of National, will become a dual employee of
Evergreen Asset and FUNB-NC, joining FUNB-NC's Capital Management Group ("CMG").
With the assistance of Robert S. Drye, the current portfolio manager of High
Grade, Mr. Colby will be primarily responsible for the ongoing management of
High Grade. As a result of this, the full resources of a combined Evergreen
Asset/First Union capital management team will be harnessed for the benefit of
High Grade and its shareholders, including National's current shareholders.
If shareholders of National approve the Plan, upon consummation of the
transaction contemplated in the Plan, you will receive shares of a class of High
Grade with the same letter designation and the same distribution-related and
shareholder servicing-related expenses and contingent deferred sales charges, if
any, and having a value equal to the value of your then outstanding shares of
National. The proposed transaction will not result in any federal income tax
liability for you or for National. As a shareholder of High Grade you will have
the ability to exchange your shares for shares of the other funds in the First
Union family of funds comparable to your present right to exchange among the
Evergreen family of funds.
The Trustees of The Evergreen Municipal Trust have called a special
meeting of shareholders of National to be held June 15, 1995 to consider the
proposed transaction. As a major shareholder of National, I will be voting to
approve the transactions. I STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO
REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. I thank you for your participation as a shareholder
and urge you to please exercise your right to vote by completing, dating and
signing the enclosed proxy card. A self-addressed, postage-paid envelope has
been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please call
1-________________.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
Stephen A. Lieber
<PAGE>
EVERGREEN NATIONAL TAX FREE FUND - EVERGREEN NATIONAL TAX FREE FUND
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 15, 1995
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the Evergreen National Tax Free Fund ("National"), a series of
The Evergreen Municipal Trust (the "Trust"), will be held at
_____________________ on June 15, 1995 at a.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of March 21, 1995, providing for the acquisition of
substantially all of the assets of National by the First Union High Grade Tax
Free Portfolio ("High Grade"), a portfolio of First Union Funds, in exchange for
shares of High Grade, and the assumption by High Grade of certain identified
liabilities of National. The Plan also provides for the distribution of such
shares of High Grade to shareholders of National in liquidation of and
subsequent termination of National. A vote in favor of the Plan is a vote in
favor of liquidation and dissolution of National.
2. To transact any other business which may properly come before the Meeting
or any adjournment or adjournments thereof.
The Trustees of the Trust have fixed the close of business on , 1995 as
the record date for the determination of shareholders of National entitled to
notice of and to vote at this Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees
Joan V. Fiore
Secretary
April ___, 1995
<PAGE>
SUBJECT TO COMPLETION, MARCH __, 1995
PRELIMINARY COPY
PROSPECTUS/PROXY STATEMENT DATED APRIL , 1995
Acquisition of Assets of
EVERGREEN NATIONAL TAX FREE FUND, A SERIES OF
THE EVERGREEN MUNICIPAL TRUST
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
By and in Exchange for Shares of
FIRST UNION HIGH GRADE TAX FREE PORTFOLIO,
A PORTFOLIO OF FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
This Prospectus/Proxy Statement is being furnished to shareholders of
Evergreen National Tax Free Fund ("National"), a series of The Evergreen
Municipal Trust (the "Trust"), in connection with a proposed Agreement and Plan
of Reorganization (the "Plan"), to be submitted to shareholders of National for
consideration at a Special Meeting of Shareholders to be held on June 15, 1995
at a.m. Eastern Daylight Time, at ____________________, and any adjournments
thereof (the "Meeting"). The Plan provides for substantially all of the assets
of National to be acquired by the First Union High Grade Tax Free Portfolio
("High Grade"), a portfolio of First Union Funds, in exchange for shares of High
Grade and the assumption by High Grade of certain identified liabilities of
National (hereinafter referred to as the "Reorganization"). Following the
Reorganization, shares of High Grade will be distributed to shareholders of
National in liquidation of National, and National will be terminated. Holders of
shares in National will receive shares of the Class of High Grade (the
"Corresponding Shares") having the same letter designation and the same
distribution-related fees, shareholder servicing-related fees and sales charges,
including contingent deferred sales charges ("CDSCs"), if any, as the shares of
the Class of National held by them prior to the Reorganization (see
"Summary--Distribution of Shares"). As a result of the proposed Reorganization,
shareholders of National will receive that number of full and fractional
Corresponding Shares of High Grade having an aggregate net asset value equal to
the aggregate net asset value of such shareholder's shares of National. The
Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
High Grade is a diversified portfolio of First Union Funds, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). First Union Funds currently comprises 17
portfolios, including High Grade.
High Grade seeks a high level of federally tax free income that is
consistent with preservation of capital. High Grade pursues this objective by
investing primarily in a portfolio of insured municipal bonds and, under normal
circumstances, it is expected that at least 65% of the assets of High Grade will
be invested in High Grade Bonds (as defined herein). The shares of High Grade
are presently issued in three Classes: Class A Investment, Class B Investment
and Y Shares (herein referred to as "Class A," "Class B" and "Class Y,"
respectively).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about High Grade that
shareholders of National should know before voting on the Reorganization.
Certain relevant documents listed below, which have been filed with the
Securities and Exchange Commission ("SEC"), are incorporated in whole or in part
by reference. A Statement of Additional Information dated ______________, 1995,
relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of High Grade dated December
31, 1994 and the financial statements of National for the fiscal period ended
August 31, 1994, has been filed with the SEC and is incorporated by reference in
its entirety into this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to First Union Funds at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-[326-3241]. In order to
expedite delivery, any such request should refer to "High Grade --
Prospectus/Proxy Statement/Statement of Additional Information."
The Prospectuses of High Grade dated February 28, 1995 and its Annual
Report for the fiscal year ended December 31, 1994 are incorporated herein by
reference in their entirety, insofar as they relate to High Grade only, and not
to any other fund described therein, and copies are included for your
information. The two Prospectuses, which pertain (i) to Class Y shares and (ii)
to Class A and Class B shares, differ only insofar as they pertain to the
separate distribution and shareholder servicing arrangements applicable to the
Classes. Shareholders of National will receive, with this Prospectus/Proxy
Statement, copies of the Prospectus pertaining to the respective Class of High
Grade that they will receive as a result of the consummation of the
Reorganization. Additional information about High Grade is contained in its
Statement of Additional Information which has been filed with the SEC and is
available upon request and without charge by writing to High Grade at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-[ ].
The Prospectuses of National dated January 3, 1995, insofar as they relate
to National only, and not to any other fund described therein, are incorporated
herein in their entirety by reference. Copies of the Prospectuses and a
Statement of Additional Information dated the same date are available upon
request without charge by writing to National at the address listed on the cover
page of this Prospectus/Proxy Statement or by calling toll-free 1-800[ ].
Included as Exhibit A of this Prospectus/Proxy Statement is a copy of the
Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED
BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS
SUMMARY Page
Proposed Reorganization
Tax Consequences
Investment Objectives and Policies - High Grade
Investment Objectives and Policies - National
Comparative Performance Information for Each Fund
Management of the Funds
Distribution of Shares
Purchase and Redemption Procedures
Exchange Privileges
Dividend Policy
RISKS
INFORMATION ABOUT THE REORGANIZATION
Reasons For The Reorganization
Agreement and Plan of Reorganization
Federal Income Tax Consequences
Recommendation of the Board
FINANCIAL INFORMATION
Comparison of Fees and Expenses
Expense Ratios
Pro-Forma Capitalization
Shareholder Information
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Capitalization
Shareholder Liability
Shareholder Meetings and Voting Rights
Liquidation or Dissolution
Liability and Indemnification of Trustees
Rights of Inspection
ADDITIONAL INFORMATION
VOTING INFORMATION CONCERNING THE MEETING
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS
OTHER BUSINESS
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, AND, TO THE
EXTENT NOT INCONSISTENT WITH SUCH ADDITIONAL INFORMATION, THE PROSPECTUSES OF
HIGH GRADE DATED FEBRUARY 28, 1995, AND THE PROSPECTUSES OF NATIONAL DATED
JANUARY 3, 1995 (WHICH ARE INCORPORATED HEREIN BY REFERENCE), AND THE PLAN, A
COPY OF WHICH PLAN IS ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS EXHIBIT A.
Proposed Reorganization. The Plan provides for the transfer of substantially all
of the assets of National in exchange for shares of High Grade and the
assumption by High Grade of certain identified liabilities of National.
(National and High Grade each may also be referred to in this Prospectus/Proxy
Statement as a "Fund" and collectively as the "Funds"). The Plan also calls for
the distribution of Corresponding Shares (as defined above) of High Grade to
National shareholders in liquidation of National as part of the Reorganization.
As a result of the Reorganization, each shareholder of National will become the
owner of that number of full and fractional Corresponding Shares of High Grade
having an aggregate net asset value equal to the aggregate net asset value of
the shareholder's shares of National as of the close of business on the date
that National's assets are exchanged for shares of High Grade. See "Information
About the Reorganization."
The Trustees of the Trust, including the Trustees who are not "interested
persons," as that term is defined in the 1940 Act (the "Independent Trustees"),
have concluded that the Reorganization would be in the best interests of
shareholders of National and that the interests of the shareholders of National
will not be diluted as a result of the transactions contemplated by the
Reorganization. Accordingly, the Trustees have submitted the Plan for the
approval of National's shareholders.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS APPROVAL OF THE PLAN EFFECTING
THE REORGANIZATION.
The Board of Trustees of First Union Funds has also approved the Plan, and
accordingly, High Grade's participation in the Reorganization.
Approval of the Reorganization on the part of National will require the
affirmative vote of more than 50% of its outstanding voting securities.
See "Voting Information Concerning the Meeting."
If the shareholders of National do not vote to approve the Reorganization,
the Trustees of the Trust will continue to operate National under existing
arrangements, or consider other alternatives, including liquidation of National.
Tax Consequences. Prior to or at the completion of the Reorganization, National
will have received an opinion of counsel that the Reorganization has been
structured so that no gain or loss will be recognized by National or its
shareholders for federal income tax purposes as a result of the receipt of
shares of High Grade in the Reorganization. The holding period and aggregate tax
basis of Corresponding Shares of High Grade that are received by National
shareholders will be the same as the holding period and aggregate tax basis of
shares of National previously held by such shareholders, provided that shares of
National are held as capital assets. In addition, the holding period and tax
basis of the assets of National in the hands of High Grade as a result of the
Reorganization will be the same as in the hands of National immediately prior to
the Reorganization.
Investment Objectives And Policies - High Grade. High Grade seeks a high level
of federally tax free income that is consistent with preservation of capital.
High Grade pursues this objective by investing primarily in a portfolio of High
Grade Bonds. "High Grade Bonds" means bonds insured by a municipal bond
insurance company which is rated AAA by Standard and Poor's Ratings Group
("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds rated A
or better by S&P or Moody's; or unrated bonds, if of comparable quality as
determined by High Grade's investment adviser, The Capital Management Group
("CMG") of First Union National Bank of North Carolina ("FUNB-NC"). Under normal
circumstances, it is expected that at least 65% of the value of the total assets
of High Grade will be invested in High Grade Bonds. In addition, High Grade's
assets will be invested so that at least 80% of its annual interest income will
be exempt from federal income taxes (including the federal alternative minimum
tax). There is no restriction on the maturity of Municipal Securities in which
the Fund may invest or on the Fund's dollar weighted average portfolio maturity.
As a matter of policy, the investment objective of High Grade will not be
changed without shareholder approval.
Municipal bonds are debt obligations issued by states, possessions of the
United States and by the District of Columbia, and their political subdivisions
and duly constituted authorities, the interest from which is exempt from federal
income tax. Such securities are referred to in this Prospectus/Proxy Statement
as Municipal Securities. It is likely that shareholders who are subject to the
alternative minimum tax will be required to include interest from a portion of
the Municipal Securities owned by High Grade in calculating the federal
alternative minimum tax.
The Municipal Securities in which High Grade may invest generally must be
rated A or better by S&P or Moody's or, if unrated, determined to be of
comparable quality to such rated bonds, except that investments in Municipal
Securities not otherwise meeting the Fund's quality standard may be made if
insurance with respect to such securities is obtained from a municipal bond
insurance company rated AAA by S&P or Aaa by Moody's.
Investment Objectives And Policies - National. The investment objective of
National is to achieve a high level of current income exempt from federal income
tax. National seeks to achieve its objective by investing substantially all of
its assets in a diversified portfolio of long-term Municipal Securities. The
Fund has no maturity restrictions. Its dollar weighted average portfolio
maturity, however, is generally expected to exceed fifteen years. As a matter of
policy, the investment objective of National will not be changed without
shareholder approval.
Under normal market conditions, National intends to invest at least 80% of
its total assets in Municipal Securities that, at the time of purchase, are
insured or prefunded. Insured Municipal Securities include securities which are
insured under a mutual fund insurance policy issued to The Evergreen Municipal
Trust for the benefit of National by an insurer having a claims-paying ability
rated AAA by Standard & Poors Ratings Group ("S&P") or Aaa by Moody's Investors
Service, Inc. ("Moody's") or insured by such an insurer under an insurance
policy obtained by the issuer or underwriter of such Municipal Securities at the
time of original issuance. The Fund may also purchase secondary market insurance
on Municipal Securities which it holds or acquires. Although the fee for
secondary market insurance will reduce the yield of the insured bond, such
insurance would be reflected in the market value of the bond purchased. A
Municipal Security is prefunded if marketable securities, typically U.S.
Treasuries, are escrowed to maturity to assure payment of principal and
interest.
In the case of both High Grade and National, it should be noted that
insurance is not a substitute for the basic credit of the issuer of a Municipal
Security, but supplements the existing credit and provides additional security
therefor. Moreover, while insurance coverage for Municipal Securities reduces
credit risk by insuring the payment of principal and interest, it does not
protect against market fluctuations caused by changes in interest rates and
other factors.
Comparative Performance Information For Each Fund. Discussions of the manner of
calculation of total return, yield and tax equivalent yield are contained in the
respective Prospectuses and Statements of Additional Information of the Funds.
The total return of each Class of shares of High Grade and the Class Y shares of
National for the one year period ended on December 31, 1994 and the period
from inception through December 31, 1994 is set forth in the table below.
<TABLE>
<CAPTION>
COMPARISON OF PERFORMANCE
Average Annual Compounded Total Return
Fund Period Class Y Class A Class B
---- ------ ------- ------- -------
<S> <C> <C> <C> <C>
High Grade 1 year -- -12.12% -12.81%
From inception* -6.31% 3.03% -0.48%
National 1 year -7.93%
From inception** 3.35%
<FN>
-----------------
* The inception dates for the Class Y, Class A and Class B shares of High
Grade were February 28, 1994, February 25, 1992 and January 11, 1993,
respectively.
** The inception dates for the Class Y, Class A and Class B shares of
National were December 30, 1992, January 30, 1995 and January 4, 1995,
respectively.
</FN>
</TABLE>
The yields and tax equivalent yields of each Class of shares of High Grade
and the Class Y shares of National for the 30 days ended December 31, 1994 is
set forth in the tables below.
30 Day SEC Yield
Class Y Class A Class B
High Grade 5.85% 5.33% 4.85%
National 5.52% -- --
30 Day Tax Equivalent Yield
Class Y Class A Class B
High Grade 9.14% 8.33% 7.58%
National 8.63% -- --
Discussions of those factors that materially affected the respective
performance of each Fund during its most recently completed fiscal year,
including a line graph comparison of the Fund's performance with an appropriate
broad-based securities market index, are contained in the annual report of High
Grade for its fiscal year ended December 31, 1994 and, for National, in its
Prospectus dated January 3, 1995.
Management of the Funds. The overall management of each of First Union Funds and
of the Trust is the responsibility of, and is supervised by, its Trustees.
Investment Advisers and Administrators.
High Grade. The Capital Management Group ("CMG"), a division of First Union
National Bank of North Carolina ("FUNB-NC"), One First Union Center, 301 S.
College Street, Charlotte, North Carolina 28288, serves as investment adviser to
High Grade and is responsible for the management of its investments and
supervision of the Fund's daily business affairs. CMG is entitled to receive an
annual fee with respect to High Grade under its investment advisory agreement
with First Union Funds at an annual rate equal to .50 of 1% of the Fund's
average daily net assets. In connection with the proposed Reorganization FUNB-NC
has agreed to limit for a period of at least one year from the effective date of
the Reorganization the expenses of High Grade to the same level of net expenses
currently borne by National (.66 of 1% on an annual basis exclusive of
class-specific expenses including distribution and shareholder service fees and
to consult with the Trustees of First Union Funds prior to discontinuing such
limitation after the one year period.
Federated Administrative Services ("FAS") acts as administrator and fund
accounting agent for High Grade and the other portfolios of First Union Funds
and provides High Grade with certain administrative personnel and services
necessary to operate the Fund. For its services, FAS is entitled to receive a
fee at an annual rate based on the average daily net assets of First Union
Funds, computed as follows: .15 of 1% of the first $250 million; .125 of 1% of
the next $250 million; .10 of 1% of the next $250 million; and .075 of 1% of
assets in excess of $750 million. Unless waived, the minimum administration fee
during a fiscal year shall aggregate at least $50,000 per portfolio of First
Union Funds. Federated Services Company serves as the transfer agent and
dividend disbursing agent for High Grade. The administrator and/or accounting
agent may, in the discretion of the Trustees of First Union Funds, be changed at
some future date. In the event such a change is made, it is possible that
affiliates of FUNB-NC, including Evergreen Asset, may by engaged to provide some
or all of such services and be entitled to receive compensation therefor from
High Grade. It is not anticipated, however, that if the administrator and
accounting agent for High Grade were to change, that the fees for such services
would exceed those currently being charged by FAS.
High Grade (formerly First Union Insured Tax-Free Portfolio) commenced
operations on February 21, 1992. High Grade had $98 million in aggregate net
assets as of March 1, 1995.
National. Evergreen Asset Management Corp. ("Evergreen Asset") is
the investment adviser of National and, as such, manages its investments,
provides various administrative services and supervises the Fund's daily
business affairs. Under its investment advisory agreement with National,
Evergreen Asset is entitled to receive an annual fee equal to .50 of 1% of the
Fund's average daily net assets. Evergreen Asset has engaged Lieber & Company to
provide certain sub-advisory services to Evergreen Asset in connection with its
activities as investment adviser to National. The address of Evergreen Asset and
of Lieber and Company is 2500 Westchester Avenue, Purchase, New York 10577. All
reimbursements to Lieber & Company in respect of such services is borne by
Evergreen Asset and does not result in any additional expense to National.
National (formerly Evergreen Insured National Tax-Free Fund) was organized
as a separate investment series of the Evergreen Municipal Trust on
November 17, 1992 and commenced operations on December 30, 1992. As of March 1,
1995, National had total net assets of $24 million.
Certain Information Regarding CMG, Evergreen Asset and FUNB-NC. CMG
has advised First Union Funds since First Union Funds' inception in 1984. CMG
has been managing trust assets for over 50 years and currently oversees assets
of more than $51.2 billion. CMG employs an experienced staff of professional
investment analysts, portfolio managers, and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis to
identify investment opportunities. In addition to High Grade, CMG manages six
other portfolios of First Union Funds that invest primarily in Municipal
Securities: First Union Tax Free Money Market Portfolio, First Union Florida
Municipal Bond Portfolio, First Union Georgia Municipal Bond Portfolio, First
Union North Carolina Municipal Bond Portfolio, First Union South Carolina
Municipal Bond Portfolio, and First Union Virginia Municipal Bond Portfolio.
Including High Grade, CMG acts as investment adviser to mutual funds which
invest principally in Municipal Securities having assets of approximately $211
million, as of March 1, 1995.
Evergreen Asset, together with its predecessor, has served as investment
adviser to the complex of mutual funds comprising the Evergreen Funds since
1971. Since June 30, 1994, Evergreen Asset has been a wholly-owned subsidiary of
FUNB-NC. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment
officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the
owners of Evergreen Asset's predecessor of the same name and the former general
partners of Lieber & Company. In addition to National, Evergreen Asset manages
three other mutual funds which invest primarily in Municipal Securities,
Evergreen Short Intermediate Municipal Fund, Evergreen Short Intermediate
Municipal Fund-CA, and Evergreen Tax-Exempt Money Market Fund. Including
National, the total net assets of mutual funds which invest principally in
Municipal Securities for which Evergreen Asset serves as investment adviser are
$488 million, as of March 1, 1995.
FUNB-NC is a subsidiary of First Union Corporation ("First Union"), a bank
holding company headquartered in Charlotte, North Carolina, with $77.3 billion
in total consolidated assets as of December 31, 1994. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses through offices in 42 states and two foreign countries. First Union
Brokerage Services, Inc., a wholly-owned subsidiary of FUNB-NC, is a registered
broker-dealer that is principally engaged in providing retail brokerage services
consistent with its federal banking authorizations. First Union Capital Markets
Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services.
Portfolio Management. The portfolio manager of National is James T. Colby,
III. Mr. Colby has been associated with Evergreen Asset and its predecessor
since 1992 and has served as portfolio manager of National since its inception.
Prior to joining Evergreen Asset, Mr. Colby served as Vice President-Investments
at American Express Company from 1987 to 1992. It is expected that, following
the Reorganization, Mr. Colby will become a dual employee of CMG and
Evergreen Asset and will be primarily responsible for the management of High
Grade, in which function he will be substantially assisted by Robert S. Drye.
Mr. Drye, who is a Vice President of FUNB-NC, currently manages High Grade. Mr.
Drye has been with FUNB-NC since 1968. Mr. Drye has managed High Grade since its
inception in February, 1992. Since 1989, Mr. Drye has served as a portfolio
manager for several portfolios of First Union Funds and for certain common trust
funds. Prior to 1989, Mr. Drye worked as a marketing specialist with First Union
Brokerage Services, Inc. Mr. Drye is also portfolio manager of the First Union
South Carolina Municipal Bond Portfolio and Florida Municipal Bond Portfolio of
First Union Funds.
Distribution of Shares. Federated Securities Corp. ("FSC") acts as
underwriter of High Grade's shares. Evergreen Funds Distributor, Inc. ("EFD")
acts as underwriter of National's shares. FSC and EFD distribute Fund shares
directly or through broker-dealers, banks, including FUNB-NC, or other financial
intermediaries.
The respective shares of each Fund with the same Class letter designation
have substantially identical sales charges (including CDSCs),
distribution-related fees and shareholder servicing-related fees, if any. The
following is a description of such charges and fees for each of the different
Classes of shares. More detailed descriptions of the distribution arrangements
applicable to the Classes of shares are contained in the respective High Grade
Prospectuses and National Prospectuses and in each Fund's respective Statement
of Additional Information.
Class Y Shares. Class Y shares are sold without any sales charges and are
not subject to distribution-related fees or shareholder servicing-related fees.
Class A Shares. Class A shares are sold with an initial sales charge ranging
from 4.75% to .25%, as indicated in the following chart. In addition, Class A
shares are subject to distribution-related fees as described below.
Sales Charge as a Percentage
Amount of Transaction of Public Offering Price
$ 0-$ 99,999 4.75%
$ 100,000-$ 249,999 3.75%
$ 250,000-$ 499,999 3.00%
$ 500,000-$ 999,999 2.00%
$1,000,000-$2,499,999 1.00%
$2,500,000 and above 0.25%
No sales charges will be imposed in respect of the Class A shares of High
Grade to be issued to National and ultimately distributed to shareholders who
currently hold Class A shares of National.
No sales charges are imposed on reinvestment of dividends or distributions
and in other circumstances described in each Fund's respective prospectuses.
Each Fund has similar programs such as rights of accumulation and letters of
intention that enable investors to pay reduced sales charges under certain
circumstances. See the Fund's respective Statements of Additional Information
for information concerning those programs.
When Class A shares are sold, FSC or EFD, as the case may be, will normally
retain a portion of the applicable sales charge and may also pay fees to banks
from sales charges for services performed on behalf of the banks' customers
purchasing the Class A shares.
Class B Shares. Class B shares are sold without any front-end sales charges
but are subject to a contingent deferred sales charge ("CDSC") if shares are
redeemed during the first seven years after purchase. In addition, Class B
shares are subject to distribution-related fees and shareholder
servicing-related fees as described below. Class B shares held for seven years
will automatically convert to Class A shares at the month end after expiration
of the seven year period.
The amount of the CDSC applicable to redemptions of Class B shares (which is
charged as a percentage of the lesser of the current net asset value or original
cost) will vary according to the number of years from the purchase in the manner
set forth below.
Year Since Purchase Contingent Deferred Sales Charge
FIRST 5%
SECOND 4%
THIRD and FOURTH 3%
FIFTH 2%
SIXTH and SEVENTH 1%
The CDSC is deducted from the amount of the redemption and is paid to the
respective Fund's distributor. Shares of each Fund acquired through dividend or
distribution reinvestments are not subject to a CDSC. For purposes of
determining the schedule of CDSCs, and the time of conversion to Class A shares,
applicable to Class B shares of High Grade received by National shareholders in
the Reorganization, High Grade will treat such shares as having been sold on the
date the shares of National were originally purchased by the National
shareholder.
CDSCs will be waived on redemptions of shares, following the death or
disability of a shareholder, to meet distribution requirements for certain
qualified retirement plans or in the case of certain redemptions made under a
Fund's Systematic Cash Withdrawal Plan.
For purposes of conversion to Class A shares, Class B shares received
through the reinvestment of dividends and distributions paid on Class B shares
in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A shares, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class A
shares.
Class B shares are subject to higher distribution-related fees than Class A
shares and Class Y shares of a Fund for a period of approximately seven years
(after which they convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B shares pay correspondingly lower dividends and may
have a lower net asset value than Class Y or Class A shares of a Fund.
At the time Class B shares are sold, FSC or EFD, as the case may be, may pay
a commission, from its own resources (which funds may be obtained pursuant to
certain financing arrangements established for the purpose of enabling it to pay
such commissions at the time of sale) to the broker or other financial
intermediary responsible for making the sale. Financing arrangements with
respect to commissions have been entered into with First Union.
Distribution-related and Shareholder Servicing-related Expenses. Each Fund
has adopted Rule 12b-1 plans with respect to its Class A shares and Class B
shares under which a Class may pay for distribution-related expenses at an
annual rate which may not exceed .75 of 1% of average daily net assets
attributable to the Class. Payments with respect to Class A shares of each Fund
are currently limited to .25 of 1% of average daily net assets attributable to
the Class, which amount may be increased to the full plan rate for a Fund by its
Trustees without shareholder approval.
The Class B Rule 12b-1 plan for National provides for the payment in respect
of "shareholder services," as that term is defined in the NASD Rule (as defined
below), at an annual rate which may not exceed .25 of 1% (making total Rule
12b-1 fees for Class B shares of National payable at a maximum annual rate of
1.00%). The Trustees of First Union Funds have adopted a Shareholder Services
Plan with respect to Class B shares of High Grade under which payments may be
made to compensate organizations, which may include FUNB-NC or its affiliates,
and which may or may not be a broker or other financial intermediary responsible
for the sale of Class B shares, for personal services rendered to Class B
shareholders and/or the maintenance of shareholder accounts, at an annual rate
not to exceed .25 of 1%.
The payment of fees under the respective Rule 12b-1 plans may from time to
time be limited to the extent any amounts payable thereunder exceed the
limitations contained under Section 26(d) of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD Rule").
The NASD Rule provides that the rate of payments of "asset based sales charges"
shall not exceed .75 of 1% of average annual net assets and, to the extent that
payments are made in respect of "shareholder services," the rate of such
payments shall be limited to .25 of 1% of average annual net assets. In
addition, the payment of such fees and the Funds' sales charges (including
CDSCs) may from time to time be limited by certain other provisions of the NASD
Rule.
Purchase And Redemption Procedures. Information concerning applicable sales
charges, distribution-related fees and shareholder servicing-related fees are
described above. Shares of each Fund are sold at the net asset value (plus any
applicable sales charges) next determined after receipt of a purchase order. The
minimum initial purchase requirement for both National and High Grade is $1,000;
there is no minimum for subsequent purchases. Each Fund provides for telephone,
mail or wire redemption of shares at net asset value (subject, in the case of
Class B shares, to any applicable CDSC) as next determined after receipt of a
redemption request on each day the New York Stock Exchange is open. Additional
information concerning purchases and redemptions of shares, including how the
Funds' net asset values are determined, is contained in the respective
Prospectuses for each Fund. Each Fund may involuntarily redeem shareholder's
accounts that have less than $1,000 of invested funds.
Exchange Privileges. Holders of shares of each Class of High Grade currently are
permitted to exchange such shares for shares of the same Class of other
portfolios of First Union Funds. Holders of shares of each Class of National
currently are permitted to exchange such shares for shares of the same Class of
other funds in the Evergreen mutual fund complex. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in the Funds' respective Prospectuses and Statements of Additional
Information. After July 1, 1995 (or as soon thereafter as is reasonably
practicable, and subject to applicable laws), it is expected, although it cannot
be assured, that shareholders in each of First Union Funds and the Evergreen
mutual fund complex will be permitted to exchange their shares for shares of the
same Class (to the extent available) of all portfolios of First Union Funds and
all funds in the Evergreen mutual fund complex. Although there is no present
intention to do so, the exchange privilege may be modified or terminated at any
time.
Dividend Policy. Each Fund declares income dividends daily and pays such
dividends monthly. Distributions of any net realized capital gains of a Fund
will be made at least annually. Dividends and distributions are reinvested in
additional shares of the same Class of the respective Fund, or paid in cash, as
a shareholder has elected. See the respective Prospectuses of the Funds for
further information concerning dividends and distributions.
After the Reorganization, shareholders of National that have elected [(or
that so elect no later than [xx] days prior to the date of the Reorganization)]
to have their dividends and/or distributions reinvested, will have dividends
and/or distributions received from High Grade reinvested in shares of High
Grade. Shareholders of National that have elected [(or that so elect no later
than [xx] days prior to the date of the Reorganization)] to receive dividends
and/or distributions in cash will receive dividends and/or distributions from
High Grade in cash after the Reorganization, although they may, after the
Reorganization, elect to have such dividends and/or distributions reinvested in
additional shares of High Grade.
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, so long as each Fund distributes all
of its investment company taxable income and non-taxable income and any net
realized gains to shareholders, it is expected that the Fund will not be
required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements with respect to the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
RISKS
In general, an investment in either of the Funds entails substantially the
same risks, such as interest rate risk (the risk that bond prices, and
accordingly Fund share prices, will decline as interest rates rise), the credit
risk associated with the investment in certain Municipal Securities and the risk
that the credit enhancement provided by insurance may not prove effective in
assuring the timely payment of principal or interest. There is no assurance the
investment objective of any Fund will be achieved. See "Comparison Of Investment
Objectives And Policies".
INFORMATION ABOUT THE REORGANIZATION
Reasons For The Reorganization. There are substantial similarities between
National and High Grade. Specifically, National and High Grade have
substantially similar investment objectives and policies, and comparable risk
profiles. See, "Comparison of Investment Objectives and Policies," below. In
addition, the investment records of each Fund are comparable. See, "Comparative
Performance Information for Each Fund." In terms of total net assets there is,
however, a significant difference between the two Funds: as of March 1, 1995,
National had net assets of $24 million, whereas High Grade had net assets of
$98 million.
National has not, since its inception in 1992, achieved asset levels on a
continuing basis that would permit it, without a significant waiver of fees and
reimbursement of expenses by Evergreen Asset (the continuance of which voluntary
waivers and reimbursements cannot be assured) to operate economically and
generate a competitive yield. High Grade, however, has already reached viable
asset levels since its inception in 1992. Given the substantial similarities
between the Funds, and the fact that National and High Grade are now managed by
affiliated entities and offered through certain common distribution channels,
Evergreen Asset believes that National will not be able to achieve significant
increases in asset levels in the foreseeable future. In addition, the prospect
of dividing the resources of the Evergreen/First Union mutual fund advisory
organizations between two substantially identical funds could result in both
Funds being disadvantaged due to an inability to achieve optimum size,
performance levels and the greatest possible economies of scale.
Agreement and Plan of Reorganization. The following summary is qualified in
its entirety by reference to the Plan (Exhibit A hereto).
The Plan provides that High Grade will acquire all or substantially all of
the assets of National in exchange for shares of High Grade and the assumption
by High Grade of certain identified liabilities of National on June 30, 1995 or
such later date as may be agreed upon by the parties (the "Closing Date"). Prior
to the Closing Date, National will endeavor to discharge all of its known
liabilities and obligations. High Grade will not assume any liabilities or
obligations of National other than those reflected in an unaudited statement of
assets and liabilities of National prepared as of the close of regular trading
on the New York Stock Exchange, Inc. (the "NYSE"), currently 4:00 p.m. Eastern
Time, on the day immediately prior to the Closing Date. The number of full and
fractional common shares of each Class of High Grade to be received by National
will be determined on the basis of the relative net asset values per share of
each respective Class of High Grade's shares and the net asset values
attributable to each Class of shares of National, computed as of the close of
regular trading on the NYSE on the Closing Date. The net asset value per share
of each Class will be determined by dividing assets, less liabilities, in each
case attributable to the respective Class, by the total number of outstanding
shares.
State Street Bank and Trust Company, the custodian for each Fund, will
compute the value of the Funds' respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of High Grade, Rule 22c-1
under the 1940 Act, and with the interpretations of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, National shall have declared a dividend or
dividends and distribution or distributions which, together with all previous
dividends and distributions, shall have the effect of distributing to National's
shareholders (in shares of National, or in cash, as the shareholder has
previously elected) all of National's investment company taxable income and
non-taxable income for the taxable year ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gains realized in all taxable years ending on or prior to the Closing
Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, National will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional Corresponding Shares of
High Grade received by National. Such liquidation and distribution will be
accomplished by the establishment of accounts in the names of National's
shareholders on the share records of High Grade's transfer agent. Each account
will represent the respective pro rata number of full and fractional
Corresponding Shares of High Grade due to National's shareholders. All issued
and outstanding shares of National, including those represented by certificates,
will be canceled. High Grade does not issue share certificates to shareholders.
The shares of High Grade to be issued will have no pre-emptive or conversion
rights. After such distribution and the winding up of its affairs, National will
be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by National's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel
including those matters referred to below in "Federal Income Tax Consequences"
below. Notwithstanding approval of National's shareholders, the Plan may be
terminated at any time: (a) by the mutual agreement of both parties; or (b) at
or prior to the Closing Date by either party (i) because of a material breach by
the other party of any representation, warranty, or agreement contained therein,
or (ii) because a condition to the obligation of the terminating party cannot be
met.
The expenses of National in connection with the Reorganization (including
the cost of any proxy soliciting agents), will be borne by Evergreen Asset. The
expenses of High Grade incurred in connection with the Reorganization will be
borne by FUNB-NC. No portion of such expenses shall be borne [directly] by
National or its shareholders.
If the Reorganization is not approved by shareholders of National, the Board
of Trustees of the Trust will continue to operate National under existing
arrangements, or consider other possible courses of action, including
liquidation of National. [Section to be reviewed against final version of Plan.]
Federal Income Tax Consequences. The Reorganization is intended to qualify for
federal income tax purposes as a tax-free reorganization under section 368(a) of
the Code. As a condition to the closing of the Reorganization, National will
receive an opinion of counsel to the effect that, on the basis of the existing
provisions of the Code, U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court decisions, for federal income tax
purposes, upon consummation of the Reorganization:
(1) The transfer of substantially all of the assets of National
solely in exchange for shares of High Grade and the assumption
by High Grade of certain identified liabilities, followed by
the distribution of High Grade's shares by National in
dissolution and liquidation of National, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) of
the Code, and High Grade and National will each be a "party to
a reorganization" within the meaning of section 368(b) of the
Code;
(2) No gain or loss will be recognized by National on the transfer
of its assets to High Grade (except, possibly, with respect to
certain options, futures and forward contracts, if any,
included in the assets ("Contracts")), solely in exchange for
High Grade's shares and the assumption by High Grade of
liabilities or upon the distribution (whether actual or
constructive) of High Grade's shares to National's
shareholders in exchange for their shares of National;
(3) The tax basis of the assets transferred (with the possible
exception of the Contracts) will be the same to High Grade as
the tax basis of such assets to National immediately prior to
the Reorganization, and the holding period of such assets
(with the possible exception of the Contracts) in the hands of
High Grade will include the period during which the assets
were held by National;
(4) No gain or loss will be recognized by High Grade upon the
receipt of the assets from National solely in exchange for the
shares of High Grade and the assumption by High Grade of
certain liabilities;
(5) No gain or loss will be recognized by National's shareholders
upon the issuance of the shares of High Grade to them,
provided they receive solely such shares (including fractional
shares) in exchange for their shares of National; and
(6) The aggregate tax basis of the shares of High Grade, including
any fractional shares, received by each of the shareholders of
National pursuant to the Reorganization will be the same as
the aggregate tax basis of the shares of National held by such
shareholder immediately prior to the Reorganization, and the
holding period of the shares of High Grade, including
fractional shares, received by each such shareholder will
include the period during which the shares of National
exchanged therefor were held by such shareholder (provided
that the shares of National were held as a capital asset on
the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue
Service or the courts. If the Reorganization is consummated but does not qualify
as a tax-free reorganization under the Code, each National shareholder would
recognize a taxable gain or loss equal to the difference between his tax basis
in his National shares and the fair market value of the High Grade shares he
received. Shareholders of National should consult their tax advisers regarding
the effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal income
tax consequences of the Reorganization, shareholders of National should also
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Recommendation of the Board. Based on the recommendation of Evergreen Asset and
FUNB, at Special Meetings held on January 6, 1995 and March 7, 1995, the
respective Boards of Trustees of the Trust and the First Union Funds considered
and approved the Reorganization, including the entry by the Trust and First
Union Funds into the Plan on behalf of each Fund. Specifically, the Trustees of
the Trust determined that the proposed Reorganization would be in the best
interests of National and its shareholders and would not result in the dilution
of the interests of shareholders.
In reaching their decision to recommend shareholder approval of the
Reorganization, the Trustees of the Trust considered the information discussed
above in "Reasons for the Reorganization," including the fact that National has
never achieved a viable asset level. In addition, the Trustees considered, among
other things, (i) the terms and conditions of the Reorganization; (ii) whether
the Reorganization would result in the dilution of shareholder interests; (iii)
the fact that Evergreen Asset will bear the expenses incurred by National in
connection with the Reorganization; (iv) the fact that High Grade will assume
all of the disclosed obligations and certain stated liabilities of National; and
(v) the expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders of
National from the sale of its assets to High Grade. In this regard, the Trustees
considered the potential benefits of being associated with a larger more viable
entity (including the economies of scale that could be realized by the
participation by shareholders of National in the combined fund), and the
undertaking made by FUNB-NC in connection with the proposed Reorganization to
limit for a period of at least one year from the effective date of the
Reorganization the expenses borne by High Grade to the same level of net
expenses currently borne by National (.66 of 1% on an annual basis exclusive of
class specific expenses including distribution and shareholder service fees) and
to consult with the Trustees of First Union Funds prior to discontinuing such
limitation after the one year period. In addition, the Trustees considered that
there are alternatives available to shareholders of National, including the
ability to redeem their shares, as well as the option to vote against the
Reorganization.
During their consideration of the Reorganization, the Independent Trustees
met with the other Trustees as well as separately with independent legal counsel
regarding the legal issues involved.
The Trustees of the Trust recommend that the shareholders of National
approve the proposed Reorganization.
FINANCIAL INFORMATION
Comparison of Fees and Expenses. The amounts for each of the Classes of shares
of High Grade set forth in the following tables and examples are estimated based
on the expenses expected during the fiscal year ending December 31, 1995. The
amounts for Class A and Class B shares of National set forth both in the tables
and in the examples are estimated based on the experience of National Class Y
shares for the fiscal year ended August 31, 1994. Class A shares and Class B
shares of National were first offered to the public as of January 3, 1995.
The comparison of fees and expenses does not reflect the undertaking of FUNB to
limit certain fees discussed elsewhere in this proxy.
The following tables show for High Grade and National the shareholder
transaction expenses and annual fund operating expenses associated with an
investment in the respective comparable Classes of shares of High Grade and
shares of National, and such costs and expenses associated with an investment in
each Class of shares of High Grade assuming consummation of the Reorganization.
<PAGE>
Comparison of Class Y Shares of High Grade with
Class Y Shares of National
High Grade
High Grade National Pro Forma
Shareholder
Transaction Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None None None
Maximum Sales Load
Imposed on Reinvested
Dividends (as a percentage
of offering price) None None None
Contingent Deferred None None None
Sales Charge
Exchange Fee None $5 None
Redemption Fees None None None
Annual Fund Operating
Expenses (as a percentage
of average daily net assets)
Advisory Fee
(after waiver) (1) 0.50% .02% 0.50%
12b-1 Fees None None None
Other Expenses
(after reimbursement) (2) 0.33% 0.27% 0.31%
---- ---- ----
Annual Fund Operating
Expenses (3) 0.83% 0.29% 0.81%
--------------------------------------------------------------------------------
(1) The advisory fee of National has been reduced to reflect the voluntary
waiver of the advisory fee. Evergreen Asset can terminate this
voluntary waiver at any time at its sole discretion. The maximum
advisory fee is 0.50% for both High Grade and National.
(2) Other Expenses for Class Y shares of National would have been 0.39%
absent the reimbursement of other operating expenses by Evergreen
Asset.
(3) Annual Fund Operating Expenses for Class Y shares of National would
have been 0.89% absent the voluntary waiver and reimbursement described
above in Notes 1 and 2.
High Grade Class Y shares Annual Fund Operating Expenses were .76% for
the year ended December 31, 1994. Class Y Annual Fund Operating
Expenses for High Grade, absent the voluntary waiver of the advisory
fee by CMG would have been .77% for the year ended December 31, 1994.
The Class Y shares Annual Fund Operating Expenses for High Grade and
the High Grade Pro Forma in the table above are based on expenses
expected during the fiscal year ending December 31, 1995.
<PAGE>
Comparison of Class A Shares of High Grade with
Class A Shares of National
High Grade
High Grade National Pro Forma
Shareholder
Transaction Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) 4.75% 4.75% 4.75%
Maximum Sales Load
Imposed on Reinvested
Dividends (as a percentage
of offering price) None None None
Contingent Deferred None None None
Sales Charge
Exchange Fee None None None
Redemption Fees None None None
Annual Fund Operating
Expenses (as a percentage
of average daily net
assets)
Advisory Fee(after waiver)(1) 0.50% 0.02% 0.50%
12b-1 Fee (2) 0.25% 0.25% 0.25%
Other Expenses (after
reimbursement) (3) 0.33% 0.27% 0.31%
---- ---- ----
Annual Fund Operating
Expenses (4) 1.08% 0.54% 1.06%
--------------------------------------------------------------------------------
(1) The advisory fee of National has been reduced to reflect the voluntary
waiver of the management fee. Evergreen Asset can terminate this
voluntary waiver at any time at its sole discretion. The maximum
advisory fee is 0.50% for both High Grade and National.
(2) The Class A shares can pay up to .75 of 1% of Class A shares' average
daily net assets as a 12b-1 fee. For the foreseeable future, the High
Grade and National plan to limit the Class A shares' 12b-1 payments to
.25 of 1% of Class A shares' average daily net assets. Class A shares
of National began accruing 12b-1 fees effective January, 1995.
(3) Other Expenses for Class A shares of National would have been 0.39%
absent the reimbursement of other operating expenses by Evergreen
Asset.
(4) Annual Fund Operating Expenses for Class A shares of National would
have been 1.14% absent the voluntary waiver and reimbursement described
above in Notes 1 and 3.
High Grade Class A shares Annual Fund Operating Expenses were 1.01% for
the year ended December 31, 1994. Class A share Annual Fund Operating
Expenses for High Grade, absent the voluntary waiver of the advisory
fee by CMG would have been 1.02% for the year ended December 31, 1994.
The Class A shares Annual Fund Operating Expenses for the High
Grade Pro Forma in the table above are based on expenses expected
during the fiscal year ending December 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
Comparison of Class B Shares of High Grade with Class B Shares of National
High Grade
High Grade National Pro Forma
<S> <C> <C> <C>
Shareholder
Transaction Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None None None
Maximum Sales Load
Imposed on Reinvested
Dividends (as a percentage
of offering price) None None None
Contingent Deferred 5% during 1st year, 5% during 1st year, 5% during 1st year,
Sales Charge 4% during 2nd year, 4% during 2nd year, 4% during 2nd year,
3% during 3rd year, 3% during 3rd year, 3% during 3rd year,
3% during 4th year, 3% during 4th year, 3% during 4th year,
2% during 5th year, 2% during 5th year, 2% during 5th year,
1% during 6th year, 1% during 6th year, 1% during 6th year,
1% during 7th year, 1% during 7th year, 1% during 7th year,
and 0% after 7th and 0% after 7th and 0% after 7th
year year year
Exchange Fee None None None
Redemption Fees None None None
Annual Fund Operating
Expenses (as a percentage
of average daily net
assets)
Advisory Fee
(after waiver) (1) 0.50% 0.02% 0.50%
12b-1 Fees (2) 0.75% 0.75% 0.75%
Other Expenses
(after reimbursement)(3)
including .25% Share-
holder Service Fee(4)) 0.58% 0.52% 0.56%
---- ---- ----
Annual Fund Operating
Expenses (5) 1.83% 1.29% 1.81%
<FN>
---------------------------------------------------------------------------------------------------
(1) The advisory fee of National has been reduced to reflect the voluntary
waiver of the advisory fee. Evergreen Asset can terminate this
voluntary waiver at any time at its sole discretion. The maximum
advisory fee is .50% for both High Grade and National.
(2) Class B shares of National began accruing 12b-1 fees effective January,
1995 at the maximum rate of .75%.
(3) Other Expenses for Class B shares of National would have been .64%
absent the reimbursement of other operating expenses by Evergreen
Asset.
(4) Class B shares of High Grade began accruing the Shareholder Service Fee
in September, 1994 at the maximum rate of .25%. The Shareholder Service
Fee for Class B shares of High Grade amounted to .07% for the fiscal
year ended December 31, 1994. National began accruing shareholder
servicing-related fees in January, 1995 at the maximum rate of .25%.
(5) Operating Expenses for Class B shares of National would have been 1.89%
absent the voluntary waiver and reimbursement described above in Note 1
and 3.
High Grade Class B shares Annual Fund Operating Expenses were 1.58% for
the year ended December 31, 1994. Class B Annual Fund Operating
Expenses for High Grade, absent the voluntary waiver of the advisory
fee by CMG would have been 1.59% for the year ended December 31, 1994.
The Class B shares Annual Fund Operating Expenses for High Grade and
the combined High Grade Pro Forma in the table above are based on
expenses expected during the fiscal year ending December 31, 1995.
</FN>
</TABLE>
Because of the asset-based sales charges, long-term Class A and Class B
shareholders may pay more than the economic equivalent of the maximum front-end
sales loads permitted under the rules of the National Association of Securities
Dealers, Inc.
In connection with the proposed Reorganization FUNB-NC has agreed to limit for a
period of at least one year from the effective date of the Reorganization the
expenses of High Grade to the same level of net expenses currently borne by
National (.66 of 1% on an annual basis exclusive of class specific expenses
including distribution and shareholder service fees) and to consult with the
Trustees of First Union Funds prior to discontinuing such limitation after the
one year period.
Examples. The following tables show for the respective Classes of shares of
each Fund, and for High Grade, assuming consummation of the Reorganization,
examples of the cumulative effect of shareholder transaction expenses and annual
fund operating expenses indicated above on a $1,000 investment in such shares
for the periods specified, assuming (i) a 5% annual return, and (ii) redemption
at the end of such period and, additionally for Class B shares, no redemption at
the end of each period.
In the following examples (i) the expenses for Class A Shares assume
deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the
expenses for Class B Shares assume deduction at the time of redemption (if
applicable) of the maximum CDSC applicable for that time period, and (iii) the
expenses for Class B Shares reflect the conversion to Class A Shares seven years
after purchase (years eight through ten, therefore, reflect Class A expenses).
Class Y Shares
High Grade
High Grade National Pro Forma
After 1 year $ 8 $ 3 $ 8
After 3 years $ 26 $ 9 $ 26
After 5 years $ 46 $ 16 $ 45
After 10 years $ 103 $ 37 $ 100
Class A Shares
High Grade
High Grade National Pro Forma
After 1 year $ 58 $ 53 $ 58
After 3 years $ 80 $ 64 $ 80
After 5 years $ 104 $ 76 $ 103
After 10 years $ 173 $ 112 $ 171
Class B Shares
Assuming Redemption at End of Period
High Grade
High Grade National Pro Forma
After 1 year $ 70 $ 65 $ 70
After 3 years $ 91 $ 74 $ 90
After 5 years $ 122 $ 95 $ 121
After 10 years $ 186 $ 125 $ 184
Assuming No Redemption at End of Period
High Grade
High Grade National Pro Forma
After 1 year $ 19 $ 13 $ 18
After 3 years $ 58 $ 41 $ 57
After 5 years $ 99 $ 71 $ 98
After 10 years $ 186 $ 125 $ 184
The purpose of the foregoing examples is to assist a National shareholder in
understanding the various costs and expenses that an investment in the
respective Classes of shares of High Grade as a result of the Reorganization
would bear directly and indirectly, as compared with the various direct and
indirect expenses borne by a National shareholder. These examples should not be
considered a representation of past or future expenses or annual return. Actual
expenses and annual return may be greater or less than those shown.
Expense Ratios. The net expense ratios for the fiscal year ended December
31, 1994 are as follows:
High Grade National
Class Y Shares .76 of 1% .47 of 1%
Class A Shares 1.01 of 1% .72 of 1%*
Class B Shares 1.58 of 1% 1.47 of 1%*
The above-mentioned expense ratios are net of voluntary advisory fee waivers
and expense reimbursements by each Fund's Investment adviser. If no advisory fee
waivers and reimbursements had been made, these expense ratios would have been
as follows:
High Grade National
Class Y Shares .77 of 1% .91 of 1%
Class A Shares 1.02 of 1% 1.16 of 1%*
Class B Shares 1.59 of 1% 1.91 of 1%*
If the Funds were consolidated, and based on the level of advisory fee
waiver on the part of First Union, in effect for the fiscal year ended December
31, 1994 the pro forma expense ratios for the fiscal year ended December 31,
1994 would have been as follows:
High Grade
Class Y Shares .74 of 1%
Class A Shares .99 of 1%
Class B Shares 1.56 of 1%
The following are the expense ratios for National for the fiscal year ended
August 31, 1994.
Net of Advisory Fee Excluding Advisory Fee
Waiver and Waiver and
Voluntary Reimbursements Voluntary Reimbursements
Class Y Shares .29 of 1% .89 of 1%
Class A Shares .54 of 1%* 1.14 of 1%*
Class B Shares 1.29 of 1%* 1.89 of 1%*
* Expense ratios for National Class A and Class B shares are estimated
based upon the expense ratios of the Class Y Shares adjusted for 12b-1
distribution and shareholder servicing fees. Class A Shares commenced
operations on January 30, 1995 and Class B Shares commenced operations
on January 4, 1995.
Pro-Forma Capitalization. The following tables show the capitalization of High
Grade and National as of December 31, 1994 and on a pro forma basis as of that
date, giving effect to the proposed acquisition of assets at net asset value:
<TABLE>
<CAPTION>
Capitalization of National and High Grade
National(1) High Grade
--------------------------------------- ----------------------------------------
Class Y Class A Class B Class Y Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Assets $22,008,774 $9 $9 $4,318,440 $57,676,448 $32,434,792
Shares Outstanding 2,326,272 1.00 1.00 $ 440,914 5,888,393 3,311,416
Net Asset Value per $9.46 $9.46 $9.46 $9.79 $9.79 $9.79
Share
</TABLE>
Pro Forma Combined Capitalization of High Grade(2)
Class Y Class A Class B
------- ------- -------
Net Assets $26,327,214 $57,676,457 $32,434,801
Shares Outstanding(3) 2,688,772 5,888,394 3,311,417
Net Asset Value per Share $9.79 $9.79 $9.30
1. Net Assets and Net Asset Value Per Share of National
represent the aggregate and per share value of National's
net assets which would have been transferred to High
Grade had the Reorganization been consummated on
December 31, 1994.
2. Data does not take into account expenses incurred in the
Reorganization
3. Had the Reorganization been consummated on December
31, 1994, National would have received 2,247,858 Class Y,
0.97 Class A and 0.97 Class B shares of High Grade, which
would then be available for distribution to shareholders.
No assurance can be given as to how many Class Y, Class A
and Class B shares of High Grade National shareholders
will receive on the date that the Reorganization takes
place, and the foregoing should not be relied upon to
reflect the number of Class Y, Class A and Class B shares
of High Grade that will actually be received on or after
such date.
Shareholder Information. As of _______________ 1995, (the "Record Date"),
there were [number of] outstanding shares of beneficial interest of National.
The number and percentage of outstanding shares of National owned by the
officers and Trustees of the Trust, or by each person who, to the Trust's
knowledge, owned beneficially or of record more than 5% of National's total
outstanding shares as of the Record Date, is as follows:
Name and Address Number of Shares Percentage
Foster Bam,
2 Greenwich Plaza
Greenwich, CT 06830
Robert J. Jeffries,
2118 New Bedford Drive
Sun City, FL 33573
Stephen A. Lieber,
2500 Westchester Ave.
Purchase, NY 10577
As a result of his ownership of ____% of National's shares on the Record
Date, Mr. Lieber, who is Chairman and Co-Chief Executive Officer of Evergreen
Asset and Lieber, is deemed to "control" the Fund, as that term is defined in
Section 2(a)(9) of the 1940 Act. It is expected that Mr. Lieber will vote to
approve the Plan. [As of the Record Date, the current officers and current
Trustees of National, and the former officers and former Trustees of National
who are currently officers of, or associated with, Evergreen Asset and Lieber
(including Mr. Lieber), and the accounts for which Lieber or First Union has
discretion to vote the shares, owned in the aggregate ___% of National's shares.
[It is expected that all of the shares owned by these persons will vote to
approve the Plan. [If over 50% - add: Accordingly, it is expected that the Plan
will be approved, and the Reorganization will take place, even if all other
shareholders vote against the Plan.]]
As of ________________, 1995, the following number of each Class of the
shares of High Grade were outstanding: Class A _____________; Class B
____________; and Class Y _____________. As of the Record Date, the officers and
Trustees of High Grade beneficially owned as a group less than 1% of the
outstanding shares of High Grade. To the best knowledge of the Trustees, as of
the Record Date, no other shareholder or "group" (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934, the ("Exchange Act"))
beneficially owned more than 5% of High Grade's outstanding shares. [Verify.]
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectuses and Statements of Additional
Information of the Funds. The investment objectives, policies and restrictions
of High Grade can be found in its Prospectuses under the caption "Investment
Objectives and Policies." High Grade's Prospectuses also offers five additional
funds advised by CMG. These additional funds are not involved in the
Reorganization, their investment objectives, policies and restrictions are not
discussed in this Prospectus/Proxy Statement and their shares are not offered
hereby. The investment objectives, policies and restrictions of National can be
found in its Prospectuses under the caption "Investment Objective and Policies."
National's Prospectuses also offers three additional funds advised by Evergreen
Asset. These additional funds are not involved in the Reorganization, and their
investment objectives, policies and restrictions are not discussed in this
Prospectus/Proxy Statement.
Both High Grade and National seek to achieve a high level of current income
exempt from federal income tax by investing substantially all of their assets in
a diversified portfolio of Municipal Securities. While the investment objectives
and policies of each Fund are similar, certain differences exist that could
impact on the performance of, and risks associated with, an investment in each
Fund.
Municipal Securities.
Credit Ratings. High Grade will invest at least 65% of its total assets,
and intends to invest primarily, in a portfolio of Municipal Securities rated A
or better by S&P or Moody's; if unrated, determined to be of comparable quality
to such rated bonds; or insured by a municipal bond insurance company rated AAA
by S&P or Aaa by Moody's. High Grade generally will not invest in Municipal
Securities rated BBB by S&P or Baa by Moody's, or having a rating below such
ratings, except that High Grade may invest in Municipal Securities which would
otherwise not meet its quality standards so long as it obtains municipal bond
insurance with respect to such securities. [FU to clarify actual policy.]
National intends, under normal market conditions, to invest at least 80% of
its total assets in Municipal Securities that, at the time of purchase, are
insured by an insurer having a claims-paying ability rated AAA by S&P or Aaa by
Moody's, or are prefunded. While National will generally invest in Municipal
Securities rated A or higher by S&P or Moody's, National may also invest in
general obligation bonds which are rated BBB by S&P, Baa by Moody's, or which
bear a similar rating from another nationally recognized statistical rating
organization. Such medium grade bonds are more susceptible to adverse economic
conditions or changing circumstances than higher grade bonds. In general, the
credit criteria of both Funds and the investment strategies pertaining to their
portfolios entail an equivalent level of credit risk. However, because National
may invest in medium-rated Municipal Securities (rated BBB or Baa by S&P or
Moody's, respectively) without having to obtain insurance, it could be deemed to
be subject to more risk than High Grade.
Insured Obligations. The policy of High Grade is to invest at least 65% of
its assets in High Grade Bonds, which includes insured Municipal Securities.
National intends to invest at least 80% of its assets in Municipal Securities
that are either insured or prefunded, although this policy can be changed by the
Trustees without shareholder approval. Notwithstanding the foregoing, High Grade
currently has __% of its assets invested in Municipal Securities that are
insured. Each Fund may purchase insurance with respect to the Municipal
Securities its invests in, which will result in certain expenses to the Fund.
See the High Grade Prospectuses under "Municipal Bond Insurance."
Floating Rate and Variable Rate Obligations. Each Fund may invest in
certain variable rate and floating rate municipal obligations, including those
with or without demand features. National may invest up to 10% or its total
assets in such securities which are not readily marketable. Variable rate
securities do not have fixed interest rates; rather, those rates fluctuate based
upon changes in specified market rates, such as the prime rate, or are adjusted
at predesignated periodic intervals and they may carry a demand feature that
gives the Funds the right to demand prepayment of the principal amount of the
security prior to its maturity date.
When-Issued Securities. Each Fund may purchase Municipal Securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). The Funds generally would not pay for such securities
or start earning interest on them until they are received, but they assume the
risks of ownership at the time of purchase, not at the time of receipt. Failure
of the issuer to deliver a security purchased by a Fund on a when-issued basis
may result in a Fund's incurring a loss or missing an opportunity to make an
alternative investment. The Funds each maintain cash or liquid high grade debt
obligations in a segregated account with their custodian in an amount equal to
such commitments. Each Fund may purchase when-issued securities only in
furtherance of its investment objectives and not for speculative purposes.
Commitments to purchase when-issued securities are limited to 25% of National's
total assets, while High Grade limits the amount it may segregate for the
purpose of making such transactions to 20% of its total assets.
Stand-by Commitments. National may also acquire "stand-by commitments" with
respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Securities at a specified price. National expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, National may pay
for stand-by commitments either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held in
National's portfolio will not exceed 10% of the value of the Fund's total assets
calculated immediately after each stand-by commitment is acquired. National will
maintain cash or liquid high grade debt obligations in a segregated account with
its custodian in an amount equal to such commitments. High Grade does not
currently have a policy concerning investments in or a limitation on investments
in stand-by commitments.
Temporary and Taxable Investments. National may temporarily invest up to
20% of its assets, and High Grade may invest without limit, in taxable
securities under any one or more of the following circumstances: (a) pending
investment of proceeds of sale of Fund shares or of portfolio securities, (b)
pending settlement of purchases of portfolio securities, and (c) to maintain
liquidity for the purpose of meeting anticipated redemptions. In addition,
National and High Grade may both temporarily invest more than 20% of their total
assets in taxable securities for defensive purposes. Each Fund may invest for
defensive purposes during periods when each Fund's assets available for
investment exceed the available Municipal Securities that meet each Fund's
quality and other investment criteria. To the extent the Funds invest in taxable
investments, shareholders will be subject to federal income taxes on dividends
from the Funds attributable to such taxable investments.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, each Fund's custodian, or "primary dealers" (as designated by the
Federal Reserve Bank of New York) in U.S. Government securities. A repurchase
agreement is an arrangement pursuant to which a buyer purchases a security and
simultaneously agrees to resell it to the vendor at a price that results in an
agreed-upon market rate of return which is effective for the period of time
(which is normally one to seven days, but may be longer) the buyer's money is
invested in the security. The arrangement results in a fixed rate of return that
is not subject to market fluctuations during a Fund's holding period. Each Fund
requires continued maintenance of collateral with its custodian in an amount
equal to, or in excess of, the market value of the securities, including accrued
interest, which are the subject of a repurchase agreement. National and High
Grade may not enter into repurchase agreements if, as a result, more than 10%
and 15%, respectively, of each Fund's net assets would be invested in repurchase
agreements maturing in more than seven days.
Reverse Repurchase Agreements. Each Fund may agree to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed upon date and price (a "reverse repurchase
agreement"). At the time [National] [a Fund] enters into a reverse repurchase
agreement, it will place in a segregated custodial account cash, U.S. Government
securities or liquid high grade debt obligations having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price of those securities. National may
enter into reverse repurchase agreements for temporary or emergency purposes
only, and in amounts not exceeding 5% of the value of its total assets. High
Grade may enter into reverse repurchase agreements as a temporary measure for
extraordinary or emergency purposes in an amount up to one-third of the value of
its total assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments. High Grade will not
purchase any securities while borrowings, including reverse repurchase
agreements, in excess of 5% of the value of its total assets are outstanding.
Restricted and Illiquid Securities. National may invest up to 15% of its
net assets in illiquid securities and other securities which are not readily
marketable, except that National may only invest up to 10% of its assets in
repurchase agreements with maturities longer than seven days. High Grade will
not invest more than 15% of its net assets in illiquid securities, including
repurchase agreements providing for settlement in more than seven days after
notice, and certain securities not determined by the Trustees to be liquid. In
addition, High Grade will not invest more than 10% of its total assets in
securities subject to restrictions on resale under federal securities laws. In
the case of National, securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, which have been determined to be liquid, will not be
considered by Evergreen Asset to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. High Grade does not
have a similar policy with respect to investments in Rule 144A securities.
Securities Lending. In order to generate income and to offset expenses, the
Funds may lend portfolio securities to brokers, dealers and other financial
organizations. Loans of securities by a Fund, if and when made, must be
collateralized by cash, letters of credit or U.S. Government securities that are
maintained at all times in an amount equal to at least 100 percent of the
current market value of the loaned securities, including accrued interest.
National may not make loans of securities in excess of 30% of its total assets.
High Grade limits loans of securities to 15% of its total assets.
Alternative Minimum Tax Investments. Interest income on certain types of
bonds issued after August 7, 1986 to finance nongovernmental activities is an
item of "tax-preference" subject to the federal alternative minimum tax for
individuals and corporations. To the extent either Fund invests in these
"private activity" bonds (some of which were formerly referred to as "industrial
development" bonds), individual and corporate shareholders, depending on their
status, may be subject to the alternative minimum tax on the part of the Fund's
distributions derived from the bonds. High Grade normally will invest its assets
so that at least 80% of its annual interest income will be exempt from federal
income taxes, including the federal alternative minimum tax. As a matter of
fundamental policy, National will invest at least 80% of its net assets in
Municipal Securities, the interest from which is not subject to the federal
alternative minimum tax. It is likely that shareholders who are subject to the
alternative minimum tax will be required to include a portion of the interest
from the Municipal Securities owned by the Fund in calculating the federal
alternative minimum tax.
The foregoing discussion covers the principal investment policies of each
Fund and the manner in which they differ. The characteristics of each investment
policy and the associated risks are described in the Prospectus and Statement of
Additional Information of each Fund. Both High Grade and National have other
investment policies and restrictions which are also set forth in the Prospectus
and Statement of Additional Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization. Both Funds are series of open-end management
investment companies registered with the SEC under the 1940 Act which
continuously offer shares to the public. Each is organized as a separate
investment series of a Massachusetts business trust and is governed by a
Declaration of Trust, By-Laws and Board of Trustees. Both are also governed by
applicable Massachusetts and federal law.
Capitalization. The beneficial interests in National are represented by an
unlimited number of transferable shares of beneficial interest with a $0.0001
par value. The beneficial interests in High Grade are represented by an
unlimited number of transferable shares of beneficial interest without par
value. The respective Declarations of Trust under which the Funds operate
permits the respective Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees. Fractional
shares may be issued. Each Fund's shares have equal voting rights with respect
to matters affecting shareholders of all classes of each Fund and represent
equal proportionate interests in the assets belonging to the Funds, and are
entitled to receive dividends and other amounts as determined by its Trustees.
Shareholders of each Fund vote separately, by class, as to matters, such as
approval of Rule 12b-1 distribution plans or amendments thereto, that affect
only their particular class.
Shareholder Liability. Under Massachusetts law, shareholders of a trust
could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the respective Declarations of Trust under
which the Funds operate disclaim shareholder liability for acts or obligations
of the portfolio or series and require that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Funds or the Trustees. The Declarations of Trust provide for indemnification out
of the portfolio's or series' property for all losses and expenses of any
shareholder held personally liable for the obligations of the portfolio or
series. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which a disclaimer is inoperative and the portfolio or series itself would be
unable to meet its obligations. A substantial number of mutual funds in the
United States are organized as Massachusetts business trusts.
Shareholder Meetings and Voting Rights. The Funds are not required to hold
annual meetings of shareholders, but are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
when requested in writing to do so by the holders of at least 10% of its
outstanding shares. In addition, each is required to call a meeting of
shareholders for the purpose of electing Trustees or, if, at any time, less than
a majority of the Trustees then holding office were elected by shareholders. If
Trustees of the Funds fail or refuse to call a meeting as required by the
respective Declarations of Trust for a period of 30 days after a request in
writing by shareholders holding an aggregate of at least 10% of the shares
outstanding, then shareholders holding 10% may call and give notice of a
shareholders' meeting. The Funds currently do not intend to hold regular
shareholder meetings. Neither Fund permits cumulative voting. A majority of
shares entitled to vote on a matter constitutes a quorum for consideration of
such matter. In either case, a majority of the shares voting is sufficient to
act on a matter (unless otherwise specifically required by the applicable
governing documents or other law, including the 1940 Act).
Liquidation or Dissolution. In the event of the liquidation of the Funds,
the shareholders are entitled to receive, when, and as declared by the Trustees,
the excess of the assets belonging to the Funds or attributable to the relevant
class over the liabilities belonging to the Funds or attributable to the
relevant class. In either case, the assets so distributable to shareholders of
the Funds will be distributed among the shareholders in proportion to the number
of shares of the Funds held by them and recorded on the books of the Funds.
Liability and Indemnification of Trustees. The Declarations of Trust
provide that no Trustee, officer or agent of the Funds shall be personally
liable to any person for any action or failure to act, except for his own bad
faith, willful misfeasance, or gross negligence, or reckless disregard of his
duties. The Declarations of Trust provide that a Trustee or officer is entitled
to indemnification against liabilities and expenses with respect to claims
related to his position with the Funds, unless such Trustee or officer shall
have been adjudicated to have acted with bad faith, willful misfeasance, or
gross negligence, or in reckless disregard of his duties, or not to have acted
in good faith in the reasonable belief that his action was in the best interest
of the Funds, or, in the event of settlement, unless there has been a
determination that such Trustee or officer has engaged in willful misfeasance,
bad faith, gross negligence, or reckless disregard of his duties.
Rights of Inspection. Shareholders of the Funds have the same right to
inspect in Massachusetts the governing documents, records of meetings of
shareholders, shareholder lists, share transfer records, accounts and books of
the Funds as are permitted shareholders of a corporation under the Massachusetts
corporation law. The purpose of inspection must be for interests of shareholders
relative to the affairs of the Funds.
The foregoing is only a summary of certain characteristics of the
operations of the Funds, the Declarations of Trust, By-Laws, and Massachusetts
law. The foregoing is not a complete description of the documents cited.
Shareholders should refer to the provisions of such respective Declarations of
Trust, By-Laws, and Massachusetts law directly for a more thorough description.
ADDITIONAL INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and must in accordance therewith file
reports and other information including proxy material, reports and charter
documents with the SEC. These reports can be inspected and copies obtained at
the Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Northeast Regional Office of the SEC, Seven World
Trade Center, Suite 1300, New York, New York 10048 and at the Southeast Regional
Office of the SEC, 1401 Brickwell Avenue, Suite 200, Miami, Florida 33131.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Trust to be used at the
Special Meeting of Shareholders to be held at ____ a.m. June 15, 1995, at
_________________________, and at any adjournments thereof. This
Prospectus/Proxy Statement, along with a Notice of the Meeting and a proxy card,
is first being mailed to shareholders on or about , 1995. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to vote at, the Meeting or any adjournment thereof. The holders of a
majority of the shares outstanding at the close of business on the Record Date
present in person or represented by proxy will constitute a quorum for the
Meeting. If the enclosed form of proxy is properly executed and returned in time
to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization and FOR any other
matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will have the effect of being counted as votes against the Plan. A proxy may be
revoked at any time on or before the Meeting by written notice to the Secretary
of The Evergreen Municipal Trust, 2500 Westchester Avenue, Purchase, New York
10577. Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities, with all Classes voting together as one
class. Each full share outstanding is entitled to one vote and each fractional
share outstanding is entitled to a proportionate share of one vote.
If the shareholders do not vote to approve the Reorganization, the Trustees
will continue to operate National under existing arrangements or consider other
alternatives, including liquidation of National.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, telegraph or personal solicitations conducted by
officers and employees of Evergreen Asset, its affiliates or other
representatives of National. Proxies are solicited by mail. The cost of
solicitation will be borne by Evergreen Asset.
Evergreen Asset will be responsible for the respective expenses of National
incurred in connection with entering into and carrying out the Reorganization,
whether or not the Reorganization is consummated.
In the event that sufficient votes to approve the Reorganization are not
received by June 15, 1995, the persons named as proxies may propose one or more
adjournments of either or both of the Meetings to permit further solicitation of
proxies. The persons named as proxies will vote in favor of any such adjournment
if they determine that such adjournment and additional solicitation are
reasonable and in the interests of National's shareholders. If such adjournment
is for more than 120 days after the record date, the Trust will give notice of
the adjourned Meeting to National's shareholders.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of the Trust
to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Reorganization as proposed is not expected
to result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Reorganization is consummated, shareholders will be
free to redeem the shares of High Grade which they receive in the transaction at
their then-current net asset value. Shares of National may be redeemed at any
time prior to the consummation of the Reorganization.
The Trust does not hold annual shareholder meetings. Shareholders wishing
to submit proposals for consideration for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of the Trust at the address set forth on the cover of this
Prospectus/Proxy Statement such that they will be received by the Trust in a
reasonable period of time prior to any such meeting.
The votes of the shareholders of High Grade are not being solicited by
this Prospectus/Proxy Statement and are not required to carry out the
Reorganization.
Notice to Banks, Broker-Dealers and Voting Trustees and Their Nominees.
Please advise National whether other persons are beneficial owners of shares for
which proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS
The audited financial statements and financial highlights incorporated into
this Prospectus/Proxy Statement by reference to the National Annual Report to
Shareholders for the year ended August 31, 1994 have been so incorporated in
reliance on the reports of Price Waterhouse LLP, independent accountants for
National, given on the authority of the firm as experts in accounting and
auditing.
The audited financial statements of High Grade as of December 31, 1994 and
the statement of operations for the year ended December 31, 1994 and changes in
net assets for the two years ended December 31, 1994 and financial highlights
for the period indicated therein have been incorporated by reference into this
Prospectus/Proxy Statement in reliance on the report of KPMG Peat Marwick LLP,
independent accountants for High Grade, given on the authority of the firm as
experts in accounting and auditing.
Certain legal matters concerning the issuance of shares of High Grade
will be passed upon by Sullivan & Worcester, 1025 Connecticut Avenue N.W.,
Washington, D.C.
OTHER BUSINESS
The Trustees of National do not intend to present any other business at
the Meeting. If, however, any other matters are properly brought before the
Meeting, the persons named in the accompanying form of proxy will vote thereon
in accordance with their judgement.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMEND APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO
THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
--------------------
____________________, 1995
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
21st day of March, 1995, by and between First Union Funds, a Massachusetts
business trust (the "First Union Trust"), with its principal place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect
to its First Union High Grade Municipal Bond Portfolio series (the "Acquiring
Fund"), and Evergreen Municipal Trust (the "Evergreen Trust"), a Massachusetts
business trust, with its principal place of business at 2500 Westchester Avenue
Purchase, New York 10577, with respect to its Evergreen National Tax Free Fund
series (the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368 (a)(1)(D) of the United States
Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial interest,
no par value per share, of the Acquiring Fund (the "Acquiring Fund Shares") and
the assumption by the Acquiring Fund of certain stated liabilities of the
Selling Fund and the distribution, after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the Selling Fund in
liquidation of the Selling Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are separate investment series
of open-end, registered investment companies of the management type and the
Selling Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial interest;
WHEREAS, the Trustees of the First Union Trust have determined that the exchange
of substantially all of the assets of the Selling Fund for Acquiring Fund Shares
and the assumption of certain stated liabilities by the Acquiring Fund on the
terms and conditions hereinafter set forth is in the best interests of the
Acquiring Fund shareholders and that the interests of the existing shareholders
of the Acquiring Fund will not be diluted as a result of the transactions
contemplated herein;
WHEREAS, the Trustees of the Evergreen Trust have determined that the Selling
Fund should exchange substantially all of its assets and certain of its
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND LIQUIDATION
OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Selling Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Selling Fund's net assets computed in the manner and as of the time and date set
forth in paragraph 2.1 by the net asset value of one Acquiring Fund Share
computed in the manner and as of the time and date set forth in paragraph 2.2
and (ii) to assume certain liabilities of the Selling Fund, as set forth in
paragraph 1.3. The determination of the number of Acquiring Fund Shares to be
delivered shall be made in such a manner as to result in the Selling Fund
receiving a number of shares of the respective classes of the Acquiring Fund as
shall permit shareholders of the Selling Fund to receive shares of a class
having the same letter designation and the same distribution-related fees,
shareholder servicing-related fees and sales charges, including contingent
deferred sales charges, if any, as the shares of the class of the Selling Fund
held by them prior to the Reorganization. Such transactions shall take place at
the closing provided for in paragraph 3.1 (the "Closing Date")..
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by the
Acquiring Fund shall consist of all property, including without limitation all
cash, securities, commodities and futures interests and dividends or interest
receivable, which is owned by the Selling Fund and any deferred or prepaid
expenses shown as an asset on the books of the Selling Fund on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent audited
financial statements which contain a list of all of Selling Fund's assets as of
the date thereof. The Selling Fund hereby represents that as of the date of the
execution of this Agreement there have been no changes in its financial position
as reflected in said financial statements other than those occurring in the
ordinary course of its business in connection with the purchase and sale of
securities and the payment of its normal operating expenses. The Selling Fund
reserves the right to sell any of such securities but will not, without the
prior written approval of the Acquiring Fund, acquire any additional securities
other than securities of the type in which the Acquiring Fund is permitted to
invest. The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph which do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments which the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge all
of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
1.4 Liquidation and Distribution. As soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Closing Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1. and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund, to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will
be issued in the manner described in the combined Prospectus and Proxy Statement
on Form N-14 to be distributed to shareholders of the Selling Fund as described
in Section 5.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Selling Fund
shares on the books of the Selling Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling Fund
is and shall remain the responsibility of the Selling Fund up to and including
the Closing Date and such later date on which the Selling Fund is terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following the
Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets computed as of
the close of business on the New York Stock Exchange on the business day
immediately preceding the Closing Date (such time and date being hereinafter
called the "Valuation Date"), using the valuation procedures set forth in the
Trust's Declaration of Trust and the Acquiring Fund's then current prospectus
and statement of additional information or such other valuation procedures as
shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value of each class of Acquiring Fund
Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the First Union Trust's Declaration of Trust
and the Acquiring Fund's then current prospectus and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each class
to be issued (including fractional shares, if any) in exchange for the Selling
Fund's assets shall be determined by dividing the value of the assets of the
Selling Fund attributable to each of its classes determined using the same
valuation procedures referred to in paragraph 2.1 by the net asset value of the
respective classes of Acquiring Fund Shares determined in accordance with
paragraph 2.2.
2.4 Determination of Value. All computations of value shall be made by State
Street Bank and Trust Company in accordance with its regular practice in pricing
the shares and assets of the Acquiring Fund.
<PAGE>
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing Date shall be June 30, 1995 or such later date as
the parties may agree to in writing. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 3:00
o'clock p.m. at the offices of Evergreen Asset Management Corp., 2500
Westchester Avenue, Purchase, New York 10577, or at such other time and/or place
as the parties may agree.
3.2 Custodian's Certificate. The Bank of New York, as custodian for the Selling
Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date and (b) all necessary taxes including all
applicable Federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities.
3.3 Effect of Suspension in Trading. In the event that on the Valuation Date (a)
the New York Stock Exchange or another primary trading market for portfolio
securities of the Acquiring Fund or the Selling Fund shall be closed to trading
or trading thereon shall be restricted, or ( b ) trading or the reporting of
trading on said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the Selling
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Boston Financial Data Services, Inc., as
transfer agent for each of the Selling Fund and the Acquiring Fund shall deliver
at the Closing a certificate of an authorized officer stating that their records
contain the names and addresses of the Selling Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the Evergreen Trust , or provide evidence satisfactory
to the Selling Fund that such Acquiring Fund Shares have been credited to the
Selling Fund's account on the books of the Acquiring Fund. At the Closing each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Massachusetts business
trust duly organized, validly existing and in good standing under the laws of
The Commonwealth of Massachusetts;
(b) The Selling Fund is a separate investment series of a registered investment
company classified as a management company of the open-end type and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940 (the "1940 Act")
is in full force and effect;
(c) The current prospectus and statement of additional information of the
Selling Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended, (the "1933 Act") and the 1940 Act and
the rules and regulations of the Commission thereunder and do not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and performance of this
Agreement (subject to shareholder approval) will not, result in violation of any
provision of the Evergreen Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Selling Fund is a party or by which it is bound;
(e) The Selling Fund has no material contracts or other commitments (other than
this Agreement) which will be terminated with liability to it prior to the
Closing Date;
(f) Except as otherwise disclosed in writing to and accepted by the Acquiring
Fund, no litigation, administrative proceeding or investigation of or before any
court or governmental body is presently pending or to its knowledge threatened
against the Selling Fund or any of its properties or assets which, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business or the ability of the Selling Fund to carry out the
transactions contemplated by this Agreement. The Selling Fund knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(g) The financial statements of the Selling Fund at August 31, 1994 have been
audited by Price Waterhouse LLP, certified public accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Selling Fund as of such dates, and
there are no known contingent liabilities of the Selling Fund as of such dates
not disclosed therein;
(h) Since August 31, 1994, there has not been any material adverse change in the
Selling Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Selling Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net
asset value of the Selling Fund shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of the
Selling Fund required by law to have been filed by such dates shall have been
filed, and all Federal and other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof and to the best of the
Selling Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) For each of the preceding six fiscal years of its operation the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains;
(k) All issued and outstanding shares of the Selling Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Selling Fund (except that, under Massachusetts law,
Selling Fund Shareholders could, under certain circumstances be held personally
liable for obligations of the Selling Fund). All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares;
(l) At the Closing Date, the Selling Fund will have good and marketable title to
the Selling Fund's assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.2 and full right, power, and authority to sell, assign, transfer and
deliver such assets hereunder, and upon delivery and payment for such assets,
the Acquiring Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the 1933 Act, other than as disclosed to the Acquiring Fund and
accepted by the Acquiring Fund;
(m) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Selling Fund and, subject
to approval by the Selling Fund's shareholders, this Agreement constitutes a
valid and binding obligation of the Selling Fund, enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The information to be furnished by the Selling Fund for use in no-action
letters, applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material respects and
shall comply in all material respects with Federal securities and other laws and
regulations thereunder applicable thereto;
(o) The proxy statement of the Selling Fund to be included in the Registration
Statement referred to in paragraph 5.7 (other than information therein that
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents and
warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type and its registration with the Commission
as an investment company under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(d) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not, result in violation of First Union Trust's Declaration
of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquiring Fund is a party or by which it is
bound;
(e) Except as otherwise disclosed to the Selling Fund and accepted by the
Selling Fund, no material litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this Agreement. The
Acquiring Fund knows of no facts which might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein;
(f) The financial statements of the Acquiring Fund at December 31, 1994,
certified by KPMG Peat Marwick LLP, independent accountants, copies of which
have been furnished to the Selling Fund, fairly and accurately reflect the
financial condition of the Acquiring Fund as of such date in accordance with
generally accepted accounting principles consistently applied;
(g) Since December 31, 1994, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Acquiring Fund. For the purposes of this subparagraph (g), a decline in the
net asset value of the Acquiring Fund shall not constitute a material adverse
change;
(h) At the Closing Date, all Federal and other tax returns and reports of the
Acquiring Fund required by law then to be filed shall have been filed, and all
Federal and other taxes shown due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof and to the best
of the Acquiring Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to such returns;
(i) For each fiscal year of its operation the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company;
(j) All issued and outstanding Acquiring Fund Shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
non-assessable (except that, under Massachusetts law, shareholders of the
Acquiring Fund could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund). The Acquiring Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any Acquiring
Fund Shares, nor is there outstanding any security convertible into any
Acquiring Fund Shares;
(k) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes a valid and binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Selling Fund,
for the account of the Selling Fund Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Acquiring Fund Shares, and will
be fully paid and non-assessable (except that, under Massachusetts law,
shareholders of the Acquiring Fund could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund);
(m) The information to be furnished by the Acquiring Fund for use in no-action
letters, applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material respects and
shall comply in all material respects with Federal securities and other laws and
regulations applicable thereto;
(n) The Prospectus and Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund ) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5. 1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund each
will operate its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 Approval of Shareholders. The Evergreen Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 Investment Representation. The Selling Fund covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of this
Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the Acquiring
Fund and the Selling Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Selling Fund shall furnish
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Selling Fund for Federal
income tax purposes which will be carried over by the Acquiring Fund as a result
of Section 381 of the Code, and which will be certified by the Evergreen Trust's
President, its Treasurer and its independent auditors.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus (the "Prospectus and Proxy Statement") which will
include the Prospectus and Proxy Statement, referred to in paragraph 4.2(n), all
to be included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the First Union Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Selling Fund and dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request; and
6.2 The Selling Fund shall have received on the Closing Date an opinion from
Sullivan & Worcester, counsel to the Acquiring Fund, dated as of the Closing
Date, in a form reasonably satisfactory to the Selling Fund, covering the
following points:
That (a) the Acquiring Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts and has the power to own all of its
properties and assets and to carry on its business as presently conducted; (b)
the Agreement has been duly authorized, executed and delivered by the Acquiring
Fund, and, assuming that the Prospectus, Registration Statement and Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and, assuming due authorization, execution and
delivery of the Agreement by the Selling Fund, is a valid and binding obligation
of the Acquiring Fund enforceable against the Acquiring Fund in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and to general equity principles; (c) assuming that a consideration therefor not
less than the net asset value therefor has been paid, the Acquiring Fund Shares
to be issued and delivered to the Selling Fund on behalf of the Selling Fund
Shareholders as provided by this Agreement are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and
non-assessable (except that, under Massachusetts law, shareholders of the
Acquiring Fund could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund), and no shareholder of the Acquiring Fund has
any preemptive rights in respect thereof; (d) the execution and delivery of the
Agreement did not, and the consummation of the transactions contemplated hereby
will not, result in a violation of the First Union Trust's Declaration of Trust
or By-Laws or any provision of any material agreement, indenture, instrument,
contract, lease or other undertaking (in each case known to such counsel) to
which the Acquiring Fund is a party or by which it or any of its properties may
be bound or to the knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty, under any agreement, judgment, or
decree to which the Acquiring Fund is a party or by which it is bound; (e) to
the knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or the Commonwealth of
Massachusetts, is required for the consummation by the Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (f) only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown; (g) such counsel does not know of
any legal or governmental proceedings, only insofar as they relate to the
Acquiring Fund, existing on or before the effective date of the Registration
Statement or the Closing Date required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement which are not
described as required; (h) the Acquiring Fund is a separate investment series of
a Massachusetts business trust registered as an investment company under the
1940 Act and to such counsel's best knowledge, such registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; and (i) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement. In addition, such
counsel shall also state that they have participated in conferences with
officers and other representatives of the Acquiring Fund at which the contents
of the Prospectus and Proxy Statement and related matters were discussed and,
although they are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Prospectus
and Proxy Statement (except to the extent indicated in paragraph (f) of their
above opinion), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of the First Union Trust's officers and other
representatives of the Acquiring Fund), no facts have come to their attention
that lead them to believe that the Prospectus and Proxy Statement as of its
date, as of the date of the Selling Fund Shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or Registration Statement, and that such opinion is solely for the
benefit of the Evergreen Trust and the Selling Fund. Such opinion shall contain
such other assumptions and limitations as shall be in the opinion of Sullivan &
Worcester appropriate to render the opinions expressed.
In this paragraph 6.2, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund contained
in this Agreement shall be true and correct as of the date hereof and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date, and the Selling Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by the Evergreen Trust's
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and, dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request;
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement of
the Selling Fund's assets and liabilities, together with a list of the Selling
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Evergreen Trust ; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Shereff, Friedman, Hoffman & Goodman, LLP counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
That (a) the Selling Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts and has the power to own all of its
properties and assets and to carry on its business as presently conducted; (b)
the Agreement has been duly authorized, executed and delivered by the Selling
Fund, and, assuming that the Prospectus, the Registration Statement and the
Prospectus and Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of the Agreement by the Acquiring Fund, is
a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c) the
execution and delivery of the Agreement did not, and the consummation of the
transactions contemplated hereby will not, result in a violation of the
Evergreen Trust's Declaration of Trust or By-laws, or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Selling Fund is a party or by
which it or any of its properties may be bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Selling Fund is a
party or by which it is bound; (d) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of the
United States, or the Commonwealth of Massachusetts is required for the
consummation by the Selling Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and such as may be required under state securities laws; (e) only insofar as
they relate to the Selling Fund, the descriptions in the Prospectus and Proxy
Statement of statutes, legal and governmental proceedings and material
contracts, if any, are accurate and fairly present the information required to
be shown; (f) such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the Closing
Date, required to be described in the Prospectus and Proxy Statement or to be
filed as an exhibit to the Registration Statement which are not described or
filed as required; (g) the Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act and to such counsel's best knowledge, such registration with the Commission
as an investment company under the 1940 Act is in full force and effect; (h) to
the knowledge of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or threatened as to the Selling Fund or any of its respective properties or
assets and the Selling Fund is neither a party to nor subject to the provisions
of any order, decree or judgment of any court or governmental body, which
materially and adversely affects its business other than as previously disclosed
in the Prospectus and Proxy Statement; (i) assuming that a consideration
therefor not less than the net asset value therefor has been paid, and assuming
that such shares were issued in accordance with the terms of the Selling Fund's
registration statement, or any amendment thereto, in effect at the time of such
issuance all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable (except that, under Massachusetts law,
Selling Fund Shareholders could, under certain circumstances be held personally
liable for obligations of the Selling Fund). Such counsel shall also state that
they have participated in conferences with officers and other representatives of
the Selling Fund at which the contents of the Prospectus and Proxy Statement and
related matters were discussed and, although they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus and Proxy Statement (except to the extent
indicated in paragraph (e) of their above opinion ), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of the
Evergreen Trust's officers and other representatives of the Selling Fund ), no
facts have come to their attention that lead them to believe that the Prospectus
and Proxy Statement as of its date, as of the date of the Selling Fund
Shareholders' meeting, and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein regarding the Selling Fund or necessary, in the light of the
circumstances under which they were made, to make the statements therein
regarding the Selling Fund not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial statements or
any financial or statistical data, or as to the information relating to the
Acquiring Fund, contained in the Prospectus and Proxy Statement or Registration
Statement, and that such opinion is solely for the benefit of the First Union
Trust and the Acquiring Fund. Such opinion shall contain such other assumptions
and limitations as shall be in the opinion of Shereff, Friedman, Hoffman &
Goodman LLP appropriate to render the opinions expressed therein and shall
indicate, with respect to matters of Massachusetts law that as Shereff,
Friedman, Hoffman & Goodman LLP are not admitted to the bar of Massachusetts,
such opinions are based solely upon the review of published statutes, cases and
rules and regulations of the Commonwealth of Massachusetts.
In this paragraph 7.3, references to Prospectus and Proxy Statement include and
relate to only the text of such Prospectus and Proxy Statement and not to any
exhibits or attachments thereto or to any documents incorporated by reference
therein.
<PAGE>
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Evergreen Trust's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date the Commission shall not have issued an unfavorable
report under Section 25(b) of the 1940 Act, nor instituted any proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement under Section 25(c) of the 1940 Act and no action, suit or other
proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All required consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities. including any
necessary "no-action" positions of and exemptive orders from such Federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The Selling Fund shall have declared a dividend or dividends which, together
with all previous such dividends, shall have the effect of distributing to the
Selling Fund Shareholders all of the Selling Fund's investment company taxable
income for all taxable years ending on or prior to the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gain realized in all taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carryforward);
8.6 The parties shall have received a favorable opinion of Sullivan & Worcester,
addressed to the Acquiring Fund and the Selling Fund substantially to the effect
that for Federal income tax purposes:
(a) The transfer of substantially all of the Selling Fund assets in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund followed by the distribution of the
Acquiring Fund's shares to the Selling Fund in dissolution and liquidation of
the Selling Fund, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; (c) no gain or loss will be
recognized by the Selling Fund upon the transfer of the Selling Fund assets to
the Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption
by the Acquiring Fund of certain identified liabilities of the Selling Fund or
upon the distribution ( whether actual or constructive ) of the Acquiring Fund
Shares to Selling Fund Shareholders in exchange for their shares of the Selling
Fund; (d) no gain or loss will be recognized by Selling Fund Shareholders upon
the exchange of their Selling Fund shares for the Acquiring Fund Shares in
liquidation of the Selling Fund; (e) the aggregate tax basis for the Acquiring
Fund Shares received by each Selling Fund Shareholder pursuant to the
Reorganization will be the same as the aggregate tax basis of the Selling Fund
shares held by such shareholder immediately prior to the Reorganization, and the
holding period of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the Reorganization ); and (f)
the tax basis of the Selling Fund assets acquired by the Acquiring Fund will be
the same as the tax basis of such assets to the Selling Fund immediately prior
to the Reorganization, and the holding period of the assets of the Selling Fund
in the hands of the Acquiring Fund will include the period during which those
assets were held by the Selling Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Selling Fund may waive the
conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from Price Waterhouse LLP a letter
addressed to the Acquiring Fund dated on the Closing Date, in form and substance
satisfactory to the Acquiring Fund, to the effect that (i) they are independent
certified public accountants with respect to the Selling Fund within the meaning
of the 1933 Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the audited financial statements and the per share data
and ratios contained in the section entitled Financial Highlights and provided
in accordance with Item 3 of Form N-1A (the "Per Share Data") of the Selling
Fund included in or incorporated by reference into the Registration Statement
and Prospectus and Proxy Statement and previously reported on by them comply as
to form in all material respects with the applicable accounting requirements of
the l933 Act and the published rules and regulations thereunder; (iii) on the
basis of limited procedures agreed upon by the Acquiring Fund and described in
such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited pro forma financial
statements included in the Registration Statement and Prospectus and Proxy
Statement, and inquiries of appropriate officials of the Evergreen Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that (A) such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, or (B) said unaudited pro forma financial statements are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements; (iv) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter ( but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Selling Fund; and (v)
on the basis of limited procedures agreed upon by the Acquiring Fund and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the pro forma financial statements which are
included in the Registration Statement and Prospectus and Proxy Statement, were
prepared based on the valuation of the Selling Fund's assets in accordance with
the First Union Trust's Declaration of Trust and the Acquiring Fund's then
current prospectus and statement of additional information pursuant to
procedures customarily utilized by the Acquiring Fund in valuing its own assets
(such procedures having been previously described to Price Waterhouse LLP in
writing by the Acquiring Fund).
In addition, the Acquiring Fund shall have received from Price Waterhouse LLP a
letter addressed to the Acquiring Fund dated on the Closing Date, in form and
substance satisfactory to the Acquiring Fund, to the effect that on the basis of
limited procedures agreed upon by the Acquiring Fund (but not an examination in
accordance with generally accepted auditing standards) (i) the data utilized in
the calculations of the projected expense ratio appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or to written estimates by Selling Fund's management
and were found to be mathematically correct; and (ii) the calculation of net
asset value per share of the Selling Fund as of the Valuation Date was
determined in accordance with generally accepted accounting practices and the
portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a letter
addressed to the Selling Fund dated on the Closing Date, in form and substance
satisfactory to the Selling Fund, to the effect that (i) they are independent
certified public accountants with respect to the Acquiring Fund within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the audited financial statements and the per
share data and ratios contained in the section entitled Financial Highlights and
provided in accordance with Item 3 of Form N-1A (the "Per Share Data") of the
Acquiring Fund included in or incorporated by reference into the Registration
Statement and Prospectus and Proxy Statement and previously reported on by them
comply as to form in all material respects with the applicable accounting
requirements of the l933 Act and the published rules and regulations thereunder;
(iii) on the basis of limited procedures agreed upon by the Selling Fund and
described in such letter (but not an examination in accordance with generally
accepted auditing standards) consisting of a reading of any unaudited pro forma
financial statements included in the Registration Statement and Prospectus and
Proxy Statement, and inquiries of appropriate officials of the First Union Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that (A) such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, or (B) said unaudited pro forma financial statements are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements; and(iv) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement, has been
obtained from and is consistent with the accounting records of the Acquiring
Fund.
In addition, the Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund dated on the Closing Date, in form and
substance satisfactory to the Selling Fund, to the effect that on the basis of
limited procedures agreed upon by the Selling Fund (but not an examination in
accordance with generally accepted auditing standards) the data utilized in the
calculations of the projected expense ratio appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Acquiring Fund and the Selling Fund or to written estimates by
each Fund's management and were found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from Price
Waterhouse LLP a letter addressed to the Acquiring Fund and the Selling Fund,
dated on the Closing Date in form and substance satisfactory to the Funds,
setting forth the Federal income tax implications relating to Capital Loss
Carryforwards (if any) of the Selling Fund and the related impact, if any, of
the proposed transfer of all or substantially all of the assets of the Selling
Fund to the Acquiring Fund and the ultimate dissolution of the Selling Fund,
upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 (a) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquiring Fund will
be borne by First Union National Bank of North Carolina. The expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund will be
borne by Evergreen Asset Management Corp. Such expenses include, without
limitation, (i) expenses incurred in connection with the entering into and the
carrying out of the provisions of this Agreement; (ii) expenses associated with
the preparation and filing of the Registration Statement under the 1933 Act
covering the Acquiring Fund Shares to be issued pursuant to the provisions of
this Agreement; (iii) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which the Selling Fund Shareholders are resident as of
the date of the mailing of the Prospectus and Proxy Statement to such
shareholders; (iv) postage; (v) printing; (vi) accounting fees; (vii) legal
fees; and (viii) solicitation cost of the transactions. (b) Consistent with the
provisions of paragraph 1.3, the Selling Fund, prior to the Closing Date, shall
pay for or include in the audited statement of assets and liabilities prepared
pursuant to paragraph 1.3 all of its known and reasonably estimated expenses
associated with the transactions contemplated by this Agreement
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has made
any representation, warranty or covenant not set forth herein and that the
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Acquiring
Fund and the Selling Fund. In addition, either the Acquiring Fund or the Selling
Fund may at its option terminate this Agreement at or prior to the Closing Date
because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not cured
within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not or
cannot be met.
11.2 In the event of any such termination, in the absence of willful default,
there shall be no liability for damages on the part of either the Acquiring Fund
or the Selling Fund, the First Union Trust or the Evergreen Trust or their
respective Trustees or officers, to the other party or its, Trustees or
officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund: provided, however, that following the
meeting of the Selling Fund Shareholders called by the Evergreen Trust pursuant
to paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, overnight courier or certified mail addressed to
the Acquiring Fund
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Attention: Peter J. Germain, Esq.
or to the Selling Fund
Evergreen Fixed Income Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and the
Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the First Union Trust
or the Evergreen Trust, personally, but bind only the trust property of the
Selling Fund and the Acquiring Fund, as provided in the Declarations of Trust of
the First Union Trust and the Evergreen Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the First Union Trust and
the Evergreen Trust on behalf of the Acquiring Fund and the Selling Fund,
respectively, and signed by authorized officers of the First Union Trust and the
Evergreen Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the First Union Trust and
the Evergreen Trust as provided in their Declarations of Trust.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Transfer of substantially all of the assets and certain identified liabilities
of
EVERGREEN NATIONAL TAX FREE FUND, a series of
THE EVERGREEN MUNICIPAL TRUST
by and in exchange for the shares of
FIRST UNION HIGH GRADE TAX FREE PORTFOLIO, a portfolio of
FIRST UNION FUNDS
This Statement of Additional Information relates specifically to the
proposed transfer of substantially all of the assets and certain identified
liabilities of Evergreen National Tax Free Fund ("National"), a series of The
Evergreen Municipal Trust, by and in exchange for the shares of First Union High
Grade Tax Free Portfolio ("High Grade"), a portfolio of First Union Funds. This
Statement of Additional Information incorporates by reference the documents
described below:
(1) Statement of Additional Information of High Grade dated
February 28, 1995;
(2) Annual Report for High Grade for the fiscal year
ended December 31, 1994;
(3) Statement of Additional Information of National
dated January 3, 1995;
(4) Annual Report for National for the fiscal year
ended August 31, 1994.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement/Prospectus of First Union Funds
dated April , 1995, which has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by writing to First Union Funds
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or by
calling toll-free 1-800-[326-3241]. This Statement of Additional Information has
been incorporated into the Proxy Statement/Prospectus.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIRST UNION FUNDS
Table of Contents
Cover Page Cover Page
Financial Statements 1
<PAGE>
First Union High Grade Tax Free Fund
Evergreen National Tax Free Fund
Pro Forma Combining Schedule of Portfolio of Investments
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
First Union High Grade Evergreen National Pro Forma
Tax Free Fund Tax Free Fund Combined
Principal Principal Principal
Amount Value Amount Value Amount Value
----------- --------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Municipal Securities Fund - 95.9%
Alaska - 0.4%
Municipality of Anchorage Senior Lien
Electric, 6.20% RRB (Series1993)/
(MBIA Insured), 12/1/2013 $500,000 $476,975 $500,000 $476,975
Arkansas - 0.8% --------- ---------
Beaver Water District of Benton and Washington
Counties, 5.75% RRB, (Series 1994)/
(MBIA Insured), 11/15/2007 900,000 875,232 900,000 875,232
California - 7.2% --------- ---------
California State, 6.80% GO Bonds (Callable
11/1/2004 @ 102)/(FGIC Insured), 11/1/2009 $1,700,00 $1,747,112 1,700,000 1,747,112
City and County of San Francisco Airports
Commission, 6.75% RRB (San Francisco
International Airport)/(Second Series)/
(Issue 2 Bonds)/ (MBIA Insured), 5/1/2013 1,000,000 1,012,480 1,000,000 1,012,480
City of Fresno Sewer System, 6.25% RB
(Series 1993A)/(AMBAC Insured), 9/1/2014 1,500,000 1,452,060 1,500,000 1,452,060
Redevelopment Agency of the City of San
Jose, 6.00% Tax Allocation Bonds (Merged
Area Redevelopment Project)/(Series 1993)/
(MBIA Insured), 8/1/2008 1,000,000 974,580 1,000,000 974,580
San Jose, CA, 6.00% Redevelopment Tax
Allocation Bonds (MBIA Insured), 8/1/2015 3,000,000 2,742,123 3,000,000 2,742,123
San Mateo County Joint Powers Financing
Authority Lease, 6.50% RRB (Capital
Projects Program)/(Series 1993A)/
(MBIA Insured), 7/1/2016 500,000 492,880 500,000 492,880
--------- --------- ---------
Total 4,489,235 3,932,000 8,421,235
District of Columbia - 3.3% --------- --------- ---------
District of Columbia, 5.50% GO Refunding
Bonds (Series B)/(FSA Insured)/(Original
Issue Discount: 5.70%), 6/1/2010 3,250,000 2,892,734 3,250,000 2,892,734
Washington Metropolitan Area Transit
Authority, 6.00% RB (Gross Revenue Transit)/
(Series 1993)/(FGIC Insured), 7/1/2008 1,000,000 976,520 1,000,000 976,520
--------- --------- ---------
Total 2,892,734 976,520 3,869,254
--------- --------- ---------
Florida - 2.7%
Hillsborough County, FL, 6.50% IDA RB
(University Community Hospital)/
(MBIA Insured), 8/15/2019 1,000,000 987,810 1,000,000 987,810
Orange County, FL, Water and Waste
Authority, 6.25% RRB
(AMBAC Insured), 10/1/2017 2,250,000 2,139,869 2,250,000 2,139,869
--------- ---------
Total 3,127,679 3,127,679
--------- ---------
Georgia - 9.0%
Atlanta, GA, 6.00% Airport Facilities
RB (Series B)/(AMBAC Insured)/(Original
Issue Discount: 6.35%)/(Subject to AMT),
1/1/2021 7,000,00 6,212,703 7,000,00 6,212,703
Brunswick, GA, 6.10% Water & Sewer RB
(MBIA Insured)/(Original Issue Discount:
6.27%), 10/1/2019 1,500,000 1,415,916 1,500,000 1,415,916
City of Atlanta Airport Facilities, 6.50%
RRB (Series 1994A)/(AMBAC Insured), 1/1/2010 500,000 505,735 500,000 505,735
Georgia Municipal Electric Authority, 6.50%
Special Obligation Bonds (Fifth Crossover
Project 1)/(MBIA Insured), 1/1/2017 2,400,000 2,305,224 2,400,000 2,305,224
--------- --------- ---------
Total 9,933,843 505,735 10,439,578
--------- --------- ---------
Hawaii - 1.1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Union High Grade Evergreen National Pro Forma
Tax Free Fund Tax Free Fund Combined
Principal Principal Principal
Amount Value Amount Value Amount Value
----------- --------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Hawaii State Airport Systems, 7.50% RB
(Second Series 1990)/(FGIC Insured), 7/1/2020 1,250,000 1,299,263 1,250,000 1,299,263
Idaho - 0.8% --------- ---------
Idaho Housing Agency, 6.30% Term Mezzanine
SFM Bonds (Series 1994C-1), 7/1/2011 1,000,000 967,180 1,000,000 967,180
Illinois - 7.6% --------- ---------
Chicago, IL, 5.75% RB, Public Building
(Chicago Bank District)/(FGIC Insured),
1/1/2010 2,000,000 1,828,984 2,000,000 1,828,984
Chicago, IL, 5.60% GO Bonds (Emergency
Telephone System)/(FGIC Insured)/
(Original Issue Discount: 5.62%), 1/1/2010 1,500,000 1,345,352 1,500,000 1,345,352
City of Chicago Water, 6.50% RRB (Series
1993)/(FGIC Insured), 11/1/2015 1,250,000 1,226,112 1,250,000 1,226,112
Illinois Development Finance Authority,
7.25% PCR Bonds
(Commonwealth Edison Co. Project)/(MBIA
Insured), 6/1/2011 3,000,000 3,108,528 3,000,000 3,108,528
Illinois Health Facilities Authority, 6.25%
RB (Children's Memorial Hospital)/(MBIA
Insured), 8/15/2013 1,400,000 1,310,814 1,400,000 1,310,814
--------- --------- ---------
Total 7,593,678 1,226,112 8,819,790
Indiana - 3.5% --------- --------- ---------
Indiana Health Facilities Finance
Authority Hospital, 5.875% RRB
(Series 1993)/(Lafayette Home Hospital)/
(MBIA Insured), 8/1/2013 500,000 455,995 500,000 455,995
Indiana Municipal Power Supply System,
6.125% RB (Series A)/ (MBIA Insured),
1/1/2019 2,300,000 2,116,193 2,300,000 2,116,193
Lawrence Township, IN, Metropolitan
School District, 6.875% First Mortgage
RB (MBIA Insured), 7/5/2011 1,500,000 1,546,447 1,500,000 1,546,447
--------- --------- ---------
Total 3,662,640 455,995 4,118,635
Iowa - 1.7% --------- --------- ---------
City of Iowa City, 6.00% RB (Johnson
County Sewer)/(Series 1993)/ (AMBAC
Insured), 7/1/2012 500,000 472,590 500,000 472,590
Salix, IA, 5.90%, PCR Bonds (Northwestern
Public Service Co.)/ (MBIA Insured),
6/1/2023 1,750,00 1,515,713 1,750,000 1,515,713
--------- --------- ---------
Total 1,515,713 472,590 1,988,303
Louisiana - 2.2% --------- --------- ---------
Jefferson, LA, 6.75% Sales Tax RB
(Series A)/(FGIC Insured), 12/1/2006 2,500,000 2,584,855 2,500,000 2,584,855
Maine - 0.9%
Maine Turnpike Authority, 7.125%
Turnpike RB (Series 1994)/(MBIA
Insured), 7/1/2008 1,000,000 1,076,150 1,000,000 1,076,150
Maryland - 0.4% --------- ---------
Community Development Administration,
5.70% Department of Housing and
Community Single Family Program Bonds
(First Series 1994), 4/1/2017 500,000 468,840 500,000 468,840
Massachusetts - 0.7% --------- ---------
Massachusetts Housing Finance Agency,
6.15% RB (Housing Project)/(Series
1993A)/(AMBAC Insured), 10/1/2015 725,000 666,130 725,000 666,130
Massachusetts Housing Finance Agency,
6.60% Insured Rental Housing Bonds
(Series 1994A)/(AMBAC Insured), 7/1/2014 150,000 145,527 150,000 145,527
--------- ---------
Total 811,657 811,657
Michigan - 0.9% --------- ---------
City of Detroit Water Supply System,
6.50% RRB (Series 1993)/ (FGIC
Insured), 7/1/2015 1,000,000 996,030 1,000,000 996,030
Minnesota - 0.8% --------- ---------
Minnesota Housing Finance Agency,
6.70% SFM Bonds (Series 1994H), 1/1/2018 1,000,000 974,850 1,000,000 974,850
--------- ---------
Nevada - 5.8%
Clark County School District, NV,
6.75% GO Bonds (Series A)/(MBIA
Insured), 3/1/2007 2,500,000 2,557,890 2,500,000 2,557,890
Clark County, NV, 6.50% GO Bonds
(Series A)/(AMBAC Insured)/(Original
Issue Discount: 6.52%), 6/1/2017 1,575,000 1,531,489 1,575,000 1,531,489
Las Vegas Library District, NV,
6.00% GO Bonds (FGIC Insured), 2/1/2012 1,000,000 930,295 1,000,000 930,295
Washoe County, NV, 5.70% GO Bonds
(Series A)/(FGIC Insured), 7/1/2017 2,000,000 1,731,832 2,000,000 1,731,832
--------- ---------
Total 6,751,506 6,751,506
--------- ----------
New York - 0.4%
New York State Thruway Authority,
5.75% Local Highway and Bridge
Service Contract Bonds (Series
1993)/(MBIA Insured), 1/1/2013 500,000 458,205 500,000 458,205
North Carolina - 0.5% --------- ---------
North Carolina Municipal Power
Agency No. 1, 6.50% RB (MBIA Insured)/
(Escrowed to Maturity), 1/1/2010 570,000 570,000 570,000 570,000
Ohio - 1.1% --------- ---------
Ohio Air Quality Development Authority,
6.375% Air Quality Development RRB
(JMG Funding, Limited Partnership Project)/
(Series 1994)/(AMBAC Insured), 4/1/2029 600,000 566,214 600,000 566,214
Ohio Water Development Authority,
6.00% Water Development RRB
(MBIA Insured), 12/1/2016 750,000 703,950 750,000 703,950
--------- ---------
Total 1,270,164 1,270,164
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Union High Grade Evergreen National Pro Forma
Tax Free Fund Tax Free Fund Combined
Principal Principal Principal
Amount Value Amount Value Amount Value
----------- --------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Oklahoma - 1.0%
Enid, OK, Municipal Authority Tax
and Utility, 6.20% RB (FGIC
Insured), 2/1/2012 1,250,000 1,186,878 1,250,000 1,186,878
Pennsylvania - 0.5% --------- ---------
Pennsylvania Industrial Development
Authority, 7.00% RB (Series 1994)/
(AMBAC Insured), 1/1/2007 500,000 533,505 500,000 533,505
Rhode Island - 1.6% --------- ---------
Rhode Island Depositors Economic
Protection, 5.80% RRB
(MBIA Insured), 8/1/2012 2,000,000 1,813,596 2,000,000 1,813,596
South Carolina - 3.0% --------- ---------
South Carolina Port Authority,
6.625% RB (AMBAC Insured)/
(Subject to AMT), 7/1/2011 3,500,000 3,451,697 3,500,000 3,451,697
South Dakota - 5.7% --------- ---------
Heartland Consumers Power District,
SD, 6.00% Electric RB
(FSA Insured)/(Original Issue Discount:
6.40%), 1/1/2017 3,500,000 3,197,625 3,500,000 3,197,625
South Dakota State Health and Education
Facilities Authority,
6.625% RB (MBIA Insured), 7/1/2011 3,500,000 3,479,178 3,500,000 3,479,178
--------- ---------
Total 6,676,803 6,676,803
Tennessee - 5.6% --------- ---------
Bristol, TN, Health & Educational
Facilities, 6.75% RB (Bristol
Memorial Hospital)/(FGIC Insured),
9/1/2007 1,200,000 1,234,888 1,200,000 1,234,888
Knox County, TN, Health, Educational &
Housing Facilities Board, 6.25%
Hospital Facilities RB (Fort Sanders
Alliance)/(Series B)/(MBIA Insured),
1/1/2013 1,700,000 1,634,395 1,700,000 1,634,395
Knox County, TN, Health, Educational &
Housing Facilities Board,
5.75% Hospital Facilities RB (Fort
Sanders Alliance)/(Series C)/
(MBIA Insured), 1/1/2014 4,100,000 3,701,086 4,100,000 3,701,086
--------- ---------
Total 6,570,369 6,570,369
Texas - 6.3% --------- ---------
City of Houston Water Conveyance
Systems Contract, 7.50% COP (Series
1993H)/(AMBAC Insured), 12/15/2014 1,000,00 1,108,480 1,000,00 1,108,480
Dallas-Fort Worth, TX, Regional
Airport, 7.80% RB (FGIC Insured),
11/1/2007 2,000,00 2,234,496 2,000,000 2,234,496
Harris County, TX, 5.30% Revenue
Toll Roads, Senior Lien Bonds
(AMBAC Insured)/(Original Issue
Discount: 5.40%), 8/15/2013 2,000,000 1,687,494 2,000,000 1,687,494
Southland Oaks, TX, Municipal
Utility District, 6.50% RB (City of
Austin)/(FGIC Insured), 11/15/2009 2,290,000 2,306,147 2,290,000 2,306,147
--------- --------- ---------
Total 6,228,137 1,108,480 7,336,617
Utah - 5.2% --------- --------- ---------
Iron County School District, UT,
6.40% GO Bonds (MBIA Insured)/
(Original Issue Discount: 6.45%),
1/15/2012 2,500,000 2,444,200 2,500,000 2,444,200
Salt Lake City, UT, 6.00% RB, Utah
Airport Authority (FGIC Insured),
12/1/2012 1,000,000 914,884 1,000,000 914,884
Salt Lake City, UT, 5.875% RRB,
Utah Airport Authority (FGIC
Insured), 12/1/2018 3,000,000 2,672,385 3,000,000 2,672,385
--------- ---------
Total 6,031,469 6,031,469
Virginia - 0.7% --------- ---------
County of Roanoke Water System,
5.00% RRB (Series 1993)/
(FGIC Insured), 7/1/2021 1,000,000 784,340 1,000,000 784,340
Washington - 7.2% --------- ---------
Seattle, WA, Metropolitan Seattle
Sewer, 6.25% RB (MBIA Insured),
1/1/2021 3,965,000 3,691,542 3,965,000 3,691,542
Spokane, WA, Regional Solid Waste
Management System, 6.25% RB
(AMBAC Insured), 12/1/2011 1,000,000 942,268 1,000,000 942,268
Tacoma, WA, Electric System,
6.25% RRB (Series 1992A)/
(AMBAC Insured), 1/1/2011 500,000 485,745 500,000 485,745
Tacoma, WA, Electric System,
6.25% RB (FGIS Insured)/
(Original Issue Discount: 6.45%),
1/1/2015 3,500,000 3,313,103 3,500,000 3,313,103
--------- --------- ---------
Total 7,946,913 485,745 8,432,658
West Virginia - 1.3% --------- --------- ---------
Harrison County, WV, Board of
Education, 6.30% GO Bonds
(FGIC Insured), 5/1/2005 1,500,000 1,516,865 1,500,000 1,516,865
Wisconsin - 6.0% --------- ---------
Superior, WS, 6.90% Limited
Obligations RB (Midwest Energy)/
(Series E)/(FGIC Insured), 8/1/2021 4,500,000 4,549,068 4,500,000 4,549,068
Wisconsin Housing & Economic
Development Authority, 6.875% RRB
(Home Ownership)/(Series 1992),
9/1/2024 500,000 480,125 500,000 480,125
Wisconsin State Health and Education
Facilities Authority, 6.625% RB
(Wausau Hospital)/(AMBAC Insured),
8/15/2011 2,000,000 1,964,266 2,000,000 1,964,266
--------- --------- --------
Total 6,513,334 480,125 6,993,459
Total Long-Term Municipal Securities --------- --------- ---------
(identified cost, $117,125,314) 91,057,944 20,635,693 111,693,637
---------- ---------- -----------
Short-Term Investments - 2.1%
Short-Term Municipal Securities - 0.7%
Pennsylvania - 0.7%
Schuylkill County IDA Weekly VRDNs
Resource Recovery Bonds
(Series 1985)(Westwood Energy
Properties Limited Partnership
Project)/(Fuji Bank LOC) 800,000 800,000 800,000 800,000
Mutual Fund Shares - 1.4% --------- ---------
Lehman Municipal Money Market Fund 1,595,103 1,595,103 1,595,103 1,595,103
Lehman Tax-Free Money Market Fund 61,616 61,616 61,616 61,616
Total Mutual Fund Shares (at ---------- ----------
net asset value) 1,656,719 1,656,719
Total Short-Term Investments ---------- ----------
(at amortized cost) 1,656,719 800,000 2,456,719
Total Investments (identified ---------- ---------- -----------
cost, $119,582,033) $92,714,663 $21,435,693 $114,150,356+
========== ========== ===========
<FN>
--------
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $119,582,033.
The net unrealized depreciation of investments on a federal tax basis
amount to $5,431,677, which is comprised of $366,587 appreciation and
$5,795,264 depreciation, at December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($116,438,472) at December 31, 1994.
The following abbreviations are used in this portfolio:
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax
COP - Certificates of Participation
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Assurance
GO - General Obligations
IDA - Industrial Development Authority
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
PCR - Pollution Control Revenue
RB - Revenue Bonds
RRB - Revenue Refunding Bonds
SFM - Single Family Mortgage
VRDN - Variable Rate Demand Note
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
<PAGE>
First Union High Grade Tax Free Fund
Evergreen National Tax Free Fund
Pro Forma Combining Statement of Assets and Liabilities
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
First Union Evergreen
High Grade Tax National Tax Pro Forma Pro Forma
Free Fund Free Fund Adjustments Combined
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
Assets:
Investments in securities, at amortized cost
and value (identified and tax cost, $119,582,033) $92,714,663 $21,435,693 $114,150,356
Cash 5,829 51,523 57,352
Interest receivable 2,388,442 527,768 2,916,210
Receivable for investments sold 1,039,313 ---- 1,039,313
Receivable for Fund shares sold 355,046 980 356,026
Receivable from Adviser ---- ---- 54,645 (2) 54,645
Prepaid expenses ---- 26,462 (26,462)(2) -0-
Deferred expenses 4,003 28,183 (28,183)(2) 4,003
----------- ----------- --------- ------------
Total assets 96,507,296 22,070,609 -0- 118,577,905
----------- ----------- --------- ------------
Liabilities:
Payable for investments purchased 1,440,086 ---- 1,440,086
Payable for Fund shares redeemed 417,468 ---- 417,468
Dividends payable 175,084 22,660 197,744
Accrued advisory fee ---- 8,321 8,321
Accrued expenses 44,978 30,836 75,814
----------- ----------- --------- ------------
Total liabilities 2,077,616 61,817 2,139,433
----------- ----------- --------- ------------
Net Assets $94,429,680 $22,008,792 $116,438,472
----------- ----------- --------- ------------
Net Assets Consist of:
Paid-in capital $99,317,449 $26,206,861 $125,524,310
Net unrealized appreciation (depreciation)
of investments (3,976,541) (1,455,136) (5,431,677)
Accumulated net realized gain (loss)
on investments (911,228) (2,742,933) (3,654,161)
----------- ----------- --------- ------------
Total Net Assets $94,429,680 $22,008,792 $116,438,472
----------- ----------- --------- ------------
Net Assets:
-Class A Investment Shares $57,676,448 $9 $57,676,457
-Class B Investment Shares $32,434,792 $9 $32,434,801
-Y Shares $4,318,440 $22,008,774 $26,327,214
Shares Outstanding:
-Class A Investment Shares 5,888,392 1 5,888,393
-Class B Investment Shares 3,311,416 1 3,311,417
-Y Shares 440,914 2,326,272 (78,414) (1) 2,688,772
Net Asset Value:
-Class A Investment Shares $9.79 $9.46 $9.79
-Class B Investment Shares $9.79 $9.46 $9.79
-Y Shares $9.79 $9.46 $9.79
Offering Price Per Share:
-Class A Investment Shares $10.28 * $9.93 * $10.28 *
-Class B Investment Shares $9.79 $9.46 $9.79
-Y Shares $9.79 $9.46 $9.79
Redemption Proceeds Per Share:
-Class A Investment Shares $9.79 $9.46 $9.79
-Class B Investment Shares $9.30 ** $8.99 ** $9.30 **
-Y Shares $9.79 $9.46 $9.79
<FN>
--------
(1) Adjustment to reflect share balance as a result of the combination based on
an exchange ratio of .166292 ($9.46/$9.79).
* See "What Shares Cost" in the respective Fund's prospectus.
** See "Redeeming Shares" in the respective Fund's prospectus.
(2) Adjustments to write off deferred organizational and prepaid state filing
expenses of Evergreen National Tax Free Fund, and to reflect reimbursement
of these expenses by the Adviser.
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
<PAGE>
<PAGE>
First Union High Grade Tax Free Fund
Evergreen National Tax Free Fund
Pro Forma Combining Statement of Operations
Year Ended December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
First Union Evergreen Combined
High Grade Tax National Tax Pro Forma Pro Forma
-------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $7,261,577 $2,229,797 $9,491,374
--------- --------- --------- ---------
Expenses:
Investment advisory fee 599,854 196,104 795,958
Trustees' fees 1,879 5,384 (5,106) (1) 2,157
Administrative personnel and services fees 101,004 ---- 32,945 (2) 133,949
Custodian and portfolio accounting fees 75,807 47,826 (41,326) (3) 82,307
Transfer and dividend disbursing agent fees and expenses 64,729 22,281 (7,291) (4) 79,719
Distribution services fee - Class A Investment Shares 197,562 ---- 197,562
Distribution services fee - Class B Investment Shares 287,858 ---- 287,858
Shareholder services fee - Class B Investment Shares 26,443 ---- 26,443
Fund share registration costs 20,228 27,930 (24,534) (1) 23,624
Auditing fees 12,000 18,296 (18,296) (1) 12,000
Legal fees 3,154 3,942 (3,217) (1) 3,879
Printing and postage 31,364 17,031 (16,289) (1) 32,106
Insurance premiums 8,336 6,975 (6,769) (1) 8,542
Miscellaneous 7,711 10,855 18,566
--------- --------- --------- ---------
Total expenses 1,437,929 356,624 (89,883) 1,704,670
Deduct- --------- --------- --------- ---------
Waiver of investment advisory fee 16,090 157,606 (152,507) (5) 21,189
Reimbursement of other expenses ---- 16,939 (16,939) (5) 0
--------- --------- --------- ---------
Total waivers 16,090 174,545 (169,446) 21,189
--------- --------- --------- ---------
Net expenses 1,421,839 182,079 79,563 1,683,481
--------- --------- --------- ---------
Net investment income 5,839,738 2,047,718 (79,563) 7,807,893
Realized and Unrealized Gain (Loss) on Investments: --------- --------- --------- ---------
Net realized gain (loss) on investments (identified
cost basis) (912,236) (2,805,985) (3,718,221)
Net change in unrealized appreciation (depreciation)
on investments (15,618,845) (2,697,179) (18,316,024)
---------- ---------- --------- ----------
Net realized and unrealized gain (loss) on investments (16,531,081) (5,503,164) (22,034,245)
---------- ---------- --------- ----------
Change in net assets resulting from operations ($10,691,343) ($3,455,446) ($79,563) ($14,226,352)
---------- ---------- --------- ----------
<FN>
---------
(1) Adjustment reflects expected savings when the two funds combine.
(2) Reflects an increase in administrative personnel and services fees based
on the surviving Fund's fee schedules.
(3) Based on First Union High Grade Tax Free Fund custodian and portfolio
accounting contract.
(4) Based on First Union High Grade Tax Free Fund transfer agent and dividend
disbursing contract.
(5) Reflects a decrease in the waiver of the investment advisory fees and a
decrease in the reimbursement of other expenses by the investment advisor
based on the surviving Fund's voluntary fee waiver and voluntary
reimbursement of other expenses in effect for the year ended
December 31, 1994.
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
First Union High Grade Tax Free Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination - The Pro forma Statement of
Assets and Liabilities, including the Portfolio of
Ivestments, and the related Statement of Operations ("Pro
forma Statements") reflect the accounts of First Union High
Grade Tax Free Fund ("First Union") and Evergreen National
Tax Free Fund ("Evergreen") at December 31, 1994 and for the
year then ended.
The Pro forma Statements give effect to the proposed transfer
of all assets and liabilities of Evergreen in exchange for
shares of First Union. The Pro forma Statements do not
reflect the expense of either Fund in carrying out its
obligations under the Agreement and Plan of Reorganization.
The actual fiscal year end of the combined Fund will be
December 31, the fiscal year end of First Union.
The Pro forma Statements should be read in conjunction with
the historical financial statements of each Fund included in
or incorporated by reference in the Statement of Additional
Information.
2. Shares of Beneficial Interest - The pro forma net
asset value per share assumes the issuance of additional
shares of First Union Class A, Class B, and Y shares which
would have been issued at December 31, 1994 in connection
with the proposed reorganization. The amount of additional
shares assumed to be issued was calculated based on the
December 31, 1994 net assets of Evergreen ($22,008,792) and
the net asset value per share of First Union of $9.79.
The pro forma shares outstanding of 11,888,582 consist of
2,247,860 additional shares to be issued in the proposal
reorganization, as calculated above, plus 9,640,722 shares
of First Union outstanding as of December 31, 1994.
3. Pro Forma Operations - The Pro Forma Statement of
Operations assumes similar rates of gross investment income
for the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of each Fund's
gross investment income. Pro forma operating expenses include
the actual expenses of the Funds and the combined Fund, with
certain expenses adjusted to reflect the expected expenses of
the combined equity. The investment advisory fee has been charged
to the combined Fund based on the fee schedule in effect for
First Union at the combined level of average net assets for
the year ended December 31, 1994. First Union National Bank
of North Carolina (the Adviser), may, at its discretion,
waive its fee or reimburse the Fund for certain expenses in
order to reduce the Fund's expense ratio. An adjustment has
been made to the combined Fund expense to decrease the waiver
of investment advisory fee and reimbursement of other
expenses based on the voluntary advisory fee waiver in effect
for First Union (0.013% of average net assets) for the year
ended December 31, 1994.
Administrative personnel and services fees for the combined
Fund would be charged at an annual rate of .15 of 1% on the
first $250 million of average aggregate daily net assets of
the Trust; .125 of 1% on the next $250 million; .10 of 1%
on the next $250 million; and .075 of 1% on the average
aggregate daily net assets of the Trust in excess of $750
million, subject to a $80,000 per year minimum. There would
have been no voluntary waiver of administrative personnel and
services fees by the administrator.
<PAGE>
FIRST UNION FUNDS
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to
"Liability and Indemnification of Trustees" under the caption "Comparative
Information on Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1(a) Declaration of Trust. Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed on November 13, 1984 - Registration
No. 2-94560 ("Form N-1A Registration Statement")
1(b) Certificate of Amendment to Declaration of Trust. Incorporated by
reference to Post-Effective Amendment No. 28 to the Registrant's Form N-1A
Registration Statement filed on April 15, 1993.
1(c) Instrument providing for the Establishment and Designation of
Classes. Incorporated by reference to Post-Effective Amendment No. 28 to the
Registrant's Form N-1A Registration Statement filed on April 15, 1993.
2(a) By Laws. Incorporated by reference to the Form N-1A Registration
Statement.
2(b) Amendment to the By-Laws. Incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's Form N-1A Registration
Statement filed on July 30, 1987.
6(a) Investment Advisory Agreement between First Union National Bank of
North Carolina and the Registrant. Incorporated by reference to Post-Effective
Amendment No. 38 to the Registrant's Form N-1A Registration Statement filed on
December 30, 1994.
6(b) Exhibit to Investment Advisory Agreement. Incorporated by reference
to Post-Effective Amendment No. 38 to the Registrant's Form N-1A Registration
Statement filed on December 30, 1994.
7(a) Distributor's Contract between Federated Securities Corp. and the
Registrant. Incorporated by reference to Post-Effective Amendment No. 38 to the
Registrant's Form N-1A Registration Statement filed on December 30, 1994.
7(b) Exhibit to Distributor's Contract. Incorporated by reference to
Post-Effective Amendment No. 38 to the Registrant's Form N-1A Registration
Statement filed on December 30, 1994.
9(a) Custody Agreement between State Street Bank and Trust Company and
Registrant. Incorporated by reference to Post-Effective Amendment No. 38 to the
Registrant's Form N-1A Registration Statement filed on
December 30, 1994.
9(b) Amendment to Custody Agreement. Incorporated by reference to
Post-Effective Amendment No. 38 to the Registrant's Form N-1A Registration
Statement filed on December 30, 1994.
10(a) Distribution Plan (relating to Class A Shares). Incorporated by
reference to Post-Effective Amendment No.4 to the Registrant's Form N-1A
Registration Statement filed on March 30, 1988.
10(b) Distribution Plan (relating to Class B Shares). Incorporated by
reference to Post-Effective Amendment No.32 to the Registrant's Form N-1A
Registration Statement filed on November 2, 1993.
10(c) Distribution Plan (conformed copy of exhibit relating to Class B
Shares). Incorporated by reference to Post- Effective Amendment No.38 to the
Registrant's Form N-1A Registration Statement filed on December 30, 1994.
10(d) Distribution Plan (conformed copy relating to Class C Shares).
Incorporated by reference to Post-Effective Amendment No.38 to the Registrant's
Form N-lA Registration Statement filed on December 30, 1994.
11. Opinion and consent of Sullivan & Worcester dated March 23, 1995
with respect to legal issuance of shares being offered.
12. Tax Opinion and Consent of Sullivan & Worcesster dated March 27, 1995
with respect to the federal income tax consequences of the proposed
reorganization.
13(a) Fund Accounting and Shareholder Recordkeeping Agreement.
Incorporated by reference to Post-Effective Amendment No. 36 to the Registrant's
Form N-1A Registration Statement filed on June 28, 1994.
13(b) Shareholder Servicing Plan. Incorporated by reference to Post-
Effective Amendment No. 38 to the Registrant's Form N-1A Registration Statement
filed on December 30, 1994.
13(c) Shareholder Servicing Agreement. Incorporated by reference to Post-
Effective Amendment No. 38 to the Registrant's Form N-1A Registration Statement
filed on December 30, 1994.
14(a). Consent of Price Waterhouse LLP, independent accountants, as to the
use of their report dated October 17, 1994 concerning the financial statements
of the Evergreen National Tax Free Fund for the fiscal year ended August 31,
1994. Filed herewith.
14(b). Consent of KPMG Peat Marwick LLP, independent accountants, as to the
use of their report dated February 13, 1995 covering the financial statements of
the First Union High Grade Tax Free Portfolio for the fiscal year ended
December 31, 1994. Filed herewith.
16 Conformed copy of Power of Attorney. Filed herewith.
17(a) Form of Proxy Card. Filed herewith.
17(b) Registrant's Rule 24f-2 Declaration. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York and State
of New York, on the 27th day of March, 1995.
Registrant: First Union Funds
By: /s/ James S. Howell*
Name: James S. Howell
Title: Chairman and Trustee
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Edward C. Gonzales President and March 27, 1995
-----------------------
Edward C. Gonzales Treasurer (Principal
Financial and Accounting
Officer)
/s/ James Howell* Chairman and Trustee March 27, 1995
-----------------
James Howell
/s/ Gerald McDonnell* Trustee March 27, 1995
Gerald McDonnell
/s/ Thomas L. McVerry* Trustee March 27, 1995
----------------------
Thomas L. McVerry
/s/ William W. Pettit* Trustee March 27, 1995
----------------------
William W. Pettit
/s/ Russell A. Salton, III* Trustee March 27, 1995
---------------------------
Russell A. Salton, III
/s/ Michael S. Scofield* Trustee March 27, 1995
------------------------
Michael S. Scofield
-------------------------------------
*by Peter J. Germain, Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
N-14 EXHIBIT No. PAGE
11 Opinion of Sullivan & Worcester
12 Tax Opinion and Consent of Sullivan & Worcester
14(a) Consent of Price Waterhouse LLP
14(b) Consent of KPMG Peat Marwick LLP
16 Power of Attorney
17(a) Form of Proxy
17(b) Rule 24f-2 Declaration
OTHER EXHIBITS
Prospectus dated January 3, 1995 offering Class A and Class B
shares of Evergreen National Tax Free Fund.*
Prospectus dated January 3, 1995 offering Class Y shares of Evergreen
National Tax Free Fund.*
Statement of Additional Information Dated January 3, 1995 of Evergreen
National Tax Free Fund.**
Annual Report of Evergreen National Tax Free Fund for the
fiscal year ended August 31, 1994.**
--------------------------
*Incorporated by Reference into Form N-14 Prospectus/Proxy Statement.
**Incorporated by Reference into Form N-14 Prospectus/Proxy Statement and
Statement of Additional Information.
SULLIVAN & WORCESTER
1025 CONNECTICUT AVENUE. N.W.
WASHINGTON, D.C. 20038
(202) 775-8190
TELECOPIER NO. 202-293-2275
IN BOSTON, MASSACHUSETTS IN NEW YORK CITY
ONE POST OFFICE SQUARE 767 THIRD AVENUE
BOSTON, MASSACHUSETTS 02100 NEW YORK, NEW YORK 10017
(617) 338-2800 (212) 486-8200
TELECOPIER NO. 617-338-2880 TELECOPIER NO. 212-756-2151
TWX: 710-321-1976
March 23, 1995
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Ladies and Gentlemen:
We have been requested by the First Union Funds, a
Massachusetts business trust with transferable shares and
currently consisting of 17 portfolios (the "Trust") established
under a Declaration of Trust dated August 30, 1984, as amended
(the "Declaration"), for our opinion with respect to certain
matters relating to the First Union High Grade Tax Free Portfolio
(the "Acquiring Fund"), a portfolio of the Trust. We understand
that the Trust is about to file a Registration Statement on Form
N-14 for the purpose of registering shares of the Acquiring Fund
under the securities Act of 1933, as amended (the "1933 Act"), in
connection with the proposed acquisition by the Acquiring Fund of
substantially all of the assets of the Evergreen National Tax
Free Fund, a series of Evergreen Fixed Income Trust, a
Massachusetts business trust with transferable shares ("the
Acquired Fund"), in exchange solely for shares of the Acquiring
Fund and the assumption by the Acquiring Fund of certain
liabilities of the Acquired Fund pursuant to an Agreement and
Plan of Reorganization dated as of March 21, 1995 (the "Plan").
We have, as counsel, participated in various business and
other proceedings relating to the Trust. We have examined copies
of either certified or otherwise proved to be genuine to our
satisfaction, of the Trust's Declaration and By-Laws, and other
documents relating to its organization, operation, and proposed
operation, including the proposed Plan and we have made such
other investigations as, in our judgment, are necessary or
appropriate to enable us to render the opinion expressed below.
Based upon the foregoing, and assuming the approval by
shareholders of the Acquired Fund of certain matters scheduled
for their consideration at a meeting presently anticipated to be
held on June 15, 1995, it is our opinion that the shares of the
Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws,
will be legally issued, fully paid and non-assessable by the
<PAGE>
First Union Funds
March 23, 1995
Page 2
Trust, subject to compliance with the 1933 Act, the Investment
Company Act of 1940, as amended and applicable state laws
regulating the offer and sale of securities.
With respect to the opinion stated in the paragraph above,
we note that shareholders of a Massachusetts business trust may
under some circumstances be subject to assessment at the instance
of creditors to pay the obligations of such trust in the event
that its assets are insufficient for the purpose.
We hereby consent to the filing of this opinion with and as
a part of the Registration Statement on Form N-14 and to the
reference to our firm under the caption "Financial Statements and
Experts, Legal Matters" in the prospectus/Proxy Statement filed
as part of the Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the 1933 Act
or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER
--------------------------
SULLIVAN & WORCESTER
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02100
(617) 338-2800
TELECOPIER NO. 617-338-2880
TWX: 710-321-1976
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE. N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20038 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
TELECOPIER NO. 202-293-2275 TELECOPIER NO. 212-756-2151
March 27, 1995
Evergreen National Tax Free Fund
2500 Westchester Avenue
Purchase, New York 10577
First High Grade Tax Free Portfolio
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Re: Acquisition of Assets of Evergreen National Tax Free Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain tax consequences of the
proposed acquisition of assets of Evergreen National Tax Free Fund ("Selling
Fund"), a series of Evergeeen Municipal Trust, a Massachusetts business trust,
by First High Grade Tax Free Portfolio ("Acquiring Fund"), a portfolio of First
Union Funds, a Massachusetts business trust, in exchange for voting shares of
Acquiring Fund (the "Reorganization").
In rendering our opinion, we have reviewed and relied upon the form of
Agreement and Plan of Reorganization dated as of March 21, 1995 (the
"Reorganization Agreement") between Evergreen Municipal Trust on behalf of
Selling Fund and First Union Funds on behalf of Acquiring Fund and the related
draft Prospectus/Proxy statement dated March 22, 1995. We have relied, without
independent verification, upon the factual statements made therein, and assume
that there will be no change in material facts disclosed therein between the
date of this letter and the date of closing of the Reorganization We further
assume that the Reorganization will be carried out in accordance with the
Reorganization Agreement. We have also relied upon the following
representations, each of which has been made to us by officers of Evergreen
Municipal Trust on behalf of Acquiring Fund or of First Union Funds on behalf
of Selling Fund:
A. The Reorganization will be consummated substantially as
described in the Reorganization Agreement.
<PAGE>
Evergreen National Tax Free Fund
First High Grade Tax Free Portfolio
March 27, 1995
Page 2
B. Acquiring Fund will acquire from Selling Fund at least 90% of the fair
market value of the net assets and at least 70% of the fair market value of the
gross assets held by Selling Fund immediately prior to the Reorganization. For
purposes of this representation, assets of Selling Fund used to pay
reorganization expenses, cash retained to pay liabilities, and redemptions and
distributions (except for regular and normal distributions) made by Selling Fund
immediately preceding the transfer which are part of the plan of reorganization,
will be considered as assets held by Selling Fund immediately prior to the
transfer.
C. To the best of the knowledge of management of Selling Fund, there is no
plan or intention on the part of the shareholders of Selling Fund to sell,
exchange, or otherwise dispose of a number of Acquiring Fund shares received in
the Reorganization that would reduce the former Selling Fund shareholders'
ownership of Acquiring Fund shares to a number of shares having a value, as of
the date of the Reorganization (the "Closing Date"), of less than 50 percent of
the value of all of the formerly outstanding shares of Selling Fund as of the
same date . For purposes of this representation, Selling Fund shares exchanged
for cash or other property will be treated as outstanding Sell in Fund shares on
the Closing Date. There are no dissenters' right in the Reorganization, and no
cash will be exchanged for Selling Fund shares in lieu of fractional shares of
Acquiring Fund. Moreover, shares of Selling Fund and shares of Acquiring Fund
held by Selling Fund shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Reorganization will be considered in making this
representation.
D. Selling Fund has not redeemed and will not redeem the shares of any of
its shareholders in connection with the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its shares.
E. The management of Acquiring Fund has no plan or intention to redeem or
reacquire any of the Acquiring Fund shares to be received by Selling Fund
shareholders in connection with the Reorganization, except to the extent
necessary to comply with its legal obligation to redeem its shares.
F. The management of Acquiring Fund has no plan or intention to sell or
dispose of any of the assets of Selling Fund which will be acquired by Acquiring
Fund in the Reorganization, except for dispositions made in the ordinary course
of business, and to the extent necessary to enable Acquiring Fund to comply with
its legal obligation to redeem its shares.
<PAGE>
Evergreen National Tax Free Fund
First High Grade Tax Free Portfolio
March 27, 1995
Page 3
G. Following the Reorganization, Acquiring Fund will continue the historic
business of Selling Fund in a substantially unchanged manner as part of the
regulated investment company business of Acquiring Fund, or will use a
significant portion of Selling Fund's historic business assets in a business.
H. There is no intercorporate indebtedness between Acquiring
Fund and Selling Fund.
I. Acquiring Fund does not own, directly or indirectly, and has not owned in
the last five years, directly or indirectly, any shares of Selling Fund.
Acquiring Fund will not acquire any shares of Selling Fund prior to the Closing
Date.
J. Acquiring Fund will not make any payment of cash or of property other
than shares to Selling Fund or to any shareholder of Selling Fund in connection
with the Reorganization.
K. Pursuant to the Reorganization Agreement, the shareholders of Selling
Fund will receive solely Acquiring Fund voting shares in exchange for their
voting shares of Selling Fund.
L. The fair market value of the Acquiring Fund shares to be received by the
Selling Fund shareholders will be approximately equal to the fair market value
of the Selling Fund shares surrendered in exchange therefor.
M. Subsequent to the transfer of Selling Fund's assets to Acquiring Fund
pursuant to the Reorganization Agreement, Selling Fund will distribute the
shares of Acquiring Fund, together with other assets it may have, in final
liquidation as expeditiously as possible.
N. Selling Fund is not under the Jurisdiction of a court in a Title 11 or
similar case within the meaning of ss. 368(a)(3)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
O. Selling Fund is treated as a corporation for federal income tax purposes
and at all times in its existence has qualified as a regulated investment
company, as defined in ss. 851 of the Code.
P. Acquiring Fund is treated as a corporation for federal income tax
purposes and at all times in its existence has qualified as a regulated
investment company, as defined in ss. 851 of the Code.
<PAGE>
Evergreen National Tax Free Fund
First High Grade Tax Free Portfolio
March 27, 1995
Page 4
Q. The sum of the liabilities of Selling Fund to be assumed by Acquiring
Fund and the expenses of the Reorganization does not exceed twenty percent of
the fair market value of the assets of Selling Fund.
R. The foregoing representations are true on the date of this letter and
will be true on the date of closing of the Reorganization.
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, it is our opinion that for federal
income tax purposes:
1. The acquisition by Acquiring Fund of substantially all of the assets of
Selling Fund solely in exchange for voting shares of Acquiring Fund followed by
the distribution by Selling Fund of said Acquiring Fund shares to the
shareholders of Selling Fund in exchange for their Selling Fund shares will
constitute a reorganization within the meaning of ss. 368(a)(l)(C) of the Code,
and Acquiring Fund and Selling Fund will each be "a party to a reorganization"
within the meaning of ss. 368(b) of the Code.
2. No gain or loss will be recognized to Selling Fund upon the transfer of
substantially all of its assets to Acquiring Fund solely in exchange or
Acquiring Fund voting shares and assumption by Acquiring Fund of any liabilities
of Selling Fund, or upon the distribution of such Acquiring Fund voting shares
to the shareholders of Selling Fund in exchange for all of their Selling Fund
shares.
3. No gain or loss will be recognized by Acquiring Fund upon the receipt of
the assets of Selling Fund (including any cash retained initially y Selling Fund
to pay liabilities but later transferred) solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of any liabilities of Selling
Fund.
4. The basis of the assets of Selling Fund acquired by Acquiring Fund will
be the same as the basis of those assets in the hands of Selling Fund
immediately prior to the transfer, and the holding period of the assets of
Selling Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Selling Fund.
5. The shareholders of Selling Fund will recognize no gain or loss upon the
exchange of all of their Selling Fund shares solely for Acquiring Fund voting
shares. Gain, if any, will be realized by Selling Fund shareholders who in
<PAGE>
Evergreen National Tax Free Fund
First High Grade Tax Free Portfolio
March 27, 1995
Page 5
exchange for their Selling Fund shares receive other property or money in
addition to Acquiring Fund shares, and will be recognized, but not in excess of
the amount of cash and the value of such other property received. If the
exchange has the effect of the distribution of a dividend, then the amount of
gain recognized that is not in excess of the ratable share of undistributed
earnings and profits of Selling Fund will be treated as a dividend.
6. The basis of the Acquiring Fund voting shares to be received by the
Selling Fund shareholders will be the same as the basis of the Selling Fund
shares surrendered in exchange therefor.
7. The holding period of the Acquiring Fund voting shares to be received by
the Selling Fund shareholders will include the period during which the Selling
Fund shares surrendered in exchange therefor were held, provided the Selling
Fund shares were held as a capital asset on the date of the exchange.
This opinion letter is delivered to you in satisfaction of the requirements
of Section 8.6 of the Reorganization Agreement. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement on Form N-14 and to
use of our name and any reference to our firm in the Registration Statement or
in the Prospectus/proxy Statement constituting a part thereof in giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER
--------------------------
SULLIVAN & WORCESTER
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement constituting part of this registration statement on Form N-14 (the
"Registration Statement") of our report dated October 17, 1994, relating to the
financial statements and financial highlights appearing in the August 31, 1994
Annual Report to Shareholders of the Evergreen National Tax Free Fund, which is
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Statements and Experts,
Legal Matters" in the Prospectus/Proxy Statement and under the heading
"Independent Auditors" in the Statement of Additional Information dated January
3, 1995 for the Evergreen Mutual Funds, which is also incorporated by reference
herein.
/s/Price Waterhouse LLP
Price Waterhouse LLP
New York, NY
March 23, 1995
Consent of Independent Accountants
The Board of Trustees
First Union Funds:
We consent to the use of our report dated February 13, 1995, on the First
Union High Grade Tax Free Portfolio of First Union Funds incorporated herein by
reference, to the reference to our firm under the heading "Financial Statements
and Experts" in the Registration Statement on Form N-14 and to the references to
our firm under the heading "Financial Highlights" in the prospectus filed with
the Securities and Exchange Commission, incorporated herein by reference, in
this Registration Statement on Form N-14.
/s/KPMG Peat Marwick
KPMG Peat Marwick
Pittsburgh, Pennsylvania
Much 22, 1995
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FIRST UNION FUNDS and the Assistant
General Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES Title DATE
/s/ James S. Howell Chairman and Trustee
James S. Howell (Chief Executive Officer)
/s/ Edward C. Gonzales President, Treasurer, and
Edward C. Gonzales Trustee (Principal Financial
and Accounting Officer)
/s/ Gerald M. McDonnell Trustee
Gerald M. McDonnell
/s/ Thomas L. McVerry Trustee
Thomas L. McVerry
/s/ William Walt Pettit Trustee
William Walt Pettit
/s/ Russell A. Salton Trustee
Russell A. Salton, III, M.D.
/s/ Michael S. Scofield Trustee
Michael S. Scofield
Sworn to and subscribed before me this 10th day of February, 1994.
(SEAL)
/s/ Francine Foozo
Notary Public
VOTE THIS PROXY CARD TODAY YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF
ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
EVERGREEN MUNICIPAL TRUST - EVERGREEN NATIONAL MUNICIPAL FUND
SPECIAL MEETING OF SHAREHOLDERS -- JUNE ,1995
The undersigned hereby appoints..................................... and
each of them, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the Evergreen National Municipal Fund(the
"Fund"), which the undersigned is entitled to vote at a Meeting of Shareholders
of the Fund to be held
at........................................................ on June , 1995, at
10:00 a.m. and any adjournments thereof (the "Meeting") . The undersigned hereby
acknowledges receipt of the Notice of Meeting and Prospectus/Proxy Statement,
and hereby instructs said attorneys and proxies tovote said shares as indicated
hereon. In their discretion, the proxies areauthorized to vote upon such other
matters as may properly come before the Meeting. A majority of the proxies
present and acting at the Meeting in person or by substitute (or, if only one
shall be so present, then that one) shall have and may exercise all of the
powers and authority of said proxies hereunder. The undersigned hereby revokes
any proxy previously
given.
NOTE: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian, or corporate officer, please give your full title.
DATE: _______________ , 1995 _______________________________
Signature(s)
Title(s), if applicable
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. PLEASE INDICATE YOUR
VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THIS PROXY WILL BE VOTED AS
SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN ON THE FOLLOWING
PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS PROXY WILL BE VOTED IN
FAVOR OF THE PROPOSALS.
1. To approve the proposed Agreement and Plan of Reorganization with the First
Union High Grade Municipal Portfolio.
YES NO ABSTAIN
2. To consider and vote upon such~other matters as may properly come before said
meeting or any adjournments thereof.
YES NO ABSTAIN
These items are discussed in greater detail in the attached Prospectus/Proxy
Statement. The Board of Trustees of the Fund has fixed the close of business on
April , 1995, as the record date for the determination of shareholders entitled
to notice of and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE WHICH
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
Secretary
April , 1995
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain the
requisite quorums and for approvals.
As filed with the Securities and Exchange Commission on November 13, 1984
File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No.
Post-Effective Amendment No.
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No.
SALEM FUNDS
(Exact name of Registrant as specified in Charter)
99 High Street Boston Massachusetts
Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code:
Roger T. Wickers, Esq., 99 High Street, Boston, Massachusetts 02110
(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) on (date) pursuant to
paragraph (a) of rule 485
Approximate date of proposed Public offering : As soon as possible after the
effective date of this Registration statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Maximum Proposed
Offering Maximum
Title of Price Aggregate Amount of
securities Amount Being Per Offering Registration
Being Registered Registered Unit Price Fee
Shares of bene- * $1.00 * $500
ficial Interest,
without par value
Registrant seeks to hereby register an indefinite number of securities of
Registrant.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
File a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
--------------------------------------------------------------
PROSPECTUS January 3, 1995
Evergreen Tax Exempt Funds
--------------------------------------------------------
CLASS A SHARES
CLASS B SHARES
-------------------------
EVERGREEN NATIONAL TAX-FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA
The Evergreen Tax Exempt Funds (the "Funds") are designed to provide
investors with income exempt from Federal income taxes. This Prospectus provides
information regarding the Class A and Class B shares offered by the Funds. Each
Fund is, or is a series of, a diversified, open-end management investment
company. This Prospectus sets forth concise information about the Funds that a
prospective investor should know before investing. The address of the Funds is
2500 Westchester Avenue, Purchase, New York 10577.
A "Statement of Additional Information" for the Funds and the other
funds in the Evergreen Group of mutual funds (collectively, with the Funds the
"Evergreen Funds") dated January 3, 1995 has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Funds at (800) 807-2940. There can
be no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this Prospectus carefully.
The shares offered by this Prospectus are not deposits or obligations of First
Union or any subsidiaries of First Union, are not endorsed or guaranteed by
First Union or any subsidiaries of First Union, and are not insured or otherwise
protected by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency and involve risk, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Keep This Prospectus for Future Reference
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives And Policies 8
Investment Practices And Restrictions 9
MANAGEMENT OF THE FUNDS
Investment Adviser 12
Sub-Adviser 13
Distribution Plans And Agreements 13
Performance
PURCHASE AND REDEMPTION OF SHARES
How To Buy Shares 14
How To Redeem Shares 15
Exchange Privilege 16
Shareholder Services 17
Effect Of Banking Laws 18
OTHER INFORMATION
Dividends, Distributions And Taxes 18
Management's Discussion of Fund 19
General Information 21
APPENDIX
California Risk Considerations 23
------------------------------------------------------------------------------
OVERVIEW OF THE FUNDS
-------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Investment Adviser to the Funds is Evergreen Asset Management Corp.
(the "Adviser") which, with its predecessors, has served as investment adviser
to the Evergreen Funds since 1971. The Adviser is a wholly-owned subsidiary of
First Union National Bank of North Carolina ("FUNB"), which in turn is a
subsidiary of First Union Corporation, one of the ten largest bank holding
companies in the United States.
Evergreen National Tax-Free Fund seeks a high level of current income exempt
from Federal income tax. It invests substantially all of its assets in long-term
municipal securities. Under normal market conditions, the Fund intends to invest
at least 80% of its total assets in municipal securities which are insured. The
Fund's dollar weighted average portfolio maturity is generally expected to
exceed fifteen years.
Evergreen Short-Intermediate Municipal Fund seeks as high a level of current
income, exempt from Federal income tax other than the alternative minimum tax
("AMT"), as is consistent with preserving capital and providing liquidity. The
Fund invests substantially all of its assets in short and intermediate-term
municipal securities with a dollar weighted average portfolio maturity of two to
five years.
Evergreen Short-Intermediate Municipal Fund-California seeks as high a level of
current income exempt from Federal and California income taxes as is consistent
with preserving capital and providing liquidity. The Fund invests substantially
all of its assets in short and intermediate-term municipal securities with a
dollar weighted average portfolio maturity of two to five years.
There is no assurance the investment objective of any Fund will be achieved.
<PAGE>
------------------------------------------------------------------------------
EXPENSE INFORMATION
------------------------------------------------------------------------------
The table set forth below summarizes the shareholder transaction costs
associated with an investment in Class A and Class B Shares of a Fund. For
further information see "Purchase and Redemption of Fund Shares" and "Other
Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares
Maximum Sales Charge Imposed on Purchases 4.75% None
(as a % of offering price)
Sales Charge on Dividend Reinvestments None None
Contingent Deferred Sales Charge (as a % None 5% during the first year, 4%
during the of original purchase price or redemption second year, 3% during the
third and proceeds, whichever is lower) fourth year, 2% during the fifth year,
1% during the sixth and seventh years and 0% after the seventh year
Redemption Fee None None
Exchange Fee None None
The following tables show for each Fund the annual operating expenses
(as a percentage of average net assets) attributable to each Class of Shares,
together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return and (ii) redemption at the end of each period and,
additionally for Class B shares, no redemption at the end of each period.
In the following examples (i) the expenses for Class A Shares assume
deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the
expenses for Class B Shares assume deduction at the time of redemption (if
applicable) of the maximum contingent deferred sales charge applicable for that
time period, and (iii) the expenses for Class B Shares reflect the conversion to
Class A Shares eight years after purchase (years eight through ten, therefore,
reflect Class A expenses).
<TABLE>
<CAPTION>
Evergreen National Tax-Free Fund
Examples
Assuming Redemption
Assuming no
Annual Operating Expenses 1 at End of Period Redemption
Class A Class B Class A Class B Class B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees .50% .50% After 1 Year $ 59 $ 69 $ 19
12b-1 Fees* .25% 1.00% After 3 Years $ 82 $ 89 $ 59
Other Expenses .39% .39% After 5 Years $107 $122 $102
---- ----
Total 1.14% 1.89% After 10 Years $180 $192 $192
===== =====
</TABLE>
<TABLE>
<CAPTION>
Evergreen Short-Intermediate Municipal Fund
Examples
Assuming Redemption
Assuming no
Annual Operating Expenses2 at End of
Period Redemption
Class A Class B Class A Class B Class B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees .50% .50% After 1 Year $ 57 $ 69 $ 19
12b-1 Fees* .10% 1.00% After 3 Years $ 76 $ 88 $ 58
Other Expenses .33% .33% After 5 Years $ 97 $119 $ 99
---- ----
Total .93% 1.83% After 10 Years $156 $180 $180
==== =====
</TABLE>
<TABLE>
<CAPTION>
Evergreen Short-Intermediate Municipal Fund-California
Examples
Assuming Redemption
Assuming no
Annual Operating Expenses3 at End of
Period Redemption
Class A Class B Class A Class B Class B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees .55% .55% After 1 Year $ 58 $ 70 $ 20
12b-1 Fees* .10% 1.00% After 3 Years $ 79 $ 91 $ 61
Other Expenses .40% .40% After 5 Years $103 $125 $105
---- ----
Total 1.05% 1.95% After 10 Years $170 $193 $193
===== =====
</TABLE>
*For Class B Shares, a portion of the 12b-1 Fees equivalent to .25 of 1% of
average annual assets will be shareholder servicing-related.
Distribution-related 12b-1 Fees will be limited to .75 of 1% of average annual
assets as permitted under the rules of the National Association of Securities
Dealers, Inc.
The Adviser has agreed to reimburse these Funds to the extent that their
aggregate operating expenses (including the Adviser's fee, but excluding taxes,
interest, brokerage commissions, Rule 12b-1 distribution fees and shareholder
servicing fees and extraordinary expenses) exceed 1.00% of the average net
assets for Evergreen Short-Intermediate Municipal Fund and Evergreen
Short-Intermediate Municipal Fund-California and 1.25% of the average net assets
for Evergreen National Tax-Free Fund.
From time to time the Adviser may, at its discretion, reduce or waive its fees
or reimburse these Funds for certain of their other expenses in order to reduce
their expense ratios. The Adviser may cease these voluntary waivers and
reimbursements at any time.
1The estimated annual operating expenses for Evergreen National Tax-Free Fund
does not reflect a voluntary advisory fee waiver by the Adviser of .48 of 1% of
average net assets and the voluntary reimbursement of a portion of the Fund's
other expenses representing .12% of average net assets for the fiscal period
ending August 31, 1994.
2The estimated annual operating expenses for Evergreen Short-Intermediate
Municipal Fund do not reflect a voluntary advisory fee waiver by the Adviser of
.25 of 1% of average net assets for the fiscal period ending August 31, 1994.
3The estimated annual operating expenses for Evergreen Short-Intermediate
Municipal Fund - California do not reflect a voluntary advisory fee waiver by
the Adviser of .43 of 1% of average net assets for the fiscal period ending
August 31, 1994.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund's Class Y shares for the fiscal period ending August 31, 1994. THE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN
THOSE SHOWN. For a more complete description of the various costs and expenses
borne by the Funds see "Management of the Funds". As a result of asset-based
sales charges, long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Evergreen National Tax-Free Fund
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent auditors
for Evergreen National Tax-Free Fund, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto which are incorporated in the Statement of Additional Information
by reference. The per share data set forth below pertains to Class Y shares of
the Fund, which are not offered through this prospectus. See "Other Classes of
Shares". No per share data and ratios are shown for Class A or B shares, since
these classes did not have any operations prior to the date of this Prospectus.
Period from
December 30, 1992*
Year Ended through
PER SHARE DATA August 31, 1994 August 31, 1993
--------------- ---------------
Net asset value, beginning of year. . . . . . . $10.92 $10.00
------ ------
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . .53 .40
Net realized and unrealized gain (loss) on (.77) .92
investments. . .
Total from investment operations. . . . . . (.24) 1.32
Less distributions to shareholders:
From net investment income. . . . . . . . . . . (.53) (.40)
From net realized gains . . . . . . . . . . . . (.14) ----
In excess of net realized gains. . . . . . . . (.02) ----
--------- -----------
Total distributions . . . . . . . . . . . . . (.69) (.40)
--------- ---------
Net asset value, end of year. . . . . . . . . . $9.99 $10.92
------- ------
TOTAL RETURN . . . . . . . . . . . . . . . . . (2.3)% 13.5%+
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year
(in millions). . . . . . . . . . . . . . . . $42 $33
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . .29% (a) 0% (b)
Net investment income . . . . . . . . . . . 5.07% (a) 5.51%(b)
Portfolio turnover rate . . . . . . . . . . . 135% 166%
------------
* Commencement of operations.
(a) Net of partial advisory fee waiver of .48 of 1.00% of daily net assets and
the absorption of all other Fund expenses by the Adviser equal to .12% of
average daily net assets.
(b) Annualized and net of full advisory fee waiver of .50 of 1.00% of daily net
assets and the absorption of all other Fund expenses by the Adviser equal
to .42% of average daily net assets.
+ Total return calculated for the period December 30, 1992 through August 31,
1993 is not annualized.
<PAGE>
Evergreen Short Intermediate Municipal Fund
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent auditors
for Evergreen Short Intermediate Municipal Fund, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto which are incorporated in the Statement of
Additional Information by reference. The per share data set forth below pertains
to Class Y shares of the Fund, which are not offered through this prospectus.
See "Other Classes of Shares". No per share data and ratios are shown for Class
A or B shares, since these classes did not have any operations prior to the date
of this Prospectus.
<TABLE>
<CAPTION>
Period from
July 17, 1991*
Year Ended August 31, through
PER SHARE DATA 1994 1993 1992+ August 31, 1991+
---- ---- ----- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year. . . . . . . . . $10.58 $10.33 $10.00 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . . . .47 .49 .51 .06
. . . . . . . . . . . .
Net realized and unrealized gain (loss) on (.32) .25 .33 ----
investments. . .
Total from investment operations. . . . . . . . .15 .74 .84 .06
. . . . . . . . . .
Less distributions to shareholders from:
From net investment income. . . . . . . . . . . . . (.47) (.49) (.51) (.06)
. . . . . . . . . .
From net realized gains . . . . . . . . . . . . . . (.03) ---- ---- ----
. . . . . . . . . . . . .
In excess of net realized gains. . . . . . . . . . (.02) ---- ---- ----
. . . . . . . . . . . .
Total distributions . . . . . . . . . . . . . . (.52) (.49) (.51) (.06)
--------- --------- ---------- ---------
Net asset value, end of year. . . . . . . . . . . . $10.21 $10.58 $10.33 $10.00
------ ------ ------ ------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . 1.4% 7.4% 8.6% .6%++
RATIOS & SUPPLEMENTAL DATA
Net assets, end of year
(in millions) . . . . . . . . . . . . . . . . . $53 $67 $54 $4
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . .58% (a) .40% (b) .17% (c) .0% (d)
Net investment income . . . . . . . . . . . . . 4.54% (a) 4.73% (b) 4.85% (c) 4.93% (d)
Portfolio turnover rate . . . . . . . . . . . . . . 32% -----
37% 57%
------------
<FN>
* Commencement of operations.
+ On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding at August 31, 1991 and the related per share data are restated
to reflect both a 1 for 2 reverse share split on October 30, 1991 and a 1
for 5 reverse share split on August 19, 1992. Total return calculated after
November 18, 1991 reflects the fluctuation in net asset value per share.
++ Total return calculated for the period July 17, 1991 through August 31,1991
is not annualized.
(a) Net of partial advisory fee waiver of .25 of 1.00% of daily net assets.
(b) Net of partial advisory fee waiver of .41 of 1.00% of daily net assets.
(c) Net of partial advisory fee waiver of .46 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .23% of average daily net assets.
(d) Annualized and net of full advisory fee waiver of .50 of 1.00% of daily net
assets and the absorption of all other Fund expenses by the Adviser equal
to .90% of average daily net assets.
</FN>
</TABLE>
<PAGE>
Evergreen Short Intermediate Municipal Fund - California
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent auditors
for Evergreen Short Intermediate Municipal Fund - California, whose report
thereon was unqualified. This information should be read in conjunction with the
financial statements and notes thereto which are incorporated in the Statement
of Additional Information by reference. The per share data set forth below
pertains to Class Y shares of the Fund, which are not offered through this
prospectus. See "Other Classes of Shares". No per share data and ratios are
shown for Class A or B shares, since these classes did not have any operations
prior to the date of this Prospectus.
<TABLE>
<CAPTION>
Period from
November 2,
Year Ended August 31, 1988* through
PER SHARE DATA 1994 1993+ 1992+ 1991+ 1990+ August 31, 1989+
---- ----- ----- ----- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year. . . . . . . . $10.34 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . . .43 .41 .33 .47 .55 .51
Net realized and unrealized gain (loss) on (.24) .34 ---- ---- ---- ----
investments
Total from investment operations. . . . . . . .19 .75 .33 .47 .55 .51
Less distributions to shareholders from:
From net investment income. . . . . . . . . . . . (.43) (.41) (.33) (.47) (.55) (.51)
From net realized gains . . . . . . . . . . . . . (.01) ---- ---- ---- ---- ----
Total distributions . . . . . . . . . . . . . (.44) (.41) (.33) (.47) (.55) (.51)
--------- --------- --------- - --------- --------- ---------
Net asset value, end of year. . . . . . . . . . . $10.09 $10.34 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
TOTAL RETURN . . . . . . . . . . . . . . . . . . 1.8% 7.6% 3.4% 4.8% 5.7% 5.2%**
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year
(in millions). . . . . . . . . . . . . . . . . $28 $42 $37 $28 $30 $34
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . .52%(a) .30%(b) .40%(c) .37%(d) .29%(e) .24%(f)
Net investment income . . . . . . . . . . . . 4.20%(a) 3.96%(b) 3.36%(c) 4.66%(d) 5.52%(e) 6.40%(f)
. . . . . . . . . . . . .
Portfolio turnover rate . . . . . . . . . . . . . 12% 37% ---- ---- ---- ----
------------
<FN>
* Commencement of operations.
+ On October 16, 1992, the Fund was converted to a short-intermediate
municipal fund with a fluctuating net asset value per share from a money
market fund with a stable net asset value per share. The shares outstanding
and the related per share data for the fiscal years ended August 31, 1990
through August 31, 1992 are restated to reflect both the 1 for 10 reverse
share split on October 21, 1992. Total return calculated after October 16,
1992 reflects the fluctuation in net asset value per share.
** Total return calculated for the period November 2, 1988 through August 31,
1989 is not annualized.
(a) Net of partial advisory fee waiver of .43 of 1.00% of daily net assets.
(b) Net of partial advisory fee waiver of .52 of 1.00% of daily net assets and
the absorption of a portion of all other
Fund expenses by the Adviser equal to .16% of average daily net assets.
(c) Net of partial advisory fee waiver of .44 of 1.00% of daily net assets.
(d) Net of partial advisory fee waiver of .45 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .03% of average daily net assets.
(e) Net of partial advisory fee waiver of .51 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .08% of average daily net assets.
(f) Annualized and net of partial advisory fee waiver of .50 of 1.00% of daily
net assets and the absorption of a portion of all other Fund expenses by
the Adviser equal to .19% of average daily net assets.
</FN>
</TABLE>
<PAGE>
-------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
-------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
Evergreen National Tax Free Fund
The investment objective of Evergreen National Tax Free Fund is to
achieve a high level of current income exempt from Federal income tax. The Fund
will seek to achieve its objective by investing substantially all of its assets
in a diversified portfolio of long-term debt obligations issued by states,
possessions of the United States and by the District of Columbia, and their
political subdivisions and duly constituted authorities, the interest from which
is exempt from Federal income tax. Such securities are generally known as
Municipal Securities (See "Municipal Securities" below). The Fund has no
maturity restrictions. Its dollar weighted average portfolio maturity, however,
is generally expected to exceed fifteen years. As a matter of policy, the
Trustees will not change the Fund's investment objective without shareholder
approval.
Under normal market conditions, the Fund intends to invest at least 80%
of its total assets in Municipal Securities that, at the time of purchase, are
insured or prefunded. Such Municipal Securities include securities which are
insured under a mutual fund insurance policy issued to the Trust for the benefit
of the Fund by an insurer having a claims-paying ability rated AAA by Standard &
Poors Ratings Group ("S&P") or Aaa by Moody's Investors Service, Inc.
("Moody's") or insured by such an insurer under an insurance policy obtained by
the issuer or underwriter of such Municipal Securities at the time of original
issuance. The Fund may also purchase secondary market insurance on Municipal
Securities which it holds or acquires. Although the fee for secondary market
insurance will reduce the yield of the insured bond, such insurance would be
reflected in the market value of the bond purchased. A bond is prefunded if
marketable securities, typically U.S. Treasurys, are escrowed to maturity to
assure payment of principal and interest.
It should be noted that insurance is not a substitute for the basic
credit of an issuer, but supplements the existing credit and provides additional
security therefor. Moreover, while insurance coverage for the Municipal
Securities held by the Fund reduces credit risk by insuring that the Fund will
receive payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates and other factors.
Interest income on certain types of bonds issued after August 7, 1986
to finance nongovernmental activities is an item of "tax-preference" subject to
the Federal alternative minimum tax for individuals and corporations. To the
extent the Fund invests in these "private activity" bonds (some of which were
formerly referred to as "industrial development" bonds), individual and
corporate shareholders, depending on their status, may be subject to the
alternative minimum tax on the part of the Fund's distributions derived from the
bonds. As a matter of fundamental policy, the Fund will invest at least 80% of
its net assets in Municipal Securities, the interest from which is not subject
to the Federal alternative minimum tax.
Obligations with longer maturities (e.g., 20 years or more) generally
offer both higher yields and greater exposure to market fluctuation from changes
in interest rates than do those with shorter maturities. Consequently, shares of
the Fund may not be suitable for persons who cannot assume the somewhat greater
risks of capital depreciation involved in seeking higher tax-exempt yields.
It is anticipated that the annual portfolio turnover rate for the Fund
may exceed 100%. For the period from December 30, 1992 (commencement of
operations) to August 31, 1993, and the fiscal year ended August 31, 1994, the
Fund's portfolio turnover rate was 166% and 135%, respectively. See "Investment
Practices and Restrictions", below.
Evergreen Short Intermediate Municipal Fund
The investment objective of Evergreen Short Intermediate Municipal Fund
is to achieve as high a level of current income, exempt from Federal income tax
other than the AMT, as is consistent with preserving capital and providing
liquidity. Under normal circumstances, it is anticipated that the Fund will
invest its assets so that at least 80% of its annual interest income is exempt
from Federal income tax other than the AMT. The Fund will seek to achieve its
objective by investing substantially all of its assets in a diversified
portfolio of short and intermediate-term debt obligations issued by states,
territories and possessions of the United States and by the District of
Columbia, and their political subdivisions and duly constituted authorities, the
interest from which is exempt from Federal income tax other than the AMT. Such
securities are generally known as Municipal Securities (See "Municipal
Securities" below). As a matter of policy, the Trustees will not change the
Fund's investment objective without shareholder approval.
Under current tax law, a distinction is drawn between Municipal
Securities issued to finance certain "private activities" and other Municipal
Securities. Such private activity bonds include bonds issued to finance such
projects as airports, housing projects, resource recovery programs, solid waste
disposal facilities, student loan programs, and water and sewage projects.
Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes
an item of "tax preference" which is subject to the alternative minimum tax when
received by a person in a tax year during which he is subject to that tax.
Because interest income on AMT-Subject Bonds is taxable to certain investors, it
is expected, although there can be no guarantee, that such Municipal Securities
generally will provide somewhat higher yields than other Municipal Securities of
comparable quality and maturity. The Fund may invest up to 50% of its total
assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio
maturity of two to five years. The Fund may consider an obligation's maturity to
be shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
It is anticipated that the annual portfolio turnover rate for the Fund
will generally not exceed 100%. For the fiscal years ended August 31, 1992, 1993
and 1994, the Fund's portfolio turnover rate was 57%, 37% and 32%, respectively.
See "Investment Practices and Restrictions", below.
Evergreen Short Intermediate Municipal Fund-California
The investment objective of Evergreen Short Intermediate Municipal
Fund-California is to achieve as high a level of current income exempt from
Federal and California income taxes, as is consistent with preserving capital
and providing liquidity. The Fund will seek to achieve its objective by
investing at least 80% of the value of its assets in a diversified portfolio of
short and intermediate-term debt obligations issued by the State of California,
its political subdivisions and duly constituted authorities, the interest from
which is exempt from Federal and California income taxes. Such securities are
generally known as Municipal Securities (see "Municipal Securities" below).
Interest income on certain types of bonds issued after August 7, 1986,
to finance nongovernmental activities is an item of "tax preference" subject to
the Federal alternative minimum tax for individuals and corporations. To the
extent the Fund invests in these "private activity" bonds (some of which were
formerly referred to as "industrial development" bonds), individual and
corporate shareholders, depending on their status, may be subject to the
alternative minimum tax on the part of the Fund's distributions derived from the
bonds. As a matter of fundamental policy, the Fund will invest at least 80% of
its net assets in Municipal Securities, the interest from which is not subject
to the Federal alternative minimum tax.
The Fund intends to maintain a dollar-weighted average portfolio
maturity of two to five years. The Fund may consider an obligation's maturity to
be shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
It is anticipated that the annual portfolio turnover rate for the Fund
will generally not exceed 100%. For the period from October 16, 1992
(commencement of operations as a short-intermediate municipal fund) through
August 31, 1993 and for the fiscal year ended August 31, 1994, the Fund's
portfolio turnover rate was 37% and 12%, respectively. See "Investment Practices
and Restrictions", below.
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment restrictions
more fully described in the Statement of Additional Information.
General. Evergreen National Tax Free Fund, Evergreen Short-Intermediate
Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California will
invest in Municipal Securities so long as they are determined to be of high or
upper medium quality. Municipal Securities meeting this criteria include bonds
rated A or higher by S&P, Moody's or another nationally recognized statistical
rating organization ("SRO"); notes rated SP-1 or SP-2 by S&P or MIG-1 or MIG-2
by Moody's or rated VMIG-1 or VMIG-2 by Moody's in the case of variable rate
demand notes or having comparable ratings from another SRO; and commercial paper
rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's or having comparable
ratings from another SRO. Evergreen National Tax Free Fund may also invest in
general obligation bonds which are rated BBB by S&P, Baa by Moody's or bear a
similar rating from another SRO. Medium grade bonds are more susceptible to
adverse economic conditions or changing circumstances than higher grade bonds.
For a description of such ratings see the Statement of Additional Information.
The Funds may also purchase Municipal Securities which are unrated at the time
of purchase, if such securities are determined by the Adviser to be of
comparable quality. Certain Municipal Securities (primarily variable rate demand
notes) may be entitled to the benefit of standby letters of credit or similar
commitments issued by banks and, in such instances, the Adviser will take into
account the obligation of the bank in assessing the quality of such security.
Investments by Evergreen Short-Intermediate Municipal Fund-California in unrated
securities are limited to 20% of total assets.
The ability of the Funds to meet their investment objectives is
necessarily subject to the ability of municipal issuers to meet their payment
obligations. In addition, the portfolios of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the obligations held by the Funds. Investors should recognize that,
in periods of declining interest rates, the yield of the Funds will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates, the yield of the Funds will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Funds from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of each Fund's portfolio, thereby
reducing the current yield of the Funds. In periods of rising interest rates,
the opposite can be expected to occur. In addition since Evergreen Short
Intermediate Municipal Fund-California will invest primarily in California
Municipal Securities, there are certain specific factors and considerations
concerning California which may affect the credit and market risk of the
Municipal Securities that Evergreen Short Intermediate Municipal Fund-California
purchases. These factors are described in the Appendix to this Prospectus.
Municipal Securities. As noted above, the Funds will invest substantially all of
their assets in Municipal Securities. These include Municipal Securities,
short-term municipal notes and tax exempt commercial paper. "Municipal
Securities" are debt obligations issued to obtain funds for various public
purposes that are exempt from Federal income tax in the opinion of issuer's
counsel. The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific source such as from the user
of the facility being financed. The term "Municipal Securities" also includes
"moral obligation" issues which are normally issued by special purpose
authorities. Industrial development bonds ("IDBs") and private activity bonds
("PABs") are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the corporate user of the
facilities being financed. Participation interests are interests in Municipal
Securities, including IDBs and PABs, and floating and variable rate obligations
that are owned by banks. These interests carry a demand feature permitting the
holder to tender them back to the bank, which demand feature is backed by an
irrevocable letter of credit or guarantee of the bank. A put bond is a municipal
bond which gives the holder the unconditional right to sell the bond back to the
issuer at a specified price and exercise date, which is typically well in
advance of the bond's maturity date. "Short-term municipal notes" and "tax
exempt commercial paper" include tax anticipation notes, bond anticipation
notes, revenue anticipation notes and other forms of short-term loans. Such
notes are issued with a short-term maturity in anticipation of the receipt of
tax funds, the proceeds of bond placements and other revenues.
Floating Rate and Variable Rate Obligations. Municipal Securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. These variable rate securities do not have fixed interest
rates; rather, those rates fluctuate based upon changes in specified market
rates, such as the prime rate, or are adjusted at predesignated periodic
intervals. Certain of these obligations may carry a demand feature that gives
the Funds the right to demand prepayment of the principal amount of the security
prior to its maturity date. The demand obligation may or may not be backed by
letters of credit or other guarantees of banks or other financial institutions.
Such guarantees may enhance the quality of the security. The Funds will limit
the value of their investments in any floating or variable rate securities which
are not readily marketable to 10% or less of their total assets.
When-Issued Securities. The Funds may purchase Municipal Securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). The Funds generally would not pay for such securities
or start earning interest on them until they are received. However, when the
Funds purchase Municipal Securities on a when-issued basis, they assume the
risks of ownership at the time of purchase, not at the time of receipt. Failure
of the issuer to deliver a security purchased by a Fund on a when-issued basis
may result in a Fund's incurring a loss or missing an opportunity to make an
alternative investment. Commitments to purchase when-issued securities will not
exceed 25% of each Fund's total assets. The Funds will maintain cash or liquid
high grade debt obligations in a segregated account with their custodian in an
amount equal to such commitments. The Funds do not intend to purchase
when-issued securities for speculative purposes but only in furtherance of their
investment objectives.
Stand-by Commitments. The Funds may also acquire "stand-by commitments" with
respect to Municipal Securities held in their portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal
Securities at a specified price. Failure of the dealer to purchase such
Municipal Securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a Fund may pay for
stand-by commitments either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held in
each Fund's portfolio will not exceed 10% of the value of the Fund's total
assets calculated immediately after each stand-by commitment is acquired. The
Funds will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. The Funds
will enter into stand-by commitments only with banks and broker-dealers that, in
the judgment of the Adviser, present minimal credit risks.
Taxable Investments. Evergreen National Tax Free Fund, and Evergreen
Short-Intermediate Municipal Fund-California may temporarily invest up to 20% of
their assets in taxable securities, and Evergreen Short-Intermediate Municipal
Fund may temporarily invest its assets so that not more than 20% of its annual
interest income will be derived from taxable securities, under any one or more
of the following circumstances: (a) pending investment of proceeds of sale of
Fund shares or of portfolio securities, (b) pending settlement of purchases of
portfolio securities, and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. In addition, each such Fund may temporarily invest more
than 20% of its total assets in taxable securities for defensive purposes. Each
Fund may invest for defensive purposes during periods when each Fund's assets
available for investment exceed the available Municipal Securities that meet
each Fund's quality and other investment criteria. Taxable securities in which
the Funds may invest on a short-term basis include obligations of the United
States Government, its agencies or instrumentalities, including repurchase
agreements with banks or securities dealers involving such securities; time
deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by any major rating service; commercial
paper rated in the highest grade by Moody's, S&P or any SRO; and certificates of
deposit issued by United States branches of United States banks with assets of
$1 billion or more.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Fund's custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
United States Government securities. A repurchase agreement is an arrangement
pursuant to which a buyer purchases a security and simultaneously agrees to
resell it to the vendor at a price that results in an agreed-upon market rate of
return which is effective for the period of time (which is normally one to seven
days, but may be longer) the buyer's money is invested in the security. The
arrangement results in a fixed rate of return that is not subject to market
fluctuations during a Fund's holding period. Each Fund requires continued
maintenance of collateral with its Custodian in an amount equal to, or in excess
of, the market value of the securities, including accrued interest, which are
the subject of a repurchase agreement. In the event a vendor defaults on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
the vendor becomes the subject of bankruptcy proceedings, a Fund might be
delayed in selling the collateral. The Adviser will review and continually
monitor the creditworthiness of each institution with which a Fund enters into a
repurchase agreement to evaluate these risks. A Fund may not enter into
repurchase agreements if, as a result, more than 10% of the Fund's net assets
would be invested in repurchase agreements maturing in more than seven days.
Illiquid Securities. The Funds may invest up to 15% of their net assets in
illiquid securities and other securities which are not readily marketable,
except that they may only invest up to 10% of their assets in repurchase
agreements with maturities longer than seven days. Securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, which have been
determined to be liquid, will not be considered by the Adviser to be illiquid or
not readily marketable and, therefore, are not subject to the aforementioned 15%
limit. The inability of a Fund to dispose of illiquid or not readily marketable
investments readily or at a reasonable price could impair the Fund's ability to
raise cash for redemptions or other purposes. The liquidity of securities
purchased by a Fund which are eligible for resale pursuant to Rule 144A will be
monitored by the Adviser on an ongoing basis, subject to the oversight of the
Trustees. In the event that such a security is deemed to be no longer liquid, a
Fund's holdings will be reviewed to determine what action, if any, is required
to ensure that the retention of such security does not result in a Fund having
more than 15% of its assets invested in illiquid or not readily marketable
securities.
Other Investment Policies. The Funds may borrow funds and agree to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed upon date and price (a "reverse
repurchase agreement") for temporary or emergency purposes in amounts not in
excess of 10% of the value of each Fund's total assets at the time of such
borrowing. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, United States Government
securities or liquid high grade debt obligations having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price of those securities. Each Fund will
not enter into reverse repurchase agreements exceeding 5% of the value of its
total assets. Evergreen Short-Intermediate Municipal Fund and Evergreen
Short-Intermediate Municipal Fund-California will not purchase any securities
whenever any borrowings (including reverse repurchase agreements) are
outstanding.
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. The
Adviser will monitor the creditworthiness of such borrowers. Loans of securities
by a Fund, if and when made, may not exceed 30 percent of each Fund's total
assets and will be collateralized by cash, letters of credit or U.S. Government
securities that are maintained at all times in an amount equal to at least 100
percent of the current market value of the loaned securities, including accrued
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the cash collateral, thereby
increasing its return. A Fund will have the right to call any such loan and
obtain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities which occurs during the term of the
loan would affect a Fund and its investors. A Fund may pay reasonable fees in
connection with such loans.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISER
The management of each Fund is supervised by its Trustees. Evergreen
Asset Management Corp. (the "Adviser") has been retained by each Fund as
investment adviser. The Adviser succeeded on June 30, 1994 to the advisory
business of the same name, but under different ownership, which was organized in
1971. The Adviser to the Funds, with its predecessors, has served as investment
adviser to the Evergreen Funds since 1971. The Adviser is a wholly-owned
subsidiary of First Union National Bank of North Carolina ("FUNB"). The address
of the Adviser is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a
subsidiary of First Union, one of the ten largest bank holding companies in the
United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief
investment officers of the Adviser and, along with Theodore J. Israel, Jr., were
the owners of the Adviser's predecessor and the former general partners of
Lieber & Company, which, as described below, provides certain subadvisory
services to the Adviser in connection with its duties as investment adviser to
the Fund.
First Union is a bank holding company headquartered in Charlotte, North
Carolina, which had $74.2 billion in consolidated assets as of September 30,
1994. First Union and its subsidiaries provide a broad range of financial
services to individuals and businesses through offices in 36 states. The Capital
Management Group of FUNB manages or otherwise oversees the investment of over
$36 billion in assets belonging to a wide range of clients, including the First
Union family of mutual funds. First Union Brokerage Services, Inc., a
wholly-owned subsidiary of FUNB, is a registered broker-dealer that is
principally engaged in providing retail brokerage services consistent with its
federal banking authorizations. First Union Capital Markets Corp., a
wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services.
The Adviser manages each Fund's investments, provides various
administrative services and supervises each Fund's daily business affairs,
subject to the authority of the Trustees. Under its investment advisory
agreement with Evergreen Short-Intermediate Municipal Fund-California the
Adviser is entitled to receive an annual fee equal to .55 of 1% of the Fund's
average daily net assets. Under its investment advisory agreements with
Evergreen Short-Intermediate Municipal Fund and Evergreen National Tax Free Fund
the Adviser is entitled to receive an annual fee equal to .50 of 1% of each
Fund's average daily net assets. For the fiscal period ended August 31, 1994,
total expense ratios of Evergreen National Tax Free Fund, Evergreen
Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal
Fund-California were .29%, .58%, and .52%, respectively. The above-mentioned
expense ratios are net of voluntary advisory fee waivers and expense
reimbursements by the Adviser. The Adviser may, at its discretion, revise or
cease such voluntary waivers at any time.
The portfolio manager of Evergreen National Tax Free Fund is James T.
Colby, III. Mr. Colby has been associated with the Adviser and its predecessor
since 1992 and has served as portfolio manager of the Fund since its inception.
Prior to joining the Adviser, Mr. Colby served as Vice President-Investments at
American Express Company from 1987 to 1992. The portfolio manager for Evergreen
Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate
Municipal Fund is Steven C. Shachat. Mr. Shachat has been associated with the
Adviser and its predecessor since prior to 1989 and has served as portfolio
manager of these Funds since their inception.
SUB-ADVISER
The Adviser has entered into sub-advisory agreements with Lieber &
Company with respect to each Fund which provides that Lieber & Company's
research department and staff will furnish the Adviser with information,
investment recommendations, advice and assistance, and will be generally
available for consultation on each Fund's portfolio. Lieber & Company will be
reimbursed by the Adviser in connection with the rendering of services on the
basis of the direct and indirect costs of performing such services. There is no
additional charge to the Funds for the services provided by Lieber & Company.
The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York
10577.
Lieber & Company is an indirect, wholly-owned, subsidiary of First Union.
DISTRIBUTION PLANS AND AGREEMENTS
Rule 12b-1 under the Investment Company Act of 1940 permits an
investment company to pay expenses associated with the distribution of its
shares in accordance with a duly adopted plan. Each Fund has adopted for each of
its Class A and Class B shares a Rule 12b-1 plan (each, a "Plan" or collectively
the "Plans"). Under the Plans, each Fund may incur distribution-related and
shareholder servicing-related expenses which may not exceed an annual rate of
.75 of 1% of the Fund's aggregate average daily net assets attributable to Class
A shares and 1.00% of the Fund's aggregate average daily net assets attributable
to the Class B. Payments with respect to Class A shares under the Plan are
currently voluntarily limited to .10 of 1% of aggregate average daily net assets
attributable to such shares in the case of Evergreen Short-Intermediate
Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund and
.25 of 1% of aggregate average daily net assets attributable to such shares in
the case of Evergreen National Tax Free Fund. The Plans provide that a portion
of the fee payable thereunder in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each Class of shares may
constitute a service fee to be used for providing ongoing personal service
and/or the maintenance of shareholder accounts.
Each Fund has also entered into a distribution agreement (each a
"Distribution Agreement" or collectively the "Distribution Agreements") with,
Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution
Agreements, EFD will be compensated for its services as distributor at a rate
which may not exceed an annual rate of .10 of 1% of aggregate average daily net
assets attributable to Class A shares of Evergreen Short-Intermediate Municipal
Fund-California and Evergreen Short-Intermediate Municipal Fund, .25 of 1% of
aggregate average daily net assets attributable to Class A shares of Evergreen
National Tax Free Fund and .75 of 1% of each Fund's aggregate average daily net
assets attributable to the Class B shares. The Distribution Agreements provide
that EFD will use the distribution fee received from a Fund for payments (i) to
compensate broker-dealers or other persons for distributing shares of the Funds,
including interest and principal payments made in respect of amounts paid to
broker-dealers or other persons that have been financed (EFD may assign its
rights to receive compensation under the Plans to secure such financings), (ii)
to otherwise promote the sale of shares of the Fund, and (iii) to compensate
broker-dealers, depository institutions and other financial intermediaries for
providing administrative, accounting and other services with respect to the
Fund's shareholders. The financing of payments made by EFD to compensate
broker-dealers or other persons for distributing shares of the Funds may be
provided by First Union or its affiliates. The Funds may also make payments
under the Plans, in amounts up to .25 of 1% of a Fund's aggregate average daily
net assets on an annual basis attributable to Class B shares, to compensate
organizations, which may include EFD and the Adviser or its affiliates, for
personal services rendered to shareholders and/or the maintenance of shareholder
accounts.
The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above. Since EFD's compensation
under the Distribution Agreements is not directly tied to the expenses incurred
by EFD, the amount of compensation received by it under the Distribution
Agreements during any year may be more or less than its actual expenses and may
result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal
year that exceed the level of compensation paid to EFD for that year may be paid
from distribution fees received from a Fund in subsequent fiscal years.
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to .75
of 1% and .25 of 1%, respectively, of the average annual net assets attributable
to that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers,
banks or other financial intermediaries, or directly through EFD. The minimum
initial investment is $1,000, which may be waived in certain situations. There
is no minimum for subsequent investments. Investments of $25 or more are allowed
under the systematic investment program. Share certificates are not issued for
Class A and Class B shares. In states where EFD is not registered as a
broker-dealer shares of a Fund will only be sold through other broker-dealers or
other financial institutions that are registered. See the Share Purchase
Application and Statement of Additional Information for more information. Only
Class A and Class B shares are offered through this prospectus (see "Other
Classes of Shares").
Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A
shares at net asset value plus an initial sales charge, as follows:
Initial Sales Charge
Commission to
as a % of the Net as a % of the Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
Less than $100,000 4.99% 4.75% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 3.09% 3.00% 2.50%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000 - $2,499,999 1.01% 1.00% 1.00%
Over $2,500,000 .25% .25% .25%
When Class A shares are sold, EFD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EFD may also pay fees to
banks from sales charges for services performed on behalf of the bank's
customers in connection with the purchase of shares of the Funds. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to .10 of 1% of the
aggregate average daily net assets attributable to Class A shares of Evergreen
Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate
Municipal Fund held by their clients, and .25 of 1% of aggregate average daily
net assets attributable to Class A shares of Evergreen National Tax Free Fund
held by their clients. Certain purchases of Class A shares may qualify for
reduced sales charges in accordance with a Fund's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Privilege for Certain
Retirement Plans and Reinstatement Privilege. Consult the Share Purchase
Application and Statement of Additional Information for additional information
concerning these reduced sales charges.
Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a contingent deferred sales charge ("CDSC") if you redeem shares within seven
years after purchase. Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The amount of the CDSC (expressed as a percentage
of the lesser of the current net asset value or original cost) will vary
according to the number of years from the purchase of Class B shares as set
forth below.
Year Since Purchase Contingent Deferred Sales Charge
FIRST 5%
SECOND 4%
THIRD and FOURTH 3%
FIFTH 2%
SIXTH and SEVENTH 1%
The CDSC is deducted from the amount of the redemption and is paid to EFD. The
CDSC will be waived on redemptions of shares following the death or disability
of a shareholder, to meet distribution requirements for certain qualified
retirement plans or in the case of certain redemptions made under a Fund's
Systematic Cash Withdrawal Plan. Class B shares are subject to higher
distribution fees than Class A shares for a period of seven years (after which
they convert to Class A shares) . The higher fees mean a higher expense ratio,
so Class B shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares. See the Statement of Additional Information for
further details.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the outstanding shares of that Class.
Shares are valued each day the New York Stock Exchange (the "Exchange") is open
as of the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in a Fund are valued at their current market value determined on the
basis of market quotations or, if such quotations are not readily available,
such other methods as a Fund's Trustees believe would accurately reflect fair
market value.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution charges, after seven years. The compensation
received by Dealers and agents may differ depending on whether they sell Class A
or Class B shares. There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to dealers, EFD will
from time to time pay to dealers additional cash or other incentives that are
conditioned upon the sale of a specified minimum dollar amount of shares of a
Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer and their immediate
family members to urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent amount in lieu
of such payments.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Adviser incurs. If such
investor is an existing shareholder, a Fund may redeem shares from an investor's
account to reimburse the Fund or the Adviser for any loss. In addition, such
investors may be prohibited or restricted from making further purchases in any
of the Evergreen Funds.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any
day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC for Class B shares) next calculated after the Fund receives your
request in proper form. Proceeds generally will be sent to you within seven
days. However, for shares recently purchased by check, a Fund will not send
proceeds until it is reasonably satisfied that the check has been collected
(which may take up to 15 days). Once a redemption request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value (less any applicable CDSC for Class B
shares). Your financial intermediary is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend-disbursing agent
for each Fund. Stock power forms are available from your financial intermediary,
State Street, and many commercial banks. Additional documentation is required
for the sale of shares by corporations, financial intermediaries, fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or trust company
(not a Notary Public), a member firm of a domestic stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00
p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on
which the New York Stock Exchange or State Street's offices are closed). The New
York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Redemption requests made after 4:00 p.m. (Eastern time) will be processed using
the net asset value determined on the next business day. Such redemption
requests must include the shareholder's account name, as registered with a Fund,
and the account number. During periods of drastic economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions.
Shareholders who are unable to reach a Fund or State Street by telephone should
follow the procedures outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in a
Fund at a designated commercial bank. State Street currently deducts a $5 wire
charge from all redemption proceeds wired. This charge is subject to change
without notice. A shareholder who decides later to use this service, or to
change instructions already given, should fill out a Shareholder Services Form
and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank
or trust company (not a Notary Public), a member firm of a domestic stock
exchange or by other financial institutions whose guarantees are acceptable to
State Street. Shareholders should allow approximately ten days for such form to
be processed. The Funds will employ reasonable procedures to verify that
telephone requests are genuine. These procedures include requiring some form of
personal identification prior to acting upon instructions and tape recording of
conversations. If the Fund fails to follow such procedures, it may be liable for
any losses due to unauthorized or fraudulent instructions. The Fund shall not be
liable for following telephone instructions reasonably believed to be genuine.
Also, the Fund reserves the right to refuse a telephone redemption request, if
it is believed advisable to do so. Financial intermediaries may charge a fee for
handling telephonic requests. The telephone redemption option may be suspended
or terminated at any time without notice.
General. The sale of shares is a taxable transaction for Federal tax purposes.
Under unusual circumstances, a Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by Federal securities law. The
Funds reserve the right to close an account that through redemption has remained
below $1,000 for 30 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed. The Funds have elected
to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant
to which each Fund is obligated to redeem shares solely in cash, up to the
lesser of $250,000 or 1% of a Fund's total net assets during any ninety day
period for any one shareholder. See the Statement of Additional Information for
further details.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Funds through your financial
intermediary, or by telephone or mail as described below. An exchange which
represents an initial investment in another Evergreen Fund must amount to at
least $1,000. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. Exchanges are subject to minimum
investment and suitability requirements.
Each of the Evergreen Funds have different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B shares are exchanged for
Class B shares of other Evergreen Funds. If you redeem shares, the CDSC
applicable to the Class B shares of the Evergreen Mutual Fund originally
purchased for cash is applied. Also, Class B shares will continue to age
following an exchange for purposes of conversion to Class A shares and
determining the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000
or more by telephone by calling State Street (800-423-2615). Exchange requests
made after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach State Street by telephone. If you wish to use the
telephone exchange service you should indicate this on the Share Purchase
Application. As noted above, each Fund will employ reasonable procedures to
confirm that instructions for the redemption or exchange of shares communicated
by telephone are genuine. A telephone exchange may be refused by a Fund or State
Street if it is believed advisable to do so. Procedures for exchanging Fund
shares by telephone may be modified or terminated at any time. Written requests
for exchanges should follow the same procedures outlined for written redemption
requests in the section entitled "How to Redeem Shares", however, no signature
guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, EFD or the toll-free number for the Funds, 800-807-2940. Some
services are described in more detail in the Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments
into an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designate a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $100. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable Class B CDSC will be
waived with respect to redemptions occurring under a Systematic Cash Withdrawal
Plan during a calendar year to the extent that such redemptions do not exceed
10% of (i) the initial value of the account plus (ii) the value, at the time of
purchase, of any subsequent investments.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share on the last business day of each month,
unless otherwise requested by a shareholder in writing. If the transfer agent
does not receive a written request for subsequent dividends and/or distributions
to be paid in cash at least three full business days prior to a given record
date, the dividends and/or distributions to be paid to a shareholder will be
reinvested. If you elect to receive dividends and distributions in cash and the
U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed
for six months, the checks will be reinvested into your account at the then
current net asset value.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of their customer. The
Adviser, since it is a subsidiary of First Union National Bank of North Carolina
("FUNB"), is 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 the Adviser being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If the Adviser were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon each Fund's shareholders to
approve, a new investment adviser. If this were to occur, it is not anticipated
that the shareholders of any Fund would suffer any adverse financial
consequences.
-------------------------------------------------------------------------------
OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a Fund will be made at least annually. Shareholders
will begin to earn dividends on the first business day after shares are
purchased unless shares were not paid for, in which case dividends are not
earned until the next business day after payment is received. Each Fund has
qualified and intends to continue to qualify to be treated as a regulated
investment company under the Internal Revenue Code (the "Code"). While so
qualified, so long as each Fund distributes all of its investment company
taxable income and any net realized gains to shareholders, it is expected that
the Funds will not be required to pay any Federal income taxes. A 4%
nondeductible excise tax will be imposed on a Fund if it does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income for
Federal income tax purposes, however (1) all or a portion of such
exempt-interest dividends may be a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes to the extent that
they are derived from certain types of private activity bonds issued after
August 7, 1986, and (2) all exempt-interest dividends will be a component of the
"adjusted current earnings" for purposes of the Federal corporate alternative
minimum tax.
Dividends paid from taxable income, if any, and distributions of any
net realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investors holding period
relating to the shares with respect to which such gains are distributed. Market
discount recognized on taxable and tax-exempt bonds is taxable as ordinary
income, not as excludable income. Under current law, the highest Federal income
tax rate applicable to net long-term gains realized by individuals is 28%. The
rate applicable to corporations is 35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax adviser.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Share Purchase
Application, or on a separate form supplied by State Street, that the investor's
social security or taxpayer identification number is correct and that the
investor is not currently subject to backup withholding or is exempt from backup
withholding.
For Evergreen Short Intermediate Municipal Fund-California, so long as
the Fund remains qualified under Subchapter M of the Code for federal purposes
and qualified as a diversified management investment company, then under current
California law, the Fund is entitled to pass through to its shareholders the
tax-exempt income it earns. To the extent that Fund dividends are derived from
earnings on California Municipal Securities, such dividends will be exempt from
California personal income taxes when received by the Fund's shareholders,
provided the Fund has complied with the requirement that at least 50% of its
assets be invested in California Municipal Securities. For California income tax
purposes, long-term capital gains distributions are taxable as ordinary income.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will set
forth the amount of income exempt from Federal and, if applicable, state
taxation (including California), and the amount, if any, subject to Federal and
state taxation. Moreover, to the extent necessary, these statements will
indicate the amount of exempt-interest dividends which are a specific preference
item for purposes of the Federal individual and corporate alternative minimum
taxes. The exemption of interest income for Federal income tax purposes does not
necessarily result in exemption under the income or other tax law of any state
or local taxing authority. Investors should consult their own tax advisers about
the status of distributions from the Funds in their states and localities. Each
Fund notifies shareholders annually as to the interest exempt from Federal taxes
earned by the Fund.
A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Evergreen National Tax Free Fund. The total return of Evergreen National Tax
Free Fund for the fiscal year ending August 31, 1994 was -2.29%, outperforming
the Lehman Brothers Long Insured Municipal Bond Index by .29% which stood at
-2.57% as of that date. Since inception, the Fund's cumulative total return is
1.84% greater than that of the index +10.86% versus +9.02%. The average annual
return since inception was +6.33%. The Fund is a long-term bond fund with
average maturities generally longer than fifteen years and seeks to extend or
reduce those maturities as the market and interest rate outlook change. As the
1994 year evolved and the Federal Reserve initiated a series of moves to tighten
credit (raise rates), the primary strategy employed by the Adviser was to reduce
maturity and duration exposure, yet still provide a reasonable stream of
tax-free income to shareholders. Protection of principal is an important goal
for the Fund and though rising interest rates have caused returns to be negative
for the fiscal year, the Fund's performance compares favorably with the relevant
indices.
[CHART]
A particular security type which has exhibited poorer performance
characteristics - deep market discount bonds has been a specific candidate for
sale from the Fund, to be replaced by higher coupon bonds. This strategy has
generally enhanced the performance record of the Fund because more income is
generated with the higher coupons. When possible, the Fund will continue to
reduce its exposure to these securities to be consistent with the its goal of
principal protection in an interest rate environment that has a decidedly upward
bias. The Fund continues to invest at least 80% of its assets in Municipal
Securities insured as to interest and principal and to maintain wide
diversification in names of large national issuers.
Evergreen Short-Intermediate Municipal Fund. The Fund's total return for the
fiscal year ending August 31, 1994 was +1.42%, versus the Lehman Brothers 3-Year
Municipal Bond Index, which rose + 2.38%, and the Lehman Brothers 5-Year
Municipal Bond Index, which increased + 2.01%. As the economy picked up momentum
and the Federal Reserve started tightening, interest rates in the fixed-income
markets climbed in every maturity range. As a result, the Fund moved to a more
defensive position during the last half of the fiscal year in order to moderate
price volatility. We reduced the Fund's weighted average maturities and
durations, and adjusted the holdings by selling securities most sensitive to
price declines in a rising environment such as bonds trading at a discount.
Proceeds were reinvested in premium-based, high quality bonds. The strategy of
the Fund as of August 31, 1994 is to remain relatively short in the one to
three-year range as we look to purchase investment grade, non-callable bonds.
[CHART]
Evergreen Short-Intermediate Municipal Fund - California. The Fund's total
return for the fiscal year ending August 31, 1994 was 1.84%, versus the Lehman
Brothers 3-Year California Municipal Bond Index, which rose +2.38% and the
Lehman Brothers California Municipal Bond Index, which increased + 2.21%.
As the economy picked up momentum and the Federal Reserve started
tightening, interest rates in the fixed-income markets climbed in every maturity
range. As a result, the Fund moved to a more defensive position during the last
half of the fiscal year in order to moderate price volatility. We reduced the
Fund's weighted average maturities and durations, and adjusted the holdings by
selling securities most sensitive to price declines in a rising environment such
as bonds trading at a discount. Proceeds were reinvested in premium-based, high
quality bonds. Our strategy as of August 31, 1994, is to remain relatively short
in the one to three-year range as we look to purchase investment grade, non
callable bonds.
[CHART]
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Organization. The Funds are separate investment series of a Massachusetts
business trust organized in 1988. The Funds do not intend to hold annual
shareholder meetings; shareholder meetings will be held only when required by
applicable law. Shareholders have available certain procedures for the removal
of Trustees.
A shareholder in each class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable CDSC.
The Funds are empowered to establish, without shareholder approval, additional
investment series, which may have different investment objectives, and
additional classes of shares for any existing or future series. If an additional
series or class were established in a Fund, each share of the series or class
would normally be entitled to one vote for all purposes. Generally, shares of
each series and class would vote together as a single class on matters, such as
the election of Directors, that affect each series and class in substantially
the same manner. Class A, B and Y shares have identical voting, dividend,
liquidation and other rights, except that each class bears, to the extent
applicable, its own distribution and transfer agency expenses as well as any
other expenses applicable only to a specific class. Each class of shares votes
separately with respect to Rule 12b-1 distribution plans and other matters for
which separate class voting is appropriate under applicable law. Shares are
entitled to dividends as determined by the Trustees and, in liquidation of a
Fund, are entitled to receive the net assets of the Fund.
Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and
Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each
Fund's registrar, transfer agent and dividend-disbursing agent for a fee based
upon the number of shareholder accounts maintained for the Funds. The transfer
agency fee with respect to the Class B shares will be higher than the transfer
agency fee with respect to the Class A shares.
Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz
Incorporated, located at 237 Park Avenue, New York, New York 10017, is the
principal underwriter of the Funds. EFD provides personnel to serve as officers
of the Funds.
The salaries and other expenses related to providing such personnel are borne by
EFD.
Other Classes of Shares. Each Fund currently offers three classes of shares,
Class A, Class B and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this Prospectus and are only available to (i)
all shareholders of record in one or more of the Evergreen Funds as of December
30, 1994, (ii) certain institutional investors and (iii) investment advisory
clients of the Adviser and its affiliates. The dividends payable with respect to
Class A and Class B shares will be less than those payable with respect to Class
Y shares due to the distribution and distribution related expenses borne by
Class A and Class B shares and the fact that such expenses are not borne by
Class Y shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a Fund takes the interest
income it earned from its portfolio of investments (as defined by the SEC
formula) for a 30-day period (net of expenses), divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt
yield by the result of one minus a stated Federal tax rate. If only a portion of
a Fund's income was tax-exempt, only that portion is adjusted in the
calculation.
Total returns are based on the overall dollar or percentage change in
the value of a hypothetical investment in a Fund. A Fund's total return shows
its overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Evergreen Short Intermediate Municipal Fund-California may also quote
tax-equivalent yields, which show the taxable yields an investor would have to
earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is
calculated by dividing a Fund's tax-exempt yield by the result of one minus a
stated federal tax rate. If only a portion of a Fund's income was tax-exempt,
only that portion is adjusted in the calculation.
Comparative performance information may also be used from time to time
in advertising or marketing a Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar and other industry publications. The Fund
may also advertise in items of sales literature an "actual distribution rate"
which is computed by dividing the total ordinary income distributed (which may
include the excess of short-term capital gains over losses) to shareholders for
the latest twelve month period by the maximum public offering price per share on
the last day of the period. Investors should be aware that past performance may
not be reflective of future results.
Liability Under Massachusetts Law. Under Massachusetts law, trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which
Funds operate provide that no trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Funds
with the Commission under the Securities Act. Copies of the Registration
Statements may be obtained at a reasonable charge from the Commission or may be
examined, without charge, at the offices of the Commission in Washington, D.C.
<PAGE>
APPENDIX -- CALIFORNIA RISK CONSIDERATIONS
The following information as to certain California risk factors is
given to investors in view of the policy of Evergreen Short Intermediate
Municipal Fund-California of investing primarily in California state and
municipal issuers. The information is based primarily upon information derived
from public documents relating to securities offerings of California state and
municipal issuers, from independent municipal credit reports and historically
reliable sources but has not been independently verified by the Fund.
Changes in California constitutional and other laws during the last
several years have raised questions about the ability of California state and
municipal issuers to obtain sufficient revenue to pay their bond obligations. In
1978, California voters approved an amendment to the California Constitution
known as Proposition 13. Proposition 13 limits ad valorem taxes on real property
and restricts the ability of taxing entities to increase real property taxes.
Legislation passed subsequent to Proposition 13, however, provided for the
redistribution of California's General Fund surplus to local agencies, the
reallocation of revenues to local agencies, and the assumption of certain local
obligations by the state so as to help California municipal issuers to raise
revenue to pay their bond obligations. It is unknown, however, whether
additional revenue redistribution legislation will be enacted in the future and
whether, if enacted, such legislation would provide sufficient revenue for such
California issuers to pay their obligations. The state is also subject to
another constitutional amendment, Article XIIIB, which may have an adverse
impact on California state and municipal issuers. Article XIIIB restricts the
state from spending certain appropriations in excess of an appropriations limit
imposed for each state and local government entity. If revenues exceed such
appropriations limit, such revenues must be returned either as revisions in the
tax rates or fee schedules. Because of the uncertain impact of the
aforementioned statutes and cases, the possible inconsistencies in the
respective terms of the statutes and the impossibility of predicting the level
of future appropriations and applicability of related statutes to such
questions, it is not currently possible to assess the impact of such
legislation, cases and policies on the long-term ability of California state and
municipal issuers to pay interest or repay principal on their obligations.
California's economy is larger than many sovereign nations. During the
1980s, California experienced growth rates well in excess of the rest of the
nation. The state's major employment sectors are services, trade, and
manufacturing. Industrial concentration is in electronics, aerospace, and
non-electrical equipment. Also significant are agriculture and oil production.
Key sectors of California's economy have been severely affected by the
recession. Since May of 1990, job losses total over 850,000. Declines in the
aerospace and high technology sectors have been especially severe. The
continuing drive in population and labor force growth has produced higher
unemployment rates in the state. Although total job loss has declined, weakness
continues in key areas of California's economy, including government, real
estate and aerospace. Wealth levels still remain high in the state, although the
difference between state and national levels continues to narrow.
In July of 1994, both S&P and Moody's lowered the general obligation
bond ratings of the state of California. These revisions reflect the state's
heavy reliance on the short-term note market to finance its cash imbalance and
the likelihood that this exposure will persist for at least another two years.
For more information on these ratings revisions and the state's current budget,
please refer to the Statement of Additional Information.
Orange County Bankruptcy. On December 6, 1994, Orange County, California,
petitioned for bankruptcy based on losses in the Orange County Investment Fund
which at the time were estimated to be approximately $2 billion. At the time of
the petition, the Orange County Investment Fund held monies belonging to Orange
County as well as other municipal issuers located in Orange County and other
parts of California. Although the ultimate resolution of this matter is
uncertain, one possible result is that the ability of municipal issuers
investing in the Orange County Investment Fund to service some or all of their
outstanding debt obligations may be severely impaired.
As of December 6, 1994, Evergreen Short-Intermediate Municipal Fund -
California did not hold debt obligations of Orange County or other issuers that
the Fund is aware had invested in the Orange County Investment Fund. Although it
has no current intention to do so, if it deems it advisable, the Fund reserves
the right from time to time to make investments in municipal issuers who
maintain assets in the Orange County Investment Fund.
--------------------------------------------------------------
PROSPECTUS January 3, 1995
Evergreen Tax Exempt Funds
--------------------------------------------------------
CLASS Y SHARES
-------------------------
EVERGREEN NATIONAL TAX-FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA
The Evergreen Tax Exempt Funds (the "Funds") are designed to provide
investors with income exempt from Federal income taxes. This Prospectus provides
information regarding the Class Y shares offered by the Funds. Each Fund is, or
is a series of, a diversified, open-end management investment company. This
Prospectus sets forth concise information about the Funds that a prospective
investor should know before investing. The address of the Funds is 2500
Westchester Avenue, Purchase, New York 10577.
A "Statement of Additional Information" for the Funds and the other
funds in the Evergreen Group of mutual funds (collectively, with the Funds the
"Evergreen Funds") dated January 3, 1995 has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Funds at (800) 807-2940. There can
be no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this Prospectus carefully.
The shares offered by this Prospectus are not deposits or obligations of First
Union or any subsidiaries of First Union, are not endorsed or guaranteed by
First Union or any subsidiaries of First Union, and are not insured or otherwise
protected by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency and involve risk, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Keep This Prospectus for Future Reference
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives And Policies 8
Investment Practices And Restrictions 9
MANAGEMENT OF THE FUNDS
Investment Adviser 12
Sub-Adviser 13
PURCHASE AND REDEMPTION OF SHARES
How To Buy Shares 13
How To Redeem Shares 14
Exchange Privilege 15
Shareholder Services 15
Effect Of Banking Laws 16
OTHER INFORMATION
Dividends, Distributions And Taxes 16
Management's Discussion of Fund
Performance 17
General Information 19
APPENDIX
California Risk Considerations 22
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OVERVIEW OF THE FUNDS
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The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Investment Adviser to the Funds is Evergreen Asset Management Corp.
(the "Adviser") which, with its predecessors, has served as investment adviser
to the Evergreen Funds since 1971. The Adviser is a wholly-owned subsidiary of
First Union National Bank of North Carolina ("FUNB"), which in turn is a
subsidiary of First Union Corporation, one of the ten largest bank holding
companies in the United States.
Evergreen National Tax-Free Fund seeks a high level of current income exempt
from Federal income tax. It invests substantially all of its assets in long-term
municipal securities. Under normal market conditions, the Fund intends to invest
at least 80% of its total assets in municipal securities which are insured. The
Fund's dollar weighted average portfolio maturity is generally expected to
exceed fifteen years.
Evergreen Short-Intermediate Municipal Fund seeks as high a level of current
income, exempt from Federal income tax other than the alternative minimum tax
("AMT"), as is consistent with preserving capital and providing liquidity. The
Fund invests substantially all of its assets in short and intermediate-term
municipal securities with a dollar weighted average portfolio maturity of two to
five years.
Evergreen Short-Intermediate Municipal Fund-California seeks as high a level of
current income exempt from Federal and California income taxes as is consistent
with preserving capital and providing liquidity. The Fund invests substantially
all of its assets in short and intermediate-term municipal securities with a
dollar weighted average portfolio maturity of two to five years.
There is no assurance the investment objective of any Fund will be achieved.
<PAGE>
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EXPENSE INFORMATION
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The table set forth below summarizes the shareholder transaction costs
associated with an investment in Class Y of Shares of a Fund. For further
information see "Purchases and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class Y
Shares
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
Exchange Fee (only applies after 4 exchanges per calendar $5.00
year)
The following tables show for each Fund the annual operating expenses
attributable to Class Y Shares, together with examples of the cumulative effect
of such expenses on a hypothetical $1,000 investment for the periods specified
assuming (i) a 5% annual return and (ii) redemption at the end of each period.
Evergreen National Tax-Free Fund
Annual Operating Expenses1 Example
Class Y Class Y
Advisory Fees .50% After 1 Year $ 9
12b-1 Fees None After 3 Years $ 28
Other Expenses .39% After 5 Years $ 49
Total .89% After 10 Years $110
Evergreen Short-Intermediate Municipal Fund
Annual Operating Expenses2 Example
Class Y Class Y
Advisory Fees .50% After 1 Year $ 8
12b-1 Fees None After 3 Years $ 26
Other Expenses .33% After 5 Years $ 46
Total .83% After 10 Years $103
Evergreen Short-Intermediate Municipal Fund-California
Annual Operating Expenses3 Example
Class Y Class Y
Advisory Fees .55% After 1 Year $ 10
12b-1 Fees None After 3 Years $ 30
Other Expenses .40% After 5 Years $ 53
Total .95% After 10 Years $117
The Adviser has agreed to reimburse these Funds to the extent that
these Fund's aggregate operating expenses (including the Adviser's fee, but
excluding interest, taxes, brokerage commissions, Rule 12b-1 distribution fees
and shareholder servicing fees, and extraordinary expenses) exceed 1.00% of the
average net assets for Evergreen Short-Intermediate Municipal Fund and Evergreen
Short-Intermediate Municipal FundCalifornia and 1.25% of the average net assets
for Evergreen National Tax-Free Fund. From time to time the Adviser may, at its
discretion, reduce or waive its fees or reimburse these Fund's for certain of
their other expenses in order to reduce these Fund's expense ratios. The Adviser
may cease these voluntary waivers and reimbursements at any time.
<PAGE>
1The estimated annual operating expenses for Evergreen National Tax-Free Fund
does not reflect a voluntary advisory fee waiver by the Adviser of .48 of 1% of
average net assets and the voluntary reimbursement of a portion of the Fund's
other expenses representing .12% of average net assets for the fiscal period
ending August 31, 1994.
2The estimated annual operating expenses for Evergreen Short-Intermediate
Municipal Fund do not reflect a voluntary advisory fee waiver by the Adviser of
.25 of 1% of average net assets for the fiscal period ending August 31, 1994.
3The estimated annual operating expenses for Evergreen Short-Intermediate
Municipal Fund - California do not reflect a voluntary advisory fee waiver by
the Adviser of .43 of 1% of average net assets for the fiscal period ending
August 31, 1994.
The purpose of the foregoing table is to assist an investor in understanding the
various costs and expenses that an investor in the Class Y Shares of the Funds
will bear directly or indirectly. The amounts set forth under "Other Expenses"
as well as the amounts set forth in the examples are estimated amounts based on
historical experience for the fiscal period ending August 31, 1994. THE EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE
SHOWN. For a more complete description of the various costs and expenses borne
by the Funds see "Management of the Funds".
<PAGE>
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FINANCIAL HIGHLIGHTS
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Evergreen National Tax-Free Fund
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent auditors
for Evergreen National Tax-Free Fund, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto which are incorporated in the Statement of Additional Information
by reference. The per share data set forth below pertains to Class Y shares of
the Fund, which are offered through this prospectus. See "Other Classes of
Shares". No per share data and ratios are shown for Class A or B shares, since
these classes did not have any operations prior to the date of this Prospectus.
Period from
December 30,
Year Ended 1992* through
PER SHARE DATA August 31, 1994 August 31, 1993
Net asset value, beginning of year. . . . . . . . . $10.92 $10.00
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . . . . .53 . . . . . .40
Net realized and unrealized gain (loss) on investme (.77) .92
from investment operations. . . . . . . (.24) 1.32
Less distributions to shareholders:
From net investment income. . . . . . . . . . . . . (.53) . . . . (.40)
From net realized gains . . . . . . . . . . . . . (.14) . . . . . ----
In excess of net realized gains. . . . . . . . . . (.02) . . ----
Total distributions . . . . . . . . . . . . . . . . (.69) . . . . . (.40)
Net asset value, end of year. . . . . . . . . . . . $9.99 . . . . 10.92
TOTAL RETURN . . . . . . . . . . . . . . . . . . . (2.3)% . . . . 13.5%+
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year
(in millions). . . . . . . . . . . . . . . . . . . $42 $33
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . .29% (a) 0% (b)
Net investment income . . . . . . . . . . . . . . . 5.07% (a) 5.51% (b)
Portfolio turnover rate . . . . . . . . . . . . . . 135%
------------
* Commencement of operations.
(a) Net of partial advisory fee waiver of .48 of 1.00% of daily net assets
and the absorption of all other Fund expenses by the Adviser equal
to .12% of average daily net assets.
(b) Annualized and net of full advisory fee waiver of .50 of 1.00% of daily net
assets and the absorption of all other Fund expenses by the Adviser equal
to .42% of average daily net assets. + Total return calculated for the
period December 30, 1992 through August 31, 1993 is not annualized.
<PAGE>
Evergreen Short Intermediate Municipal Fund
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent
auditors for Evergreen Short Intermediate Municipal Fund, whose report
thereon was unqualified. This information should be read in conjunction
with the financial statements and notes thereto which are incorporated in
the Statement of Additional Information by reference. The per share data
set forth below pertains to Class Y shares of the Fund, which are offered
through this prospectus. See "Other Classes of Shares". No per share data
and ratios are shown for Class A or B shares, since these classes did not
have any operations prior to the date of this Prospectus.
<TABLE>
<CAPTION>
Period from
July 17, 1991*
Year Ended August 31, through
PER SHARE DATA 1994 1993 1992+ August 31, 1991+
---- ---- ----- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year. . . . . . . . . $10.58 $10.33 $10.00 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . . . .47 .49 .51 .06
. . . . . . . . . . . .
Net realized and unrealized gain (loss) on (.32) .25 .33 ----
investments. . .
Total from investment operations. . . . . . . . .15 .74 .84 .06
. . . . . . . . . .
Less distributions to shareholders from:
From net investment income. . . . . . . . . . . . . (.47) (.49) (.51) (.06)
. . . . . . . . . .
From net realized gains . . . . . . . . . . . . . . (.03) ---- ---- ----
. . . . . . . . . . . . .
In excess of net realized gains. . . . . . . . . . (.02) ---- ---- ----
. . . . . . . . . . . .
Total distributions . . . . . . . . . . . . . . (.52) (.49) (.51) (.06)
--------- --------- ---------- ---------
Net asset value, end of year. . . . . . . . . . . . $10.21 $10.58 $10.33 $10.00
------ ------ ------ ------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . 1.4% 7.4% 8.6% .6%++
RATIOS & SUPPLEMENTAL DATA
Net assets, end of year
(in millions) . . . . . . . . . . . . . . . . . $53 $67 $54 $4
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . .58% (a) .40% (b) .17% (c) .0% (d)
Net investment income . . . . . . . . . . . . . 4.54% (a) 4.73% (b) 4.85% (c) 4.93% (d)
Portfolio turnover rate . . . . . . . . . . . . . . 32% -----
37% 57%
------------
<FN>
* Commencement of operations.
+ On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding at August 31, 1991 and the related per share data are restated
to reflect both a 1 for 2 reverse share split on October 30, 1991 and a 1
for 5 reverse share split on August 19, 1992. Total return calculated after
November 18, 1991 reflects the fluctuation in net asset value per share.
++ Total return calculated for the period July 17, 1991 through August 31,
1991 is not annualized.
(a) Net of partial advisory fee waiver of .25 of 1.00% of daily net assets.
(b) Net of partial advisory fee waiver of .41 of 1.00% of daily net assets.
(c) Net of partial advisory fee waiver of .46 of 1.00% of daily net assets
and the absorption of a portion of all other Fund expenses by the Adviser
equal to .23% of average daily net assets.
(d) Annualized and net of full advisory fee waiver of .50 of 1.00% of daily
net assets and the absorption of all other Fund expenses by the Adviser
equal to .90% of average daily net assets.
</FN>
</TABLE>
<PAGE>
Evergreen Short Intermediate Municipal Fund - California
The following selected per share data and ratios for the periods ended
August 31, 1994 have been audited by Price Waterhouse LLP, independent
auditors for Evergreen Short Intermediate Municipal Fund - California, whose
report thereon was unqualified. This information should be read in
conjunction with the financial statements and notes thereto which are
incorporated in the Statement of Additional Information by reference. The
per share data set forth below pertains to Class Y shares of the Fund, which
are offered through this prospectus. See "Other Classes of Shares". No per
share data and ratios are shown for Class A or B shares, since these classes
did not have any operations prior to the date of this Prospectus.
<TABLE>
<CAPTION>
Period from
November 2,
Year Ended August 31, 1988* through
--------------------------------------------------------------
PER SHARE DATA 1994 1993+ 1992+ 1991+ 1990+ August 31,
1989+
---- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year. . . . . . . . $10.34 $10.00 $10.00 $10.00 $10.00 $10.00
------
Income (loss) from investment operations:
Net investment income . . . . . . . . . . . . . . .43 .41 .33 .47 .55 .51
Net realized and unrealized gain (loss) on (.24) .34 ---- ---- ---- ----
investments
Total from investment operations. . . . . . . . .19 .75 .33 .47 .55 .51
---------- ---------
Less distributions to shareholders from:
From net investment income. . . . . . . . . . . . (.43) (.41) (.33) (.47) (.55) (.51)
From net realized gains . . . . . . . . . . . . . (.01) ---- ---- ---- ---- ----
Total distributions . . . . . . . . . . . . . . (.44) (.41) (.33) (.47) (.55) (.51)
--------- - ---------
Net asset value, end of year. . . . . . . . . . . $10.09 $10.34 $10.00 $10.00 $10.00 $10.00
------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . 1.8% 7.6% 3.4% 4.8% 5.7% 5.2%**
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year
(in millions). . . . . . . . . . . . . . . . . $28 $42 $37 $28
$30 $34
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . .52% .30% .40% .37% (d) .29% (e) .24%(f)
(a) (b) (c)
Net investment income . . . . . . . . . . . . . 4.20% 3.96% 3.36% 4.66% (d) 5.52% (e) 6.40 (f)
(a) (b) (c)
Portfolio turnover rate . . . . . . . . . . . . . 12% 37% ---- ---- ---- ----
--------------------
<FN>
* Commencement of operations.
+ On October 16, 1992, the Fund was converted to a
short-intermediate municipal fund with a fluctuating net asset
value per share from a money market fund with a stable net
asset value per share. The shares outstanding and the related
per share data for the fiscal years ended August 31, 1990
through August 31, 1992 are restated to reflect the 1 for 10
reverse share split on October 21, 1992. Total return
calculated after October 16, 1992 reflects the fluctuation in
net asset value per share.
** Total return calculated for the period November 2, 1988 through August 31,
1989 is not annualized.
(a) Net of partial advisory fee waiver of .43 of 1.00% of daily net assets.
(b) Net of partial advisory fee waiver of .52 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .16% of average daily net assets.
(c) Net of partial advisory fee waiver of .44 of 1.00% of daily net assets.
(d) Net of partial advisory fee waiver of .45 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .03% of average daily net assets.
(e) Net of partial advisory fee waiver of .51 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .08% of average daily net assets.
(f) Annualized and net of partial advisory fee waiver of .50 of 1.00% of daily
net assets and the absorption of a portion of all other Fund expenses by
the Adviser equal to .19% of average daily net assets.
</FN>
</TABLE>
<PAGE>
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DESCRIPTION OF THE FUNDS
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INVESTMENT OBJECTIVES AND POLICIES
Evergreen National Tax Free Fund
The investment objective of Evergreen National Tax Free Fund is to
achieve a high level of current income exempt from Federal income tax. The
Fund will seek to achieve its objective by investing substantially all of
its assets in a diversified portfolio of long-term debt obligations issued
by states, possessions of the United States and by the District of
Columbia, and their political subdivisions and duly constituted
authorities, the interest from which is exempt from Federal income tax.
Such securities are generally known as Municipal Securities (See "Municipal
Securities" below). The Fund has no maturity restrictions. Its dollar
weighted average portfolio maturity, however, is generally expected to
exceed fifteen years. As a matter of policy, the Trustees will not change
the Fund's investment objective without shareholder approval.
Under normal market conditions, the Fund intends to invest at least 80%
of its total assets in Municipal Securities that, at the time of purchase,
are insured or prefunded. Such Municipal Securities include securities
which are insured under a mutual fund insurance policy issued to the Trust
for the benefit of the Fund by an insurer having a claims-paying ability
rated AAA by Standard & Poors Ratings Group ("S&P") or Aaa by Moody's
Investors Service, Inc. ("Moody's") or insured by such an insurer under an
insurance policy obtained by the issuer or underwriter of such Municipal
Securities at the time of original issuance. The Fund may also purchase
secondary market insurance on Municipal Securities which it holds or
acquires. Although the fee for secondary market insurance will reduce the
yield of the insured bond, such insurance would be reflected in the market
value of the bond purchased. A bond is prefunded if marketable securities,
typically U.S. Treasurys, are escrowed to maturity to assure payment of
principal and interest.
It should be noted that insurance is not a substitute for the basic
credit of an issuer, but supplements the existing credit and provides
additional security therefor. Moreover, while insurance coverage for the
Municipal Securities held by the Fund reduces credit risk by insuring that
the Fund will receive payment of principal and interest, it does not
protect against market fluctuations caused by changes in interest rates and
other factors.
Interest income on certain types of bonds issued after August 7, 1986
to finance nongovernmental activities is an item of "tax-preference"
subject to the Federal alternative minimum tax for individuals and
corporations. To the extent the Fund invests in these "private activity"
bonds (some of which were formerly referred to as "industrial development"
bonds), individual and corporate shareholders, depending on their status,
may be subject to the alternative minimum tax on the part of the Fund's
distributions derived from the bonds. As a matter of fundamental policy,
the Fund will invest at least 80% of its net assets in Municipal
Securities, the interest from which is not subject to the Federal
alternative minimum tax.
Obligations with longer maturities (e.g., 20 years or more) generally
offer both higher yields and greater exposure to market fluctuation from
changes in interest rates than do those with shorter maturities.
Consequently, shares of the Fund may not be suitable for persons who cannot
assume the somewhat greater risks of capital depreciation involved in
seeking higher tax-exempt yields.
It is anticipated that the annual portfolio turnover rate for the Fund
may exceed 100%. For the period from December 30, 1992 (commencement of
operations) to August 31, 1993, and the fiscal year ended August 31, 1994,
the Fund's portfolio turnover rate was 166% and 135%, respectively. See
"Investment Practices and Restrictions", below.
Evergreen Short Intermediate Municipal Fund
The investment objective of Evergreen Short Intermediate Municipal Fund
is to achieve as high a level of current income, exempt from Federal income
tax other than the AMT, as is consistent with preserving capital and
providing liquidity. Under normal circumstances, it is anticipated that the
Fund will invest its assets so that at least 80% of its annual interest
income is exempt from Federal income tax other than the AMT. The Fund will
seek to achieve its objective by investing substantially all of its assets
in a diversified portfolio of short and intermediate-term debt obligations
issued by states, territories and possessions of the United States and by
the District of Columbia, and their political subdivisions and duly
constituted authorities, the interest from which is
<PAGE>
exempt from Federal income tax other than the AMT. Such securities are
generally known as Municipal Securities (See "Municipal Securities" below).
As a matter of policy, the Trustees will not change the Fund's investment
objective without shareholder approval.
Under current tax law, a distinction is drawn between Municipal
Securities issued to finance certain "private activities" and other
Municipal Securities. Such private activity bonds include bonds issued to
finance such projects as airports, housing projects, resource recovery
programs, solid waste disposal facilities, student loan programs, and water
and sewage projects. Interest income from such "private activity bonds"
("AMT-Subject Bonds") becomes an item of "tax preference" which is subject
to the alternative minimum tax when received by a person in a tax year
during which he is subject to that tax. Because interest income on
AMT-Subject Bonds is taxable to certain investors, it is expected, although
there can be no guarantee, that such Municipal Securities generally will
provide somewhat higher yields than other Municipal Securities of
comparable quality and maturity.
The Fund may invest up to 50% of its total assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio
maturity of two to five years. The Fund may consider an obligation's
maturity to be shorter than its stated maturity if the Fund has the right
to sell the obligation at a price approximating par value before its stated
maturity date. This is a liquidity put and is exercisable to the issuer or
some third party.
It is anticipated that the annual portfolio turnover rate for the Fund
will generally not exceed 100%. For the fiscal years ended August 31, 1992,
1993 and 1994, the Fund's portfolio turnover rate was 57%, 37% and 32%,
respectively. See "Investment Practices and Restrictions", below.
Evergreen Short Intermediate Municipal Fund-California
The investment objective of Evergreen Short Intermediate Municipal
Fund-California is to achieve as high a level of current income exempt from
Federal and California income taxes, as is consistent with preserving
capital and providing liquidity. The Fund will seek to achieve its
objective by investing at least 80% of the value of its assets in a
diversified portfolio of short and intermediate-term debt obligations
issued by the State of California, its political subdivisions and duly
constituted authorities, the interest from which is exempt from Federal and
California income taxes. Such securities are generally known as Municipal
Securities (see "Municipal Securities" below).
Interest income on certain types of bonds issued after August 7, 1986,
to finance nongovernmental activities is an item of "tax preference"
subject to the Federal alternative minimum tax for individuals and
corporations. To the extent the Fund invests in these "private activity"
bonds (some of which were formerly referred to as "industrial development"
bonds), individual and corporate shareholders, depending on their status,
may be subject to the alternative minimum tax on the part of the Fund's
distributions derived from the bonds. As a matter of fundamental policy,
the Fund will invest at least 80% of its net assets in Municipal
Securities, the interest from which is not subject to the Federal
alternative minimum tax.
The Fund intends to maintain a dollar-weighted average portfolio
maturity of two to five years. The Fund may consider an obligation's
maturity to be shorter than its stated maturity if the Fund has the right
to sell the obligation at a price approximating par value before its stated
maturity date. This is a liquidity put and is exercisable to the issuer or
some third party.
It is anticipated that the annual portfolio turnover rate for the Fund
will generally not exceed 100%. For the period from October 16, 1992
(commencement of operations as a short-intermediate municipal fund) through
August 31, 1993 and for the fiscal year ended August 31, 1994, the Fund's
portfolio turnover rate was 37% and 12%, respectively. See "Investment
Practices and Restrictions", below.
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment
restrictions more fully described in the Statement of Additional
Information.
General. Evergreen National Tax Free Fund, Evergreen Short-Intermediate
Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California
will invest in Municipal Securities so long as they are determined to be of
high or upper medium quality. Municipal Securities meeting this criteria
include bonds rated A or higher by S&P, Moody's or another nationally
recognized statistical rating organization ("SRO"); notes rated SP-1 or
SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by
Moody's in the case of variable rate
<PAGE>
demand notes or having comparable ratings from another SRO; and commercial
paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's or having
comparable ratings from another SRO. Evergreen National Tax Free Fund may
also invest in general obligation bonds which are rated BBB by S&P, Baa by
Moody's or bear a similar rating from another SRO. Medium grade bonds are
more susceptible to adverse economic conditions or changing circumstances
than higher grade bonds. For a description of such ratings see the
Statement of Additional Information. The Funds may also purchase Municipal
Securities which are unrated at the time of purchase, if such securities
are determined by the Adviser to be of comparable quality. Certain
Municipal Securities (primarily variable rate demand notes) may be entitled
to the benefit of standby letters of credit or similar commitments
issued by banks and, in such instances, the Adviser will take into account
the obligation of the bank in assessing the quality of such security.
Investments by Evergreen Short-Intermediate Municipal Fund-California in
unrated securities are limited to 20% of total assets.
The ability of the Funds to meet their investment objectives is
necessarily subject to the ability of municipal issuers to meet their
payment obligations. In addition, the portfolios of the Funds will be
affected by general changes in interest rates which will result in
increases or decreases in the value of the obligations held by the Funds.
Investors should recognize that, in periods of declining interest rates,
the yield of the Funds will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates, the yield of the
Funds will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the Funds from the continuous sale
of its shares will likely be invested in portfolio instruments producing
lower yields than the balance of each Fund's portfolio, thereby reducing
the current yield of the Funds. In periods of rising interest rates, the
opposite can be expected to occur. In addition since Evergreen Short
Intermediate Municipal FundCalifornia will invest primarily in California
Municipal Securities, there are certain specific factors and considerations
concerning California which may affect the credit and market risk of the
Municipal Securities that Evergreen Short Intermediate Municipal
Fund-California purchases. These factors are described in the Appendix to
this Prospectus.
Municipal Securities. As noted above, the Funds will invest substantially
all of their assets in Municipal Securities. These include Municipal
Securities, short-term municipal notes and tax exempt commercial paper.
"Municipal Securities" are debt obligations issued to obtain funds for
various public purposes that are exempt from Federal income tax in the
opinion of issuer's counsel. The two principal classifications of Municipal
Securities are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax
or other specific source such as from the user of the facility being
financed. The term "Municipal Securities" also includes "moral obligation"
issues which are normally issued by special purpose authorities. Industrial
development bonds ("IDBs") and private activity bonds ("PABs") are in most
cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. The credit quality of IDBs and PABs is usually directly related
to the credit standing of the corporate user of the facilities being
financed. Participation interests are interests in Municipal Securities,
including IDBs and PABs, and floating and variable rate obligations that
are owned by banks. These interests carry a demand feature permitting the
holder to tender them back to the bank, which demand feature is backed by
an irrevocable letter of credit or guarantee of the bank. A put bond is a
municipal bond which gives the holder the unconditional right to sell the
bond back to the issuer at a specified price and exercise date, which is
typically well in advance of the bond's maturity date. "Short-term
municipal notes" and "tax exempt commercial paper" include tax anticipation
notes, bond anticipation notes, revenue anticipation notes and other forms
of short-term loans. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements
and other revenues.
Floating Rate and Variable Rate Obligations. Municipal Securities also
include certain variable rate and floating rate municipal obligations with
or without demand features. These variable rate securities do not have
fixed interest rates; rather, those rates fluctuate based upon changes in
specified market rates, such as the prime rate, or are adjusted at
predesignated periodic intervals. Certain of these obligations may carry a
demand feature that gives the Funds the right to demand prepayment of the
principal amount of the security prior to its maturity date. The demand
obligation may or may not be backed by letters of credit or other
guarantees of banks or other financial institutions. Such guarantees may
enhance the quality of the security. The Funds will limit the value of
their investments in any floating or variable rate securities which are not
readily marketable to 10% or less of their total assets.
When-Issued Securities. The Funds may purchase Municipal Securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). The Funds generally would not pay for
<PAGE>
such securities or start earning interest on them until they are received.
However, when the Funds purchase Municipal Securities on a when-issued
basis, they assume the risks of ownership at the time of purchase, not at
the time of receipt. Failure of the issuer to deliver a security purchased
by a Fund on a when-issued basis may result in a Fund's incurring a loss or
missing an opportunity to make an alternative investment. Commitments to
purchase when-issued securities will not exceed 25% of each Fund's total
assets. The Funds will maintain cash or liquid high grade debt obligations
in a segregated account with their custodian in an amount equal to such
commitments. The Funds do not intend to purchase when-issued securities for
speculative purposes but only in furtherance of their investment
objectives.
Stand-by Commitments. The Funds may also acquire "stand-by commitments"
with respect to Municipal Securities held in their portfolio. Under a
stand-by commitment, a dealer agrees to purchase, at a Fund's option,
specified Municipal Securities at a specified price. Failure of the dealer
to purchase such Municipal Securities may result in a Fund incurring a loss
or missing an opportunity to make an alternative investment. Each Fund
expects that stand-by commitments generally will be available without the
payment of direct or indirect consideration. However, if necessary and
advisable, a Fund may pay for stand-by commitments either separately in
cash or by paying a higher price for portfolio securities which are
acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held in each Fund's
portfolio will not exceed 10% of the value of the Fund's total assets
calculated immediately after each stand-by commitment is acquired. The
Funds will maintain cash or liquid high grade debt obligations in a
segregated account with its custodian in an amount equal to such
commitments. The Funds will enter into stand-by commitments only with banks
and broker-dealers that, in the judgment of the Adviser, present minimal
credit risks.
Taxable Investments. Evergreen National Tax Free Fund, and Evergreen
Short-Intermediate Municipal FundCalifornia may temporarily invest up to
20% of their assets in taxable securities, and Evergreen ShortIntermediate
Municipal Fund may temporarily invest its assets so that not more than 20%
of its annual interest income will be derived from taxable securities,
under any one or more of the following circumstances: (a) pending
investment of proceeds of sale of Fund shares or of portfolio securities,
(b) pending settlement of purchases of portfolio securities, and (c) to
maintain liquidity for the purpose of meeting anticipated redemptions. In
addition, each such Fund may temporarily invest more than 20% of its total
assets in taxable securities for defensive purposes. Each Fund may invest
for defensive purposes during periods when each Fund's assets available for
investment exceed the available Municipal Securities that meet each Fund's
quality and other investment criteria. Taxable securities in which the
Funds may invest on a short-term basis include obligations of the United
States Government, its agencies or instrumentalities, including repurchase
agreements with banks or securities dealers involving such securities; time
deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by any major rating service;
commercial paper rated in the highest grade by Moody's, S&P or any SRO; and
certificates of deposit issued by United States branches of United States
banks with assets of $1 billion or more.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Fund's custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York)
in United States Government securities. A repurchase agreement is an
arrangement pursuant to which a buyer purchases a security and
simultaneously agrees to resell it to the vendor at a price that results in
an agreed-upon market rate of return which is effective for the period of
time (which is normally one to seven days, but may be longer) the buyer's
money is invested in the security. The arrangement results in a fixed rate
of return that is not subject to market fluctuations during a Fund's
holding period. Each Fund requires continued maintenance of collateral with
its Custodian in an amount equal to, or in excess of, the market value of
the securities, including accrued interest, which are the subject of a
repurchase agreement. In the event a vendor defaults on its repurchase
obligation, the Fund might suffer a loss to the extent that the proceeds
from the sale of the collateral were less than the repurchase price. If the
vendor becomes the subject of bankruptcy proceedings, a Fund might be
delayed in selling the collateral. The Adviser will review and continually
monitor the creditworthiness of each institution with which a Fund enters
into a repurchase agreement to evaluate these risks. A Fund may not enter
into repurchase agreements if, as a result, more than 10% of the Fund's net
assets would be invested in repurchase agreements maturing in more than
seven days.
Illiquid Securities. The Funds may invest up to 15% of their net assets in
illiquid securities and other securities which are not readily marketable,
except that they may only invest up to 10% of their assets in repurchase
agreements with maturities longer than seven days. Securities eligible for
resale pursuant to Rule 144A under the
<PAGE>
Securities Act of 1933, which have been determined to be liquid, will not
be considered by the Adviser to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. The inability
of a Fund to dispose of illiquid or not readily marketable investments
readily or at a reasonable price could impair the Fund's ability to raise
cash for redemptions or other purposes. The liquidity of securities
purchased by a Fund which are eligible for resale pursuant to Rule 144A
will be monitored by the Adviser on an ongoing basis, subject to the
oversight of the Trustees. In the event that such a security is deemed to
be no longer liquid, a Fund's holdings will be reviewed to determine what
action, if any, is required to ensure that the retention of such security
does not result in a Fund having more than 15% of its assets invested in
illiquid or not readily marketable securities.
Other Investment Policies. The Funds may borrow funds and agree to sell
portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed upon date and
price (a "reverse repurchase agreement") for temporary or emergency
purposes in amounts not in excess of 10% of the value of each Fund's total
assets at the time of such borrowing. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial
account cash, United States Government securities or liquid high grade debt
obligations having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline
below the repurchase price of those securities. Each Fund will not enter
into reverse repurchase agreements exceeding 5% of the value of its total
assets. Evergreen Short-Intermediate Municipal Fund and Evergreen
ShortIntermediate Municipal Fund-California will not purchase any
securities whenever any borrowings (including reverse repurchase
agreements) are outstanding.
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations.
The Adviser will monitor the creditworthiness of such borrowers. Loans of
securities by a Fund, if and when made, may not exceed 30 percent of each
Fund's total assets and will be collateralized by cash, letters of credit
or U.S. Government securities that are maintained at all times in an amount
equal to at least 100 percent of the current market value of the loaned
securities, including accrued interest. While such securities are on loan,
the borrower will pay a Fund any income accruing thereon, and the Fund may
invest the cash collateral, thereby increasing its return. A Fund will have
the right to call any such loan and obtain the securities loaned at any
time on five days' notice. Any gain or loss in the market price of the
loaned securities which occurs during the term of the loan would affect a
Fund and its investors. A Fund may pay reasonable fees in connection with
such loans.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISER
The management of each Fund is supervised by its Trustees. Evergreen
Asset Management Corp. (the "Adviser") has been retained by each Fund as
investment adviser. The Adviser succeeded on June 30, 1994 to the advisory
business of the same name, but under different ownership, which was
organized in 1971. The Adviser to the Funds, with its predecessors, has
served as investment adviser to the Evergreen Funds since 1971. The Adviser
is a wholly-owned subsidiary of First Union National Bank of North Carolina
("FUNB"). The address of the Adviser is 2500 Westchester Avenue, Purchase,
New York 10577. FUNB is a subsidiary of First Union, one of the ten largest
bank holding companies in the United States. Stephen A. Lieber and Nola
Maddox Falcone serve as the chief investment officers of the Adviser and,
along with Theodore J. Israel, Jr., were the owners of the Adviser's
predecessor and the former general partners of Lieber & Company, which, as
described below, provides certain subadvisory services to the Adviser in
connection with its duties as investment adviser to the Fund.
First Union is a bank holding company headquartered in Charlotte, North
Carolina, which had $74.2 billion in consolidated assets as of September
30, 1994. First Union and its subsidiaries provide a broad range of
financial services to individuals and businesses through offices in 36
states. The Capital Management Group of FUNB manages or otherwise oversees
the investment of over $36 billion in assets belonging to a wide range of
clients, including the First Union family of mutual funds. First Union
Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a
registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations.
First Union Capital Markets Corp., a wholly-owned subsidiary of First
Union, is a registered broker-dealer principally engaged in providing,
consistent with its federal banking authorizations, private placement,
securities dealing, and underwriting services.
<PAGE>
The Adviser manages each Fund's investments, provides various
administrative services and supervises each Fund's daily business affairs,
subject to the authority of the Trustees. Under its investment advisory
agreement with Evergreen Short-Intermediate Municipal Fund-California the
Adviser is entitled to receive an annual fee equal to .55 of 1% of the
Fund's average daily net assets. Under its investment advisory agreements
with Evergreen Short-Intermediate Municipal Fund and Evergreen National Tax
Free Fund the Adviser is entitled to receive an annual fee equal to .50 of
1% of each Fund's average daily net assets. For the fiscal period ended
August 31, 1994, total expense ratios of Evergreen National Tax Free Fund,
Evergreen Short-Intermediate Municipal Fund and Evergreen
Short-Intermediate Municipal Fund-California were .29%, .58%, and .52%,
respectively. The above-mentioned expense ratios are net of voluntary
advisory fee waivers and expense reimbursements by the Adviser. The Adviser
may, at its discretion, revise or cease such voluntary waivers at any time.
The portfolio manager of Evergreen National Tax Free Fund is James T.
Colby, III. Mr. Colby has been associated with the Adviser and its
predecessor since 1992 and has served as portfolio manager of the Fund
since its inception. Prior to joining the Adviser, Mr. Colby served as Vice
President-Investments at American Express Company from 1987 to 1992. The
portfolio manager for Evergreen Short-Intermediate Municipal
Fund-California and Evergreen Short-Intermediate Municipal Fund is Steven
C. Shachat. Mr. Shachat has been associated with the Adviser and its
predecessor since prior to 1989 and has served as portfolio manager of
these Funds since their inception.
SUB-ADVISER
The Adviser has entered into sub-advisory agreements with Lieber &
Company with respect to each Fund which provides that Lieber & Company's
research department and staff will furnish the Adviser with information,
investment recommendations, advice and assistance, and will be generally
available for consultation on each Fund's portfolio. Lieber & Company will
be reimbursed by the Adviser in connection with the rendering of services
on the basis of the direct and indirect costs of performing such services.
There is no additional charge to the Funds for the services provided by
Lieber & Company. The address of Lieber & Company is 2500 Westchester
Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
Eligible investors may purchase Fund shares at net asset value by mail
or wire as described below. The Funds impose no sales charges on Class Y
shares. Class Y shares are the only class of shares offered by this
Prospectus and are only available to (i) all shareholders of record in one
or more of the Evergreen Funds as of December 30, 1994, (ii) certain
institutional investors and (iii) investment advisory clients of the
Adviser and its affiliates. The minimum initial investment is $1,000, which
may be waived in certain situations. There is no minimum for subsequent
investments. Investors may make subsequent investments by establishing a
Systematic Investment Plan or a Telephone Investment Plan.
Purchases by Mail or Wire. Each investor must complete the enclosed Share
Purchase Application and mail it together with a check made payable to the
Fund whose shares are being purchased, to State Street Bank and Trust
Company ("State Street") at P.O. Box 9021, Boston, Massachusetts
02205-9827. Checks not drawn on U.S. banks will be subject to foreign
collection which will delay an investor's investment date and will be
subject to processing fees.
When making subsequent investments, an investor should either enclose
the return remittance portion of the statement, or indicate on the face of
the check, the name of the Fund in which an investment is to be made, the
exact title of the account, the address, and the Fund account number.
Purchase requests should not be sent to a Fund in New York. If they are,
the Fund must forward them to State Street, and the request will not be
effective until State Street receives them.
Initial investments may also be made by wire by (i) calling State
Street at 800-423-2615 for an account number and (ii) instructing your
bank, which may charge a fee, to wire federal funds to State Street, as
follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn:
Custodian and Shareholder Services. The wire must include references to the
Fund in which an investment is being made, account registration, and the
<PAGE>
account number. A completed Application must also be sent to State Street
indicating that the shares have been purchased by wire, giving the date the
wire was sent and referencing the account number. Subsequent wire
investments may be made by existing shareholders by following the
instructions outlined above. It is not necessary, however, for existing
shareholders to call for another account number.
How the Funds Value Their Shares. The net asset value of each Class of
shares of a Fund is calculated by dividing the value of the amount of the
Fund's net assets attributable to that Class by the outstanding shares of
that Class. Shares are valued each day the New York Stock Exchange (the
"Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market
value determined on the basis of market quotations or, if such quotations
are not readily available, such other methods as a Fund's Trustees believe
would accurately reflect fair market value.
Additional Purchase Information. As a condition of this offering, if a
purchase is canceled due to nonpayment or because an investor's check does
not clear, the investor will be responsible for any loss a Fund or the
Adviser incurs. If such investor is an existing shareholder, a Fund may
redeem shares from an investor's account to reimburse the Fund or the
Adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Funds.
A Fund cannot accept investments specifying a certain price or date and
reserves the right to reject any specific purchase order, including orders
in connection with exchanges from the other Evergreen Funds. Although not
currently anticipated, each Fund reserves the right to suspend the offer of
shares for a period of time.
Shares of each Fund are sold at the net asset value per share next
determined after a shareholder's order is received. Investments by federal
funds wire or by check will be effective upon receipt by State Street.
Qualified institutions may telephone orders for the purchase of Fund
shares. Investors may also purchase shares through a broker/dealer, which
may charge a fee for the service.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any
day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares
recently purchased by check, a Fund will not send proceeds until it is
reasonably satisfied that the check has been collected (which may take up
to 15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street which is the registrar,
transfer agent and dividend-disbursing agent for each Fund. Stock power
forms are available from your financial intermediary, State Street, and
many commercial banks. Additional documentation is required for the sale of
shares by corporations, financial intermediaries, fiduciaries and surviving
joint owners. Signature guarantees are required for all redemption requests
for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the
account registration. A signature guarantee must be provided by a bank or
trust company (not a Notary Public), a member firm of a domestic stock
exchange or by other financial institutions whose guarantees are acceptable
to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street (800- 423-2615) between the hours of 9:00 a.m. and
4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of
days on which the New York Stock Exchange or State Street's offices are
closed). The New York Stock Exchange is closed on New Year's Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Redemption requests made after 4:00
p.m. (Eastern time) will be processed using the net asset value determined
on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account
number. During periods of drastic economic or market changes, shareholders
may experience difficulty in effecting telephone redemptions. Shareholders
who are unable to reach a Fund or State Street by telephone should follow
the procedures outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service
must indicate this on the Share Purchase Application and choose how the
redemption proceeds are to be paid. Redemption proceeds will either (i) be
mailed by check to the shareholder at the address in which the account is
registered or (ii) be wired to an account with the same
<PAGE>
registration as the shareholder's account in a Fund at a designated
commercial bank. State Street currently deducts a $5 wire charge from all
redemption proceeds wired. This charge is subject to change without notice.
A shareholder who decides later to use this service, or to change
instructions already given, should fill out a Shareholder Services Form and
send it to State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, with such shareholder's signature guaranteed by a
bank or trust company (not a Notary Public), a member firm of a domestic
stock exchange or by other financial institutions whose guarantees are
acceptable to State Street. Shareholders should allow approximately ten
days for such form to be processed. The Funds will employ reasonable
procedures to verify that telephone requests are genuine. These procedures
include requiring some form of personal identification prior to acting upon
instructions and tape recording of conversations. If the Fund fails to
follow such procedures, it may be liable for any losses due to unauthorized
or fraudulent instructions. The Fund shall not be liable for following
telephone instructions reasonably believed to be genuine. Also, the Fund
reserves the right to refuse a telephone redemption request, if it is
believed advisable to do so. Financial intermediaries may charge a fee for
handling telephonic requests. The telephone redemption option may be
suspended or terminated at any time without notice.
General. The sale of shares is a taxable transaction for Federal tax
purposes. Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by Federal
securities law. The Funds reserve the right to close an account that
through redemption has remained below $1,000 for 30 days. Shareholders will
receive 60 days' written notice to increase the account value before the
account is closed. The Funds have elected to be governed by Rule 18f-1
under the Investment Company Act of 1940 pursuant to which each Fund is
obligated to redeem shares solely in cash, up to the lesser of $250,000 or
1% of a Fund's total net assets during any ninety day period for any one
shareholder. See the Statement of Additional Information for further
details.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for
shares of the same Class in the other Evergreen Funds by telephone or mail
as described below. An exchange which represents an initial investment in
another Evergreen Fund must amount to at least $1,000. Once an exchange
request has been telephoned or mailed, it is irrevocable and may not be
modified or canceled. Exchanges will be made on the basis of the relative
net asset values of the shares exchanged next determined after an exchange
request is received. Exchanges are subject to minimum investment and
suitability requirements.
Each of the Evergreen Funds have different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of
shares and may result in the realization of a capital gain or loss. Each
Fund imposes a fee of $5 per exchange on shareholders who exchange in
excess of four times per calendar year. This exchange privilege may be
modified or discontinued at any time by the Fund upon sixty days' notice to
shareholders and is only available in states in which shares of the fund
being acquired may lawfully be sold.
Exchanges by Telephone and Mail. You may exchange shares with a value of
$1,000 or more by telephone by calling State Street (800-423-2615).
Exchange requests made after 4:00 p.m. (Eastern time) will be processed
using the net asset value determined on the next business day. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone exchanges. You should follow the
procedures outlined below for exchanges by mail if you are unable to reach
State Street by telephone. If you wish to use the telephone exchange
service you should indicate this on the Share Purchase Application. As
noted above, each Fund will employ reasonable procedures to confirm that
instructions for the redemption or exchange of shares communicated by
telephone are genuine. A telephone exchange may be refused by a Fund or
State Street if it is believed advisable to do so. Procedures for
exchanging Fund shares by telephone may be modified or terminated at any
time. Written requests for exchanges should follow the same procedures
outlined for written redemption requests in the section entitled "How to
Redeem Shares", however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of
the Funds, or the toll-free number for the Funds, 800-807-2940. Some
services are described in more detail in the Share Purchase Application.
<PAGE>
Systematic Investment Plan. You may make monthly or quarterly investments
into an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing
account electronically in amounts of not less than $100 or more than
$10,000 per investment. Telephone investment requests received by 3:00 p.m.
(Eastern time) will be credited to a shareholder's account the day the
request is received.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is
opened or when an existing account reaches that size, you may participate
in the Fund's Systematic Cash Withdrawal Plan by filling out the
appropriate part of the Share Purchase Application. Under this plan, you
may receive (or designate a third party to receive) a monthly or quarterly
check in a stated amount of not less than $100. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must
elect to have their dividends and capital gain distributions reinvested
automatically.
Automatic Reinvestment Plan. For the convenience of investors, all
dividends and distributions are automatically reinvested in full and
fractional shares of a Fund at the net asset value per share on the last
business day of each month, unless otherwise requested by a shareholder in
writing. If the transfer agent does not receive a written request for
subsequent dividends and/or distributions to be paid in cash at least three
full business days prior to a given record date, the dividends and/or
distributions to be paid to a shareholder will be reinvested. If you elect
to receive dividends and distributions in cash and the U.S. Postal Service
cannot deliver the checks, or if the checks remain uncashed for six months,
the checks will be reinvested into your account at the then current net
asset value.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or
their non-bank affiliates from sponsoring, organizing, controlling, or
distributing the shares of registered open-end investment companies such as
the Funds. Such laws and regulations also prohibit banks from issuing,
underwriting or distributing securities in general. However, under the
Glass-Steagall Act and such other laws and regulations, a Member Bank or an
affiliate thereof may act as investment adviser, transfer agent or
custodian to a registered open-end investment company and may also act as
agent in connection with the purchase of shares of such an investment
company upon the order of their customer. The Adviser, since it is a
subsidiary of First Union National Bank of North Carolina ("FUNB"), is
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 the Adviser being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares
of a Fund by its customers. If the Adviser were prevented from continuing
to provide the services called for under the investment advisory agreement,
it is expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur,
it is not anticipated that the shareholders of any Fund would suffer any
adverse financial consequences.
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a Fund will be made at least annually.
Shareholders will begin to earn dividends on the first business day after
shares are purchased unless shares were not paid for, in which case
dividends are not earned until the next business day after payment is
received. Each Fund has qualified and intends to continue to qualify to be
treated as a regulated investment company under the Internal Revenue Code
(the "Code"). While so qualified, so long as each Fund distributes all of
its investment company taxable income and any net realized gains to
shareholders, it is expected that the Funds will not be required to pay any
Federal income taxes. A 4% nondeductible excise tax will be imposed on a
Fund if it does not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements.
<PAGE>
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income
for Federal income tax purposes, however (1) all or a portion of such
exempt-interest dividends may be a specific preference item for purposes of
the Federal individual and corporate alternative minimum taxes to the
extent that they are derived from certain types of private activity bonds
issued after August 7, 1986, and (2) all exempt-interest dividends will be
a component of the "adjusted current earnings" for purposes of the Federal
corporate alternative minimum tax.
Dividends paid from taxable income, if any, and distributions of any
net realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received
in additional shares of the Fund, and regardless of the investors holding
period relating to the shares with respect to which such gains are
distributed. Market discount recognized on taxable and tax-exempt bonds is
taxable as ordinary income, not as excludable income. Under current law,
the highest Federal income tax rate applicable to net long-term gains
realized by individuals is 28%. The rate applicable to corporations is 35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received
deduction for corporations will be applicable. Specific questions should be
addressed to the investor's own tax adviser.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any)
and redemptions) paid to certain shareholders. In order to avoid this
backup withholding requirement, each investor must certify on the Share
Purchase Application, or on a separate form supplied by State Street, that
the investor's social security or taxpayer identification number is correct
and that the investor is not currently subject to backup withholding or is
exempt from backup withholding.
For Evergreen Short Intermediate Municipal Fund-California, so long as
the Fund remains qualified under Subchapter M of the Code for federal
purposes and qualified as a diversified management investment company, then
under current California law, the Fund is entitled to pass through to its
shareholders the tax-exempt income it earns. To the extent that Fund
dividends are derived from earnings on California Municipal Securities,
such dividends will be exempt from California personal income taxes when
received by the Fund's shareholders, provided the Fund has complied with
the requirement that at least 50% of its assets be invested in California
Municipal Securities. For California income tax purposes, long-term capital
gains distributions are taxable as ordinary income.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will
set forth the amount of income exempt from Federal and, if applicable,
state taxation (including California), and the amount, if any, subject to
Federal and state taxation. Moreover, to the extent necessary, these
statements will indicate the amount of exempt-interest dividends which are
a specific preference item for purposes of the Federal individual and
corporate alternative minimum taxes. The exemption of interest income for
Federal income tax purposes does not necessarily result in exemption under
the income or other tax law of any state or local taxing authority.
Investors should consult their own tax advisers about the status of
distributions from the Funds in their states and localities. Each Fund
notifies shareholders annually as to the interest exempt from Federal taxes
earned by the Fund.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Evergreen National Tax Free Fund. The total return of Evergreen National
Tax Free Fund for the fiscal year ending August 31, 1994 was -2.29%,
outperforming the Lehman Brothers Long Insured Municipal Bond Index by .29%
which stood at -2.57% as of that date. Since inception, the Fund's
cumulative total return is 1.84% greater than that of the index +10.86%
versus +9.02%. The average annual return since inception was +6.33%. The
Fund is a long-term bond fund with average maturities generally longer than
fifteen years and seeks to extend or reduce those maturities as the market
and interest rate outlook change. As the 1994 year evolved and the Federal
Reserve initiated a series of moves to tighten credit (raise rates), the
primary strategy employed by the Adviser was to reduce maturity and
duration exposure, yet still provide a reasonable stream of tax-free income
to shareholders. Protection of principal is an important goal for the Fund
and though rising interest rates have caused returns to be negative for the
fiscal year, the Fund's performance compares favorably with the relevant
indices.
<PAGE>
A particular security type which has exhibited poorer performance
characteristics - deep market discount bonds - has been a specific
candidate for sale from the Fund, to be replaced by higher coupon bonds.
This strategy has generally enhanced the performance record of the Fund
because more income is generated with the higher coupons. When possible,
the Fund will continue to reduce its exposure to these securities to be
consistent with the its goal of principal protection in an interest rate
environment that has a decidedly upward bias. The Fund continues to invest
at least 80% of its assets in Municipal Securities insured as to interest
and principal and to maintain wide diversification in names of large
national issuers.
[CHART]
Evergreen Short-Intermediate Municipal Fund. The Fund's total return for
the fiscal year ending August 31, 1994 was +1.42%, versus the Lehman
Brothers 3-Year Municipal Bond Index, which rose + 2.38%, and the Lehman
Brothers 5-Year Municipal Bond Index, which increased + 2.01%. As the
economy picked up momentum and the Federal Reserve started tightening,
interest rates in the fixed-income markets climbed in every maturity range.
As a result, the Fund moved to a more defensive position during the last
half of the fiscal year in order to moderate price volatility. We reduced
the Fund's weighted average maturities and durations, and adjusted the
holdings by selling securities most sensitive to price declines in a rising
environment such as bonds trading at a discount. Proceeds were reinvested
in premium-based, high quality bonds. The strategy of the Fund as of August
31, 1994 is to remain relatively short in the one to three-year range as we
look to purchase investment grade, non-callable bonds.
<PAGE>
[CHART]
Evergreen Short-Intermediate Municipal Fund - California. The Fund's total
return for the fiscal year ending August 31, 1994 was 1.84%, versus the
Lehman Brothers 3-Year California Municipal Bond Index, which rose +2.38%
and the Lehman Brothers California Municipal Bond Index, which increased +
2.21%.
As the economy picked up momentum and the Federal Reserve started
tightening, interest rates in the fixed-income markets climbed in every
maturity range. As a result, the Fund moved to a more defensive position
during the last half of the fiscal year in order to moderate price
volatility. We reduced the Fund's weighted average maturities and
durations, and adjusted the holdings by selling securities most sensitive
to price declines in a rising environment such as bonds trading at a
discount. Proceeds were reinvested in premium-based, high quality bonds.
Our strategy as of August 31, 1994, is to remain relatively short in the
one to three-year range as we look to purchase investment grade, non
callable bonds.
[CHART]
<PAGE>
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking
best price and execution, a Fund may consider sales of its shares as a
factor in the selection of dealers to enter into portfolio transactions
with the Fund.
Other Classes of Shares. Each Fund currently offers three classes of
shares, Class A, Class B and Class Y, and may in the future offer
additional classes. Class Y shares are the only class of shares offered by
this Prospectus and are only available to (i) all shareholders of record in
one or more of the Evergreen Funds as of December 30, 1994, (ii) certain
institutional investors and (iii) investment advisory clients of the
Adviser and its affiliates. The dividends payable with respect to Class A
and Class B shares will be less than those payable with respect to Class Y
shares due to the distribution and distribution related expenses borne by
Class A and Class B shares and the fact that such expenses are not borne by
Class Y shares.
Organization. The Funds are separate investment series of a Massachusetts
business trust organized in 1988. The Funds do not intend to hold annual
shareholder meetings; shareholder meetings will be held only when required
by applicable law. Shareholders have available certain procedures for the
removal of Trustees.
A shareholder in each class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon
the relative value of such shares to those of other Classes of the Fund,
and, upon redeeming shares, will receive the then current net asset value
of the Class of shares of the Fund represented by the redeemed shares less
any applicable contingent deferred sales charge ("CDSC"). There is no CDSC
imposed on redemptions of Class Y shares. The Funds are empowered to
establish, without shareholder approval, additional investment series,
which may have different investment objectives, and additional classes of
shares for any existing or future series. If an additional series or class
were established in a Fund, each share of the series or class would
normally be entitled to one vote for all purposes. Generally, shares of
each series and class would vote together as a single class on matters,
such as the election of Directors, that affect each series and class in
substantially the same manner. Class A, B and Y shares have identical
voting, dividend, liquidation and other rights, except that each class
bears, to the extent applicable, its own distribution and transfer agency
expenses as well as any other expenses applicable only to a specific class.
Each class of shares votes separately with respect to Rule 12b-1
distribution plans and other matters for which separate class voting is
appropriate under applicable law. Shares are entitled to dividends as
determined by the Trustees and, in liquidation of a Fund, are entitled to
receive the net assets of the Fund.
Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank
and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as
each Fund's registrar, transfer agent and dividend-disbursing agent for a
fee based upon the number of shareholder accounts maintained for the Funds.
The transfer agency fee with respect to the Class B shares will be higher
than the transfer agency fee with respect to the Class A shares.
Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz
Incorporated, located at 237 Park Avenue, New York, New York 10017, is the
principal underwriter of the Funds. EFD provides personnel to serve as
officers of the Funds. The salaries and other expenses related to providing
such personnel are borne by EFD. For its services, EFD is paid an annual
fee by the Adviser. No portion of this fee is borne by Class Y
shareholders.
Performance Information. A Fund's performance may be quoted in advertising
in terms of yield or total return. Both types of performance are based on
SEC formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC
for all stock and bond funds. Because yield accounting methods differ from
the method used for other accounting purposes, a Fund's yield may not equal
its distribution rate, the income paid to your account or the income
reported in a Fund's financial statements. To calculate yield, a Fund takes
the interest income it earned from its portfolio of investments (as defined
by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses
the result as an annualized percentage rate based on a Fund's share price
at the end of the 30-day period. This yield does not reflect gains or
losses from selling securities.
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's
tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's
tax-
<PAGE>
exempt yield by the result of one minus a stated Federal tax rate (or the
combined California and Federal tax rate). If only a portion of a Fund's
income was tax-exempt, only that portion is adjusted in the calculation.
Total returns are based on the overall dollar or percentage change in
the value of a hypothetical investment in a Fund. A Fund's total return
shows its overall change in value including changes in share prices and
assumes all a Fund's distributions are reinvested. A cumulative total
return reflects a Fund's performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if a
Fund's performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in a Fund's
return, you should recognize that they are not the same as actual
year-by-year results. To illustrate the components of overall performance,
a Fund may separate its cumulative and average annual total returns into
income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time
in advertising or marketing a Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar and other industry publications. The
Fund may also advertise in items of sales literature an "actual
distribution rate" which is computed by dividing the total ordinary income
distributed (which may include the excess of short-term capital gains over
losses) to shareholders for the latest twelve month period by the maximum
public offering price per share on the last day of the period. Investors
should be aware that past performance may not be reflective of future
results.
Liability Under Massachusetts Law. Under Massachusetts law, trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which
Funds operate provide that no trustee or shareholder will be personally
liable for the obligations of the Trust and that every written contract
made by the Trust contain a provision to that effect. If any trustee or
shareholder were required to pay any liability of the Trust, that person
would be entitled to reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not
contain all the information set forth in the Registration Statements filed
by the Funds with the Commission under the Securities Act. Copies of the
Registration Statements may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of the
Commission in Washington, D.C.
<PAGE>
APPENDIX -- CALIFORNIA RISK CONSIDERATIONS
The following information as to certain California risk factors is
given to investors in view of the policy of Evergreen Short Intermediate
Municipal Fund-California of investing primarily in California state and
municipal issuers. The information is based primarily upon information
derived from public documents relating to securities offerings of
California state and municipal issuers, from independent municipal credit
reports and historically reliable sources but has not been independently
verified by the Fund.
Changes in California constitutional and other laws during the last
several years have raised questions about the ability of California state
and municipal issuers to obtain sufficient revenue to pay their bond
obligations. In 1978, California voters approved an amendment to the
California Constitution known as Proposition 13. Proposition 13 limits ad
valorem taxes on real property and restricts the ability of taxing entities
to increase real property taxes. Legislation passed subsequent to
Proposition 13, however, provided for the redistribution of California's
General Fund surplus to local agencies, the reallocation of revenues to
local agencies, and the assumption of certain local obligations by the
state so as to help California municipal issuers to raise revenue to pay
their bond obligations. It is unknown, however, whether additional revenue
redistribution legislation will be enacted in the future and whether, if
enacted, such legislation would provide sufficient revenue for such
California issuers to pay their obligations. The state is also subject to
another constitutional amendment, Article XIIIB, which may have an adverse
impact on California state and municipal issuers. Article XIIIB restricts
the state from spending certain appropriations in excess of an
appropriations limit imposed for each state and local government entity. If
revenues exceed such appropriations limit, such revenues must be returned
either as revisions in the tax rates or fee schedules. Because of the
uncertain impact of the aforementioned statutes and cases, the possible
inconsistencies in the respective terms of the statutes and the
impossibility of predicting the level of future appropriations and
applicability of related statutes to such questions, it is not currently
possible to assess the impact of such legislation, cases and policies on
the long-term ability of California state and municipal issuers to pay
interest or repay principal on their obligations.
California's economy is larger than many sovereign nations. During the
1980s, California experienced growth rates well in excess of the rest of
the nation. The state's major employment sectors are services, trade, and
manufacturing. Industrial concentration is in electronics, aerospace, and
non-electrical equipment. Also significant are agriculture and oil
production.
Key sectors of California's economy have been severely affected by the
recession. Since May of 1990, job losses total over 850,000. Declines in
the aerospace and high technology sectors have been especially severe. The
continuing drive in population and labor force growth has produced higher
unemployment rates in the state. Although total job loss has declined,
weakness continues in key areas of California's economy, including
government, real estate and aerospace. Wealth levels still remain high in
the state, although the difference between state and national levels
continues to narrow.
In July of 1994, both S&P and Moody's lowered the general obligation
bond ratings of the state of California. These revisions reflect the
state's heavy reliance on the short-term note market to finance its cash
imbalance and the likelihood that this exposure will persist for at least
another two years. For more information on these ratings revisions and the
state's current budget, please refer to the Statement of Additional
Information.
Orange County Bankruptcy. On December 6, 1994, Orange County, California,
petitioned for bankruptcy based on losses in the Orange County Investment
Fund which at the time were estimated to be approximately $2 billion. At
the time of the petition, the Orange County Investment Fund held monies
belonging to Orange County as well as other municipal issuers located in
Orange County and other parts of California. Although the ultimate
resolution of this matter is uncertain, one possible result is that the
ability of municipal issuers investing in the Orange County Investment Fund
to service some or all of their outstanding debt obligations may be
severely impaired.
As of December 6, 1994, Evergreen Short-Intermediate Municipal Fund -
California did not hold debt obligations of Orange County or other issuers
that the Fund is aware had invested in the Orange County Investment Fund.
Although it has no current intention to do so, if it deems it advisable,
the Fund reserves the right from time to time to make investments in
municipal issuers who maintain assets in the Orange County Investment Fund.
STATEMENT OF ADDITIONAL INFORMATION
January 3, 1995
THE EVERGREEN MUTUAL FUNDS
2500 Westchester Avenue, Purchase, New York 10577
800-807-2940
This Statement of Additional Information pertains to all classes of shares of
the Funds listed below. It is not a prospectus and should be read in conjunction
with the current Prospectus of the Fund in which you are making or contemplating
an investment. The Evergreen Mutual Funds are offered through 6 separate
prospectuses representing different investment categories, including growth,
growth and income, fixed-income, money market and tax exempt funds. Copies of
the Prospectuses for each Fund listed below may be obtained without charge by
calling the number listed above.
The Evergreen Fund ("Evergreen")
Evergreen Global Real Estate Equity Fund ("Global")
Evergreen U.S. Real Estate Equity Fund ("U.S. Real Estate")
The Evergreen Limited Market Fund, Inc. ("Limited Market")
Evergreen Growth and Income Fund ("Growth and Income")
The Evergreen Total Return Fund ("Total Return")
The Evergreen American Retirement Fund ("American Retirement")
Evergreen Small Cap Equity Income Fund ("Small Cap")
Evergreen Foundation Fund ("Foundation")
Evergreen Tax Strategic Foundation Fund ("Tax Strategic")
Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate")
Evergreen Short-Intermediate Municipal Fund-CA("Short-Intermediate-CA")
Evergreen National Tax-Free Fund ("National")
Evergreen Tax Exempt Money Market Fund ("Tax Exempt")
The Evergreen Money Market Trust ("Money Market")
Evergreen U.S. Government Securities Fund ("U.S. Government")
<PAGE>
TABLE OF CONTENTS
.
Page
Investment Objectives and Policies.................................... 3
Investment Restrictions............................................... 6
Non-Fundamental Operating Policies.................................... 14
Certain Risk Considerations........................................... 15
Management............................................................ 17
Investment Adviser.................................................... 21
Distribution Plans.................................................... 25
Allocation of Brokerage............................................... 26
Additional Tax Information............................................ 29
Net Asset Value....................................................... 32
Purchase of Shares.................................................... 33
Performance Information............................................... 43
Financial Statements.................................................. 47
Appendix A - Note, Bond And Commercial Paper Ratings i
Appendix B - Additional Information Concerning California ii
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See also "Investment Objective and Policies" in each
Fund's Prospectus)
.........The investment objective of each Fund and a description of the
securities in which they may invest is set forth under "Investment Objective and
Policies" in each Fund's Prospectus.
.........Each of the Funds, with the exception of Global and U.S. Real
Estate may not invest more than 25% of its net assets in any one industry. Under
normal circumstances, Global and U.S. Real Estate will invest not less than 65%
of their total assets in equity securities of companies principally engaged in
the real estate industry. Also, National, Tax Strategic, Short-Intermediate and
Short-Intermediate-CA may, subject to the Investment Restrictions set forth
below, invest 25% or more of their total assets in municipal securities that are
related in such a way that an economic, business, or political development or
change affecting one such security could also affect the other securities (for
example, securities whose issuers are located in the same state).
.........As a matter of non-fundamental investment policy, each Fund may
invest up to 15% of its net assets in illiquid securities and other securities
which are not readily marketable (10% for Money Market and Tax Exempt).
Repurchase agreements with maturities longer than seven days will be included
for the purpose of the foregoing 15% (or 10%) limit but, with respect to Global,
U.S. Real Estate, Small Cap, Tax Strategic, National, Short-Intermediate,
Short-Intermediate-CA, Tax Exempt, Money Market and U.S. Government,,
investments in such repurchase agreements are limited to 10% of a Fund's assets.
American Retirement and Foundation may not invest in repurchase agreements.
Securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, which the Trustees/Directors of a Fund have determined to be liquid, will
not be considered by the Fund to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. The inability of a
Fund to dispose of illiquid or not readily marketable investments readily or at
a reasonable price could impair the Fund's ability to raise cash for redemptions
or other purposes. The liquidity of securities purchased by a Fund which are
eligible for resale pursuant to Rule 144A will be monitored by the Adviser on an
ongoing basis, subject to the oversight of the Trustees/Directors.
Notwithstanding the fact that a favorable liquidity determination was made at
the time of purchase of such a security, subsequent developments affecting the
market for such securities held by a Fund could have a negative effect on their
liquidity. In the event that such a security is deemed to be no longer liquid, a
Fund's holdings will be reviewed to determine what action, if any, is required
to ensure that the retention of such security does not result in the Fund
exceeding the applicable limit on assets invested in illiquid or not readily
marketable securities.
.........A portion of the assets of National or Tax-Strategic may be
invested in health care bonds issued for public and non-profit hospitals. Since
1983, the U.S. hospital industry has been under significant pressure from third
party payors to reduce expenses and limit length of stay, a phenomenon which has
negatively affected the financial health of many hospitals. National or
Tax-Strategic may also from time to time invest in electric revenue issues which
have exposure to or participate in nuclear projects. There may be substantial
construction or operating risks associated with such nuclear plants which could
affect the issuer's financial performance. Such risks include delay in
construction and operation due to increased regulation, unexpected outages or
plant shutdowns, increased Nuclear Regulatory Commission surveillance or
inadequate rate relief.
.........Evergreen, Total Return and Growth and Income may write covered
call options to a limited extent on their portfolio securities ("covered
options") in an attempt to earn additional income. A call option gives the
purchaser of the option the right to buy a security from the writer at the
exercise price at any time during the option period. The premium paid to the
writer is the consideration for undertaking the obligations under the option
contract. The writer foregoes the opportunity to profit from an increase in the
market price of the underlying security above the exercise price except insofar
as the premium represents such a profit. The Fund retains the risk of loss
should the price of the underlying security decline. The Fund will write only
covered call option contracts and will receive premium income from the writing
of such contracts. Evergreen, Total Return and Growth and Income may purchase
call options to close out a previously written call option. In order to do so,
the Fund will make a "closing purchase transaction" -- the purchase of a call
option on the same security with the same exercise price and expiration date as
the call option which it has previously written. A Fund will realize a profit or
loss from a closing purchase transaction if the cost of the transaction is less
or more than the premium received from the writing of the option. If an option
is exercised, a Fund realizes a long-term or short-term gain or loss from the
sale of the underlying security and the proceeds of the sale are increased by
the premium originally received.
.........Consistent with its strategy of investing in "undervalued" securities,
Growth and Income may invest in lower medium and low-quality bonds and may also
purchase bonds in default if, in the opinion of the Adviser, there is
significant potential for capital appreciation. Growth and Income, however, will
not invest more than 5% of its total assets in debt securities which are rated
below investment grade. These bonds are regarded as speculative with respect to
the issuer's continuing ability to meet principal and interest payments. High
yield bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than investment grade bonds. A projection of an
economic downturn, or higher interest rates, for example, could cause a decline
in high yield bond prices because such events could lessen the ability of highly
leveraged companies to make principal and interest payments on their debt
securities. In addition, the secondary trading market for high yield bonds may
be less liquid than the market for higher grade bonds, which can adversely
affect the ability to dispose of such securities.
.........Subject to the limits described in the Prospectus and this
Statement of Additional Information, Small Cap, U.S. Government, National and
U.S. Real Estate may, to a limited extent, enter into financial futures
contracts including futures contracts based on securities indices, purchase and
write put and call options on such futures contracts, and engage in related
closing transactions.
.........Foundation may invest no more than 5% of its total assets, at the time
of the investment in question, in variable and floating rate securities. The
terms of variable and floating rate instruments provide for the interest rate to
be adjusted according to a formula on certain predetermined dates. Variable and
floating rate instruments that are repayable on demand at a future date are
deemed to have a maturity equal to the time remaining until the principal will
be received on the assumption that the demand feature is exercised on the
earliest possible date. For the purposes of evaluating the interest-rate
sensitivity of the Fund, variable and floating rate instruments are deemed to
have a maturity equal to the period remaining until the next interest-rate
readjustment. For the purposes of evaluating the credit risks of variable and
floating rate instruments, these instruments are deemed to have a maturity equal
to the time remaining until the earliest date the Fund is entitled to demand
repayment of principal.
CURRENCY HEDGING - Global
Forward Contracts
.........As noted in its Prospectus, Global may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days (usually less than one year) from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has a deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference (the
spread) between the price at which they are buying and selling various
currencies.
.........Except for cross-hedges, the Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. At the consummation of such a forward contract,
the Fund may either make delivery of the foreign currency or terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract obligating it to purchase, at the same maturity date, the
same amount of such foreign currency. If the Fund chooses to make delivery of
the foreign currency, it may be required to obtain such currency through the
sale of portfolio securities denominated in such currency or through conversion
of other assets of the Fund into such currency. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or loss to the extent that
there has been a change in forward contract prices.
.........The Adviser believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interest of
the Fund will be served. The Fund will place cash or high grade debt securities
in a separate account of the Fund at its custodian bank in an amount equal to
the value of the Fund's total assets committed to forward foreign currency
exchange contracts entered into as a hedge against a substantial decline in the
value of a particular foreign currency. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
.........It should be realized that this method of protecting the value of
the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which can be achieved at some future point
in time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase.
.........Inasmuch as it is not clear whether the gross income from certain
foreign currency transactions will be excluded by the Internal Revenue Service
from "qualifying income" for the purpose of qualification of the Fund as a
regulated investment company under U.S. Federal income tax law, the Fund intends
to operate so that the gross income from such transactions, together with other
nonqualifying income, will be less than 10% of the gross income of the Fund in
any taxable year.
Futures Contracts on Currencies .........Global may also invest in currency
futures contracts and related options thereon. The Fund may sell a currency
futures contract or a call option thereon or purchase a put option on such
futures contract, if the Adviser anticipates that exchange rates for a
particular currency will fall, as a hedge (or in the case of a sale of a call
option, a partial hedge) against a decrease in the value of the Fund's
securities denominated in such currency. If the Adviser anticipates that
exchange rates will rise, the Fund may purchase a currency futures contract or a
call option thereon to protect against an increase in the price of securities
denominated in a particular currency the Fund intends to purchase. These futures
contracts and related options will be used only as a hedge against anticipated
currency rate changes.
.........A currency futures contract sale creates an obligation by the
Fund, as seller, to deliver the amount of currency called for in the contract at
a specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a loss. Similarly, the closing out of a currency
futures contract purchase is effected by the Fund entering into a currency
futures contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the offsetting sale price is less than the
purchase price, the Fund realizes a loss.
.........Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a futures contract entitles
its holder to decide on or before a future date whether to enter into such a
contract. If the holder decides not to enter into the contract, the premium paid
for the option is lost.
.........The Fund is required to maintain margin deposits with brokerage
firms through which it effects currency futures contracts and options thereon.
In addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
.........A risk in employing currency futures contracts to protect against
the price volatility of portfolio securities denominated in a particular
currency is that the prices of such securities subject to currency futures
contracts may correlate imperfectly with the behavior of the cash prices of the
Fund's securities. The correlation may be distorted by the fact that the
currency futures market may be dominated by short-term traders seeking to profit
from changes in exchange rates. This would reduce their value for hedging
purposes over a short-term period. Such distortions are generally minor and
would diminish as the contract approached maturity. Another risk is that the
Fund's Adviser could be incorrect in its expectations as to the direction or
extent of various exchange rate movements or the time span within which the
movements take place.
.........Put and call options on currency futures have characteristics
similar to those of other options. In addition to the risks associated with
investing in options on securities, there are particular risks associated with
investing in options on currency futures. In particular, the ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop.
.........The Fund may not enter into currency futures contracts or related
options thereon if immediately thereafter the amount committed to margin plus
the amount paid for premiums for unexpired options on currency futures exceeds
5% of the market value of the Fund's total assets. The Fund may not purchase or
sell currency futures contracts or related options if immediately thereafter
more than 30% of its net assets would be hedged. In instances involving the
purchase of currency futures contracts by the Fund, an amount equal to the
market value of the currency futures contract will be deposited in a segregated
account of cash and cash equivalents to collateralize the position and thereby
ensure that the use of such futures contract is unleveraged.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
.........Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
Adviser without shareholder approval, subject to review and approval by the
Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1........Concentration of Assets in Any One Issuer
.........None of Growth and Income, Limited Market and Total Return may
invest more than 5% of its total net assets, at the time of the investment in
question, in the securities of any one issuer other than the United States
Government and its instrumentalities.
.........Evergreen may not invest more than 5% of its total net assets in
the securities of any one issuer other than the United States Government and its
instrumentalities.
.........American Retirement may not invest more than 5% of its total
assets, at the time of the investment in question, in the securities of any one
issuer other than the United States Government and its agencies or
instrumentalities.
........None of Foundation, Global, Small Cap and U.S. Real Estate may invest
more than 5% of its total assets, at the time of the investment in question, in
the securities of any one issuer other than the United States Government and its
agencies or instrumentalities, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% limitation.
.........None of National, Short Intermediate, Short Intermediate-CA, Tax
Exempt, and Tax Strategic may invest more than 5% of its total assets, at the
time of the investment in question, in the securities of any one issuer other
than the United States Government and its agencies or instrumentalities, except
that up to 25% of the value of each Fund's total assets may be invested without
regard to such 5% limitation. For this purpose each political subdivision,
agency, or instrumentality and each multi-state agency of which a state is a
member, and each public authority which issues industrial development bonds on
behalf of a private entity, will be regarded as a separate issuer for
determining the diversification of each Fund's portfolio.
.........Money Market may not invest more than 5% of its total assets, at the
time of the investment in question, in the securities of any one issuer other
than the United States Government and its agencies or instrumentalities, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to such 5% limitation. (In order to comply with amendments to the
applicable portfolio diversification requirements, the Fund as a matter of
operating policy, prohibits the investment of more than 5% of the Fund's total
assets in securities issued by any one issuer, except that the Fund may invest
more than 5% of its total assets in First Tier Securities of a single issuer for
a period of up to three business days after the purchase thereof. The Fund may
not make more than one such investment at any time.)
2........10% Limit on Securities of Any One Issuer
.........None of American Retirement, Foundation, Global, Money Market,
Short Intermediate-CA, Small Cap, *Tax Exempt and U.S. Real Estate* may purchase
more than 10% of any class of securities of any one issuer other than the United
States Government and its agencies or instrumentalities.
.........None of Evergreen, Growth and Income, Limited Market and Total
Return may purchase more than 10% of any class of securities of any one issuer
other than the United States Government and its instrumentalities.
.........None of National*, Short-Intermediate* and Tax Strategic* may
invest more than 10% of the voting securities of any one issuer other than the
United States Government and its agencies or instrumentalities.
3........Investment for Purposes of Control or Management
.........No Fund(2) may invest in companies for the purpose of exercising
control or management.
(footnote)
--------
(2) Not fundamental for Small Cap, Tax Strategic, U.S. Real Estate,
National and U.S. Government.
(end footnote)
4........Purchase of Securities on Margin
.........None of American Retirement, Evergreen, Foundation, Global, Growth and
Income, Limited Market, Money Market, National,* Short-Intermediate, Short
Intermediate-CA, Tax-Exempt, Tax Strategic* and Total Return may purchase
securities on margin, except that each Fund may obtain such short-term credits
as may be necessary for the clearance of transactions.
.........None of Small Cap,* U.S. Government* and U.S. Real Estate* may
purchase securities on margin, except that each Fund may obtain such short-term
credits as may be necessary for clearance of transactions, and provided that
margin payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
5........Unseasoned Issuers
.........Neither American Retirement nor Foundation may invest in the
securities of unseasoned issuers that have been in continuous operation for less
than three years, including operating periods of their predecessors.
.........None of Evergreen, Money Market and Total Return may invest more than
5% of its total assets (5% of total net assets for Evergreen) in securities of
unseasoned issuers that have been in continuous operation for less than three
years, including operating periods of their predecessors.
.........None of National, Short-Intermediate, Short-Intermediate-CA and Tax
Exempt may invest more than 5% of its total assets in securities of unseasoned
issuers (taxable securities of unseasoned issuers for Short Intermediate,
Short-Intermediate-CA and Tax Exempt) that have been in continuous operation for
less than three years, including operating periods of their predecessors, except
that (i) each Fund may invest in obligations issued or guaranteed by the United
States Government and its agencies or instrumentalities, (ii)
Short-Intermediate, Short-Intermediate-CA and Tax Exempt may invest in Municipal
Securities, and (iii) National* may invest in Municipal Bonds.
.........None of Growth and Income, Small Cap* and Tax Strategic* may invest
more than 15% of its total assets (10% of total net assets for Growth and
Income) in securities of unseasoned issuers that have been in continuous
operation for less than three years, including operating periods of their
predecessors.
.........U.S. Real Estate* may not invest more than 15% of its total assets
in securities of unseasoned issuers that have been in continuous operation for
less than three years, including operating periods of their predecessors, except
obligations issued or guaranteed by the United States Government and its
agencies or instrumentalities (this limitation does not apply to real estate
investment trusts).
.........Global may not invest more than 5% of its total assets in securities of
unseasoned issuers that have been in continuous operation for less than three
years, including operating periods of their predecessors, except obligations
issued or guaranteed by the United States Government and its agencies or
instrumentalities (this limitation does not apply to real estate investment
trusts).
6........Underwriting
.........None of American Retirement, Evergreen, Foundation, Global, Growth
and Income, Limited Market, Money Market, Small Cap,* Tax Strategic,* Total
Return, U.S. Government and U.S. Real Estate* may engage in the business of
underwriting the securities of other issuers.
.........None of National,* Short-Intermediate, Short-Intermediate - CA and
Tax-Exempt may engage in the business of underwriting the securities of other
issuers, provided that the purchase of Municipal Securities (Municipal Bonds for
National), or other permitted investments, directly from the issuer thereof (or
from an underwriter for an issuer) and the later disposition of such securities
in accordance with a Fund's investment program shall not be deemed to be an
underwriting.
7........Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
......... No Fund may purchase, sell or invest in interests in oil, gas or
other mineral exploration or development programs.
8........Concentration in Any One Industry
.........Neither Global nor U.S. Real Estate may concentrate its
investments in any one industry, except that each Fund will invest at least 65%
of its total assets in securities of companies engaged principally in the real
estate industry.
.........None of Evergreen, Growth and Income, Limited Market and Total
Return may concentrate its investments in any one industry, except that each
Fund may invest up to 25% of its total net assets in any one industry.
.........None of American Retirement, Foundation, Money Market, Small Cap and
Tax Strategic may invest 25% or more of its total assets in the securities of
issuers conducting their principal business activities in any one industry;
provided, that this limitation shall not apply (i) with respect to each Fund, to
obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities, (ii) with respect to Tax Strategic, to Municipal
Securities, or (iii) with respect to Money Market, to certificates of deposit,
bankers' acceptances and interest bearing savings deposits. For purposes of this
restriction, utility companies, gas, electric, water and telephone companies
will be considered separate industries.
.........U.S. Government may not purchase the securities of any issuer
(other than obligations issued or guaranteed by the government of the United
States or its agencies or instrumentalities) if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers having their
principal business activities in the same industry.
.........None of Short-Intermediate, Short-Intermediate-CA and Tax Exempt may
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry; provided, that this
limitation shall not apply (i) with respect to each Fund, to obligations issued
or guaranteed by the United States Government or its agencies or
instrumentalities and Municipal Securities, or (ii) with respect to
Short-Intermediate-CA and Tax-Exempt, to certificates of deposit and bankers'
acceptances issued by domestic branches of United States banks).
.........National may not invest more than 25% of its total assets in the
securities of issuers conducting their principal business activities in any one
industry; provided, that this limitation shall not apply to obligations issued
or guaranteed by the United States Government or its agencies or
instrumentalities or Municipal Bonds.
9........Warrants
.........None of American Retirement, Evergreen, Global, Growth and Income,
Limited Market, National,* Short-Intermediate, Short-Intermediate - CA, Small
Cap,* Tax-Exempt, Total Return and U.S. Real Estate* may invest more than 5% of
its total net assets in warrants, and, of this amount, no more than 2% of each
Fund's total net assets may be invested in warrants that are listed on neither
the New York nor the American Stock Exchange.
.........Neither Foundation nor Tax Strategic* may invest more than 5% of its
net assets in warrants, and of this amount, no more than 2% of each Fund's net
assets may be invested in warrants that are listed on neither the New York nor
the American Stock Exchanges.
.........U.S. Government* may not invest more than 5% of its total net
assets in warrants, and of this amount, no more than 2% of the Fund's total net
assets may be invested in warrants that are not traded on principal domestic or
foreign exchanges.
10.......Ownership by Directors/Trustees
.........None of American Retirement, Evergreen, Foundation, Global, Growth
and Income, Limited Market, Money Market, National, Short-Intermediate,
Short-Intermediate-CA, Tax-Exempt, Total Return and U.S. Government* may
purchase or retain the securities of any issuer if (i) one or more officers or
trustees/directors of the Fund or the Adviser individually owns or would own,
directly or beneficially, more than 1/2% of the securities of such issuer, and
(ii) in the aggregate, such persons own or would own, directly or beneficially,
more than 5% of such securities.
.........None of Small Cap,* Tax Strategic* and U.S. Real Estate* may
purchase or retain the securities of any issuer if, to the Fund's knowledge, (i)
one or more officers or trustees/directors of the Fund or the Adviser
individually owns or would own, directly or beneficially, more than 1/2% of the
securities of such issuer, and (ii) in the aggregate, such persons own or would
own, directly or beneficially, more than 5% of such securities.
11.......Short Sales
.........None of National,* Money Market, Short-Intermediate,
Short-Intermediate-CA and Tax Exempt may make short sales of securities or
maintain a short position.
.........Neither American Retirement nor Foundation may make short sales of
securities unless, at the time of each such sale and thereafter while a short
position exists, each Fund owns the securities sold or securities convertible
into or carrying rights to acquire such securities.
.........None of Evergreen, Growth and Income, Global, Limited Market, Tax
Strategic* and Total Return may make short sales of securities unless, at the
time of each such sale and thereafter while a short position exists, each Fund
owns an equal amount of securities of the same issue or owns securities which,
without payment by the Fund of any consideration, are convertible into, or are
exchangeable for, an equal amount of securities of the same issue.
.........None of Small Cap,* U.S. Real Estate* and U.S. Government* may
make short sales of securities unless, at the time of each such sale and
thereafter while a short position exists, each Fund owns an equal amount of
securities of the same issue or owns securities which, without payment by the
Fund of any consideration, are convertible into, or are exchangeable for, an
equal amount of securities of the same issue (and provided that transactions in
futures contracts and options are not deemed to constitute selling securities
short).
12.......Lending of Funds
.........None of Global, Small Cap, U.S. Government, U.S. Real Estate and
Tax Strategic may lend its funds to other persons, except through the purchase
of a portion of an issue of debt securities publicly distributed or the entering
into of repurchase agreements.
.........None of American Retirement, Evergreen, Foundation, Growth and
Income, Limited Market and Total Return may lend its funds to other persons,
except through the purchase of a portion of an issue of debt securities publicly
distributed.
.........None of National, Short-Intermediate, Short-Intermediate-CA and
Tax Exempt may lend its funds to other persons, provided that each Fund may
purchase issues of debt securities, acquire privately negotiated loans made to
municipal borrowers and enter into repurchase agreements.
.........Money Market may not lend its funds to other persons, provided
that it may purchase money market securities or enter into repurchase
agreements.
13.......Lending of Securities
.........None of Foundation, Global, National, Short-Intermediate, Small
Cap, Tax Strategic, U.S. Government and U.S. Real Estate may lend its portfolio
securities, unless the borrower is a broker, dealer or financial institution
that pledges and maintains collateral with the Fund consisting of cash or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the current market value of the loaned
securities, including accrued interest, provided that the aggregate amount of
such loans shall not exceed 30% of the Fund's total assets (30% of the Fund's
total net assets for Global, U.S. Government and U.S. Real Estate).
.........None of American Retirement, Evergreen, Growth and Income and Limited
Market may lend its portfolio securities, unless the borrower is a broker,
dealer or financial institution that pledges and maintains collateral with the
Fund consisting of cash or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
loaned securities (100% of the current market value for American Retirement),
provided that the aggregate amount of such loans shall not exceed 30% of the
Fund's total net assets.
.........None of Money Market, Short-Intermediate-CA, Tax Exempt and Total
Return may lend its portfolio securities, unless the borrower is a broker,
dealer or financial institution that pledges and maintains collateral with the
Fund consisting of cash, letters of credit or securities issued or guaranteed by
the United States Government having a value at all times not less than 100% of
the current market value of the loaned securities (100% of the value of the
loaned securities for Total Return), including accrued interest, provided that
the aggregate amount of such loans shall not exceed 30% of the Fund's total
assets (30% of the Fund's total net assets for Total Return).
14.......Commodities
.........None of National,* Short-Intermediate, Short-Intermediate-CA, Tax
Exempt and Tax Strategic* may purchase, sell or invest in commodities, commodity
contracts or financial futures contracts.
.........None of Small Cap, U.S. Government and U.S. Real Estate may
purchase, sell or invest in physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
.........None of American Retirement, Evergreen, Foundation, Growth and
Income, Limited Market, Money Market and Total Return may purchase, sell or
invest in commodities or commodity contracts.
.........Global may not purchase, sell or invest in commodities or commodity
contracts; provided, however, that this policy does not prevent the Fund from
purchasing and selling currency futures contracts and entering into forward
foreign currency contracts.
15.......Real Estate
.........Neither Small Cap nor U.S. Government may purchase or invest in
real estate or interests in real estate (but this shall not prevent either Fund
from investing in marketable securities issued by companies such as real estate
investment trusts which deal in real estate or interests therein, and shall not
prevent U.S. Government from investing in participation interests in pools of
real estate mortgage loans).
.........Global may not purchase or invest in real estate or interests in
real estate (although it may purchase securities secured by real estate or
interests therein, or issued by companies or investment trusts which invest in
real estate or interests therein).
.........U.S. Real Estate* may not purchase, sell or invest in real estate
or interests in real estate (although it may purchase securities secured by real
estate or interests therein, or issued by companies or investment trusts which
invest in real estate or interests therein).
.........None of American Retirement, Evergreen, Foundation, Growth and Income,
Limited Market, Money Market, Tax Strategic and Total Return may purchase, sell
or invest in real estate or interests in real estate, except that (i) each Fund
may purchase, sell or invest in marketable securities of companies holding real
estate or interests in real estate, including real estate investment trusts, and
(ii) Tax Strategic may purchase, sell or invest in Municipal Securities or other
debt securities secured by real estate or interests therein.
None of National, Short-Intermediate, Short-Intermediate-CA and Tax Exempt may
purchase, sell or invest in real estate or interests in real estate, except that
each Fund may purchase Municipal Securities (Municipal Bonds for National) and
other debt securities secured by real estate or interests therein.
16.......Borrowing, Senior Securities, Reverse Repurchase Agreements
.........(Certain Funds have additional fundamental policies relating to
senior securities, repurchase agreements and reverse repurchase agreements. (See
Items 17 and 20 below)).
.........None of American Retirement, Foundation, Limited Market and Total
Return may borrow money except from banks as a temporary measure to facilitate
redemption requests which might otherwise require the untimely disposition of
portfolio investments and for extraordinary or emergency purposes (and, with
respect to American Retirement only, for leverage), provided that the aggregate
amount of such borrowings shall not exceed 5% of the value of the Fund's total
net assets (5% of total assets for American Retirement and Foundation) at the
time of any such borrowing, or mortgage, pledge or hypothecate its assets,
except in an amount sufficient to secure any such borrowing.
.........Evergreen may not borrow money except from banks as a temporary measure
for extraordinary or emergency purposes (i) on an unsecured basis, subject to
the requirements that the value of the Fund's assets, including the proceeds of
borrowings, does not at any time become less than 300% of the Fund's
indebtedness; provided, however, that if the value of the Fund's assets becomes
less than such amount, the Fund will reduce its borrowings within three business
days so that the value of the Fund's assets will be at least 300% of its
indebtedness, or (ii) may make such borrowings on a secured basis, provided that
the aggregate amount of such borrowings shall not exceed 5% of the value of its
total net assets at the time of any such borrowing, or mortgage, pledge or
hypothecate its assets, except in an amount not exceeding 15% of its total net
assets taken at cost to secure such borrowing.
.........None of Global, Short-Intermediate, Short-Intermediate-CA,
Small-Cap, Tax-Exempt, Tax Strategic, U.S. Government and U.S. Real Estate may
borrow money, issue senior securities or enter into reverse repurchase
agreements, except for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 10% of the value of each Fund's total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets except in connection with any such borrowing and in amounts not in excess
of the lesser of the dollar amounts borrowed or 10% of the value of each Fund's
total assets at the time of such borrowing, provided that each of Small Cap, Tax
Strategic, U.S. Government and U.S. Real Estate will not purchase any securities
at any time when borrowings, including reverse repurchase agreements, exceed 5%
of the value of its total assets, and provided further that each of Global, Tax
Exempt, Short-Intermediate and Short-Intermediate-CA will not purchase any
securities at times when any borrowings (including reverse repurchase
agreements) are outstanding. No Fund will enter into reverse repurchase
agreements exceeding 5% of the value of its total assets.
.........Money Market may not borrow money, issue senior securities or
enter into reverse repurchase agreements except for temporary or emergency
purposes, and not for leveraging, and then in amounts not in excess of 10% of
the value of the Fund's assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's assets at the time of such borrowing. The Fund will
not enter into reverse repurchase agreements exceeding 5% of the value of its
total assets. The Fund also will not purchase any additional securities whenever
any borrowings are outstanding.
.........National may not borrow money or enter into reverse repurchase
agreements except for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 10% of the value of the Fund's total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of such borrowing. The Fund will not enter into reverse
repurchase agreements exceeding 5% of the value of its total assets.
.........Growth and Income may not borrow money except from banks as a temporary
measure for extraordinary or emergency purposes, provided that the aggregate
amount of such borrowings shall not exceed 5% of the value of the Fund's total
assets at the time of such borrowing; or mortgage, pledge or hypothecate its
assets, except in an amount not exceeding 15% of its assets taken at cost to
secure such borrowing.
17.......Senior Securities
.........(The policies of certain Funds concerning senior securities are
set forth in Item 16 above.)
.........National* may not issue senior securities.
.........Neither American Retirement nor Foundation may issue senior
securities, except as permitted by the Investment Company Act of 1940, as
amended.
.........Growth and Income may not issue senior securities, as defined in the
Investment Company Act of 1940, as amended, except that this restriction shall
not be deemed to prohibit the Fund from (i) making any permitted borrowings,
mortgages or pledges, (ii) lending its portfolio securities, or (iii) entering
into permitted repurchase transactions.
.........Limited Market may not issue senior securities as defined in the
Investment Company Act of 1940, as amended, except insofar as the Fund may be
deemed to have issued a senior security by reason of borrowing money in
accordance with the restrictions described above.
18.......Joint Trading
.........None of American Retirement, Evergreen, Foundation, Global, Growth
and Income, Limited Market and Total Return may participate on a joint or joint
and several basis in any trading account in any securities.
.........None of Small Cap,* Tax Strategic,* U.S. Government* and U.S. Real
Estate* may participate on a joint or joint and several basis in any trading
account in any securities. (The "bunching of orders for the purchase or sale of
portfolio securities with the Adviser or accounts under its management to reduce
brokerage commissions, to average prices among them or to facilitate such
transactions is not considered a trading account in securities for purposes of
this restriction).
19.......Options
.........None of Foundation, Global, Limited Market, Money Market, Tax
Strategic* and U.S. Real Estate* may write, purchase or sell put or call
options, or combinations thereof, except that Global and U.S. Real Estate may do
so as permitted under "Investment Objective" in each such Fund's Prospectus.
.........None of National,* Short-Intermediate, Short-Intermediate-CA and
Tax Exempt may write, purchase or sell put or call options, or combinations
thereof; except each Fund may purchase securities with rights to put securities
to the seller in accordance with its investment program.
.........None of Evergreen, Growth and Income and Total Return may write,
purchase or sell put or call options, or combinations thereof, except that each
Fund is authorized to write covered call options on portfolio securities and to
purchase call options in closing purchase transactions, provided that (i) such
options are listed on a national securities exchange, (ii) the aggregate market
value of the underlying securities does not exceed 25% of the Fund's total net
assets, taken at current market value on the date of any such writing, and (iii)
the Fund retains the underlying securities for so long as call options written
against them make the shares subject to transfer upon the exercise of any
options.
.........American Retirement may not write, purchase or sell put or call
options, or combinations thereof, except that the Fund is authorized (i) to
write call options traded on a national securities exchange against no more than
15% of the value of the equity securities (including securities convertible into
equity securities) held in its portfolio, provided that the Fund owns the
optioned securities or securities convertible into or carrying rights to acquire
the optioned securities and (ii) to purchase call options in closing purchase
transactions.
20.......Repurchase Agreements; Reverse Repurchase Agreements.
.........(The policies of certain Funds concerning repurchase agreements
and/or reverse repurchase agreements are set forth in Item 16 above).
.........Money Market may not invest more than 10% of its total assets in
repurchase agreements maturing in more than seven days.
.........Neither American Retirement nor Foundation may enter into
repurchase agreements or reverse repurchase agreements.
21.......Investment in Equity Securities
.........American Retirement may not invest more than 75% of the value of
its total assets in equity securities (including securities convertible into
equity securities).
22. ....Investment in Municipal Securities
.........National may not invest more than 20% of its total assets in
securities other than Municipal Bonds (as described under "Investment Objective"
in the Fund's Prospectus), unless extraordinary circumstances dictate a more
defensive posture.
.........Neither Short-Intermediate nor Tax Exempt may invest more than 20%
of its total assets in securities other than Municipal Securities (as described
under "Investment Objective" in each Fund's Prospectus), unless extraordinary
circumstances dictate a more defensive posture.
.........Short-Intermediate-CA may not invest more than 20% of its total
assets in securities other than California Municipal Securities (as described
under "Investment Objective" in the Fund's Prospectus), unless extraordinary
circumstances dictate a more defensive posture.
23.......Investment in Money Market Securities
.........Money Market may not purchase any securities other than money
market instruments (as described under "Investment Objective" in the Fund's
Prospectus).
NON FUNDAMENTAL OPERATING POLICIES
.........Certain Funds have adopted additional non-fundamental operating
policies. Operating policies may be changed by the Board of Trustees without a
shareholder vote.
1........Securities Issued by Government Units; Industrial Development Bonds.
Each of Short-Intermediate and Tax-Exempt have determined not to invest more
than 25% of its total assets (i) in securities issued by governmental units
located in any one state, territory or possession of the United States (but this
limitation does not apply to project notes backed by the full faith and credit
of the United States Government) or (ii) industrial development bonds not backed
by bank letters of credit. In addition, Short-Intermediate-CA has determined not
to invest more than 25% of its total assets in industrial development bonds not
backed by bank letters of credit.
2........Futures and Options Transactions. Each of Small Cap, U.S. Real Estate
and U.S. Government has adopted the following limitations on futures and options
transactions: Each Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity Futures
Trading Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. Pursuant to Section 4.5 of the regulations under
the Commodity Exchange Act, the notice of eligibility included the following
representations:
.........The Fund will use commodity futures or commodity options contracts
solely for bona fide hedging purposes within the meaning and intent of Section
1.3(z)(1) of the General Regulations under the Act (the "Regulations");
provided, however, that in addition, with respect to positions in commodity
futures or commodity option contracts which do not come within the meaning and
intent of Section 1.3(z)(i) of the Regulations, the Fund represents that the
aggregate initial margin and premiums required to establish such positions will
not exceed five percent (5%) of the fair market value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts it has entered into; and, provided, further, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount as
defined in Section 190.01(x) may be excluded in computing such five percent;
.........The Fund will not be, and has not been, marketing participations
to the public as or in a commodity pool or otherwise as or in a vehicle for
trading in the commodity future or commodity options market;
.........The Fund will disclose in writing to each prospective participant
the purpose of and the limitations on the scope of the commodity future and
commodity options trading in which it intends to engage; and
.........The Fund will submit to such special calls as the CFTC may make to
require the qualifying entity to demonstrate compliance with the provision of
Reg. 4.5(c).
.........In addition to the above limitations, the Fund will not: (i) sell
futures contracts, purchase put options or write call options if, as a result,
more than 30% of the Fund's total assets (25% of total assets for U.S.
Government) would be hedged with futures and options under normal conditions;
(ii) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 30% of its total assets (25% of total assets
for U.S. Government); or (iii) purchase call options if, as a result, the
current value of option premiums for options purchased by the Fund would exceed
5% of the Fund's total assets. These limitations do not apply to options
attached to, or acquired or traded together with their underlying securities,
and do not apply to securities that incorporate features similar to options.
3........Illiquid Securities.
.........None of Evergreen, Global, Growth and Income, Limited Market,
Money Market, National, Short-Intermediate, Short-Intermediate-CA, Small Cap,
Tax-Exempt, Tax Strategic, Total Return, U.S. Government and U.S. Real Estate
may invest more than 15% (10% for Money Market and Tax-Exempt) of its net assets
in illiquid securities and other securities which are not readily marketable,
including repurchase agreements which have a maturity of longer than seven days,
but excluding securities eligible for resale under Rule 144A of the Securities
Act of 1933, as amended, which the Directors/Trustees have determined to be
liquid.
.........Neither American Retirement nor Foundation may invest more than 15% of
its net assets in illiquid securities and other securities (other than
repurchase agreements) which are not readily marketable, excluding securities
eligible for resale under Rule 144A of the Securities Act of 1933, as amended,
which the Trustees have determined to be liquid.
4........Other Investment Companies. Each Fund may purchase the securities
of other investment companies, except to the extent such purchases are not
permitted by applicable law.
5........Other. In order to comply with certain state blue sky limitations:
-----
.........Each of American Retirement, Evergreen, Foundation, Global, Growth
and Income, National, Money Market, Short-Intermediate, Short-Intermediate-CA,
Small Cap, Tax-Exempt, Tax Strategic, Total Return, U.S. Government and U.S.
Real Estate interprets fundamental investment restriction 7 to prohibit
investments in oil, gas and mineral leases.
.........Each of American Retirement, Evergreen, Foundation, Global, Growth
and Income, National, Money Market, Short-Intermediate, Short-Intermediate-CA,
Small Cap, Tax-Exempt, Tax Strategic, Total Return, U.S. Government and U.S.
Real Estate interprets fundamental investment restriction 15 to prohibit
investment in real estate limited partnerships which are not readily marketable.
.........Foundation interprets fundamental investment restriction 11 to permit
short sales only where the Fund owns the securities sold or securities
convertible into or carrying rights to acquire such securities without payment
of any additional consideration therefor.
CERTAIN RISK CONSIDERATIONS
.........There can be no assurance that a Fund will achieve its investment
objective and an investment in the Fund involves certain risks which are
described under "Description of the Funds" in the Prospectus.
.........In addition, the ability of National, Short-Intermediate,
Short-Intermediate-CA, Tax-Exempt, and Tax Strategic to achieve their respective
investment objectives is dependent on the continuing ability of the issuers of
Municipal Bonds in which the Funds' invest -- and of banks issuing letters of
credit backing such securities -- to meet their obligations with respect to the
payment of interest and principal when due. The ratings of Moody's, S&P and
other nationally recognized rating organizations represent their opinions as to
the quality of Municipal Bonds which they undertake to rate. Ratings are not
absolute standards of quality; consequently, Municipal Bonds with the same
maturity, coupon, and rating may have different yields. There are variations in
Municipal Bonds, both within a particular classification and between
classifications, resulting from numerous
factors.
......... Unlike other types of investments, Municipal Bonds have
traditionally not been subject to regulation by, or registration with, the
Securities and Exchange Commission, although there have been proposals which
would provide for regulation in the future.
......... The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material and adverse changes in
the rights of holders of their obligations. In addition, there have been
lawsuits challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or Federal law which could ultimately
affect the validity of those Municipal Bonds or the tax-free nature of the
interest thereon.
......... While not anticipated, it is conceivable that substantial
redemptions could result in the realization by National, Short-Intermediate,
Tax-Exempt, and Short-Intermediate-CA of gains. Short-term gains would be
taxable as ordinary income when distributed to the Fund's shareholders.
Long-term gains would be treated as capital gains.
......... While Global and U.S. Real Estate are technically diversified
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), because the investment alternatives of each Fund are restricted by a
policy of concentrating at least 65% of its total assets in companies in the
real estate industry, investors should understand that investment in these Funds
may be subject to greater risk and market fluctuation than an investment in a
portfolio of securities representing a broader range of industry investment
alternatives.
Borrowing.
.........The table set forth below describes the extent to which Evergreen
and Global entered into borrowing transactions during the fiscal years ended
September 30, 1993 and 1994.
<TABLE>
<S> <C> <C> <C> <C>
Evergreen
Amount of Debt Average Amount of Average Number of Average Amount of
Outstanding Debt Outstanding Shares Outstanding Debt Per-Share
Year Ended During the Year During the Year During the Year During the Year
September 30, 1993 $0 $ 1,369,863 50,301,298 $0.03
September 30, 1994 $0 $11,164,110 39,709,107 $0.28
Global
September 30, 1993 $0 $ 1,369,863 50,301,298 $0.03
</TABLE>
<PAGE>
MANAGEMENT
.........The following is a list of the Trustees or Directors and executive
officers of each Fund:
Laurence B. Ashkin, 180 East Pearson Street, Chicago, IL
Trustee/Director. Real estate developer and construction consultant
since 1980; President of Centrum Equities since 1987 and Centrum
Properties, Inc. since 1980.
Foster Bam, Greenwich Plaza, Greenwich, CT Trustee/Director. Partner in the
law firm of Cummings and Lockwood since 1968.(3)(2)
James S. Howell, 4124 Crossgate Road, Charlotte, NC
Trustee/Director. Retired Vice President of Lance Inc.; Chairman of the
Distribution Comm. Foundation for the Carolinas from 1989 to 1993;
Chairman of the First Union Funds since 1984.
Robert J. Jeffries, 2118 New Bedford Drive, Sun City Center, FL
Trustee/Director. Corporate consultant since 1967.
Gerald M. McDonnell, 821 Regency Drive, Charlotte, NC Trustee/Director. Sales
Representative with Nucor-Yamoto Inc. since 1988; Trustee of the First
Union Funds since 1988.
Thomas L. McVerry, 4419 Parkview Drive, Charlotte, NC
Trustee/Director. Senior executive and advisor to the Board of Directors
of Rexham Corporation from 1973 to 1980; Director of Carolina
Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. from 1989 to
1990; Vice President-Finance and Resources, Rexham Corporation from 1979
to 1990; Trustee of the First Union Funds since October 1993.
William Walt Pettit, Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC
Trustee/Director. Partner in the law firm Holcomb and Pettit, P.A. since
1990; Attorney, Clontz and Clontz from 1980 to 1990; Trustee of the
First Union Funds since 1988.(4)
Russell A. Salton, III, M.D., Primary Physician Care, 1515 Mockingbird Lane,
Charlotte, NC Trustee/Director. President, Primary Physician Care since
1990; President, Metrolina Family Practice Group, P.A. from 1982 to 1989;
Trustee of the First Union Funds since 1984.
Michael S. Scofield, 212 S. Tryon Street Suite 980, Charlotte, NC
Trustee/Director. Attorney, Law Offices of Michael S. Scofield since
prior to 1989; Trustee of the First Union Funds since 1984.
John J. Pileggi, 237 Park Avenue, Suite 910, New York, NY President and
Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992,
Managing Director from 1984 to 1992.
Joan V. Fiore, 237 Park Avenue, Suite 910, New York, NY Secretary. Managing
Director and Counsel, Furman Selz Incorporated since 1991; Staff
Attorney, Securities and Exchange Commission from 1986 to 1991.
Donald E. Brostrom, 237 Park Avenue, Suite 910, New York, NY Assistant
Treasurer. Director of Fund Services, Furman Selz Incorporated since
1992, Associate Director from 1986 to 1992.
Sheryl A. Hirschfeld, 237 Park Avenue, Suite 910, New York, NY
Assistant Secretary. Director, Corporate Secretary Services, Furman Selz
Incorporated since 1994; Assistant to the Corporate Secretary, The Dreyfus
Corporation since prior to 1989.
Stephen W. St. Clair, 237 Park Avenue, Suite 910, New York, NY
Assistant Treasurer. Associate Director of Fund Services, Furman Selz
Incorporated since 1994, Administrator from 1992 to 1994; Assistant
Treasurer of J. W. Seligman Co., Inc. from 1989 to 1992.
The officers of the Funds are all officers and/or employees of Furman
Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds
Distributor, Inc., the distributor of each Class of shares of each Fund.
(footnotes)
--------
(3) Mr. Bam may be deemed to be an "interested person" within the meaning
of the Investment Company Act of 1940, as amended (the "1940 Act") due to the
fact that his son is employed by the Adviser.
(4) Mr. Pettit may be deemed to be an "interested person" within the
meaning of the 1940 Act as a result of the legal services rendered to a
subsidiary of First Union by the law firm of Holcomb and Pettit, P.A.
(end footnotes)
The Funds do not pay any direct remuneration to any officer or Trustee/
Director who is an "affiliated person" of the Adviser or its affiliates.
Currently, none of the Funds' Trustees/Directors is an "affiliated person". One
of the Trustees/Directors, Mr. Pettit, is considered an "interested person" of
the Funds by virtue of the fact that he and his firm provide legal services to
First Union National Bank of North Carolina ("FUNB"), the Adviser's parent.
Another Trustee/Director, Mr. Bam, is considered an "interested person" of the
Fund by virtue of the fact that his son is employed by the Adviser. However, Mr.
Bam and Mr. Pettit are not considered "affiliated persons" of the Adviser as
defined in the 1940 Act. The Trusts or Funds pay each Trustee/Director who is
not an "affiliated person" an annual retainer and a fee per meeting attended,
plus expenses (and $50 for each telephone conference meeting) as follows:
Name of Trust/Fund Annual Retainer Meeting Fee
Evergreen $ 4,500 $ 300
Total Return 5,500 300
Limited Market 500 100
Growth and Income 500 100
The Evergreen American Retirement Trust 1,000
American Retirement 100
Small Cap 100
The Evergreen Money Market Trust 300
Evergreen Municipal Trust and Fixed Income Trust 4,000
Tax Exempt 100
Short-Intermediate 100
Short-Intermediate-CA 100
National 100
U.S. Government 100
Evergreen Real Estate Equity Trust 1,000
Global 100
U.S. Real Estate 100
Evergreen Foundation Trust 500
Foundation 100
Tax Strategic 100
<PAGE>
The Trustees/Directors who were not affiliated with the Adviser during
each Fund's last fiscal year received total Trustees/Directors' fees and
expenses as follows:
Fees No. of
Name of Fund Fiscal Year Ended* Expenses Meetings
Evergreen September 30, 1994 $34,175 4
Global September 30, 1994 8,080 4
U.S. Real Estate September 30, 1994 2,847 4
Limited Market September 30, 1994 3,223 4
Total Return March 31, 1994 28,750 4
Growth and Income December 31, 1993 4,586 4
American Retirement December 31, 1993 4,789 4
Small Cap December 31, 1993 840 1
Foundation December 31, 1993 4,756 4
Tax Strategic December 31, 1993 440 1
Short-Intermediate August 31, 1994 4,377 4
Short-Intermediate-CA August 31, 1994 3,129 4
National August 31, 1994 3,620 4
Tax Exempt August 31, 1994 12,390 4
Money Market August 31, 1994 11,478 4
U.S. Government March 31, 1994 1,772 3
No officer or Trustee/Director of the Funds owned Class A, B or C
shares of any Fund as of the date hereof. The number and percent of outstanding
shares Class Y shares of each Fund in the Evergreen Group of Funds owned by
officers and Trustees/Directors as a group on December 30, 1994, is as follows:
Ownership by Officers and Trustees/Directors
No. of Shares Owned No. of Shares Owned
By Officers Trustees/Directors as a % of Fund
Name of Fund as a as a Group Shares Outstanding
Evergreen - Y 220,014 .55%
Total Return - Y 62,156 .11%
Limited Market - Y 132,862 2.55%
Growth and Income - Y 75,584 1.58%
Money Market - Y 1,466,569 .57%
American Retirement - Y 57,671 1.63%
Small Cap - Y -0- -0-
Tax Exempt - Y 98,353 .03%
Short-Intermediate - Y 104,351 2.25%
Short-Intermediate-CA - Y -0- -0-
National - Y 465,171 14.52%
Global - Y 22,705 .29%
U.S. Real Estate - Y -0- -0-
Foundation - Y 154,939 .56%
Tax Strategic - Y -0- -0-
U.S. Government - Y 177,712 29.12%
Of the Funds set forth above where the Directors/Trustees or Officers
collectively own more than 1%, but less than 5%, of the outstanding shares, the
percentage owned by each Director/Trustee or Officer owning shares of such Funds
is as follows:
<TABLE>
<CAPTION>
Name and Address Name of Fund Number of Shares Percentage of Class
---------------- ------------ ---------------- -------------------
<S> <C> <C> <C>
Foster Bam Limited Market - Y 89,489 1.7%
2 Greenwich Plaza Growth and Income - Y 53,139 1.0%
Greenwich, CT 06830 American Retirement - Y 9,065 0.3%
Short-Intermediate - Y 26,161 0.6%
Robert J. Jeffries Limited Market - Y 43,373 0.8%
2118 New Bedford Drive Growth and Income - Y 21,794 0.4%
Sun City, FL 33573 American Retirement - Y 47,597 1.4%
Short-Intermediate - Y 78,190 1.7%
Joan V. Fiore American Retirement - Y 1,009 0.03%
237 Park Avenue
New York, NY 10017
</TABLE>
The table below sets forth information with respect to each person,
including Directors or Trustees of the Funds who, to each Funds knowledge, owned
beneficially or of record more than 5% of each Fund's total outstanding shares
as of December 27, 1994:
<TABLE>
<CAPTION>
Name and Address Name of Fund Number of Shares % of Class
---------------- ------------ ---------------- ----------
<S> <C> <C> <C>
Stephen A. Lieber Tax Exempt - Y 21,105,244 5.44%
2500 Westchester Ave. National - Y 880,786 27.49%
Purchase, NY 10577 Small Cap - Y 115,443 30.72%
Growth and Income - Y 577,517 12.05%
U.S. Government - Y 162,542 26.64%
U.S. Real Estate - Y 364,305 40.18%
Tax Strategic - Y 418,535 45.33%
Global - Y 843,750 10.69%
American Retirement - Y 184,093 5.21%
Limited Market - Y 459,489 8.81%
Foster Bam National - Y 447, 907 13.98%
2 Greenwich Plaza Greenwich, CT 06830 U.S. Government - Y 177,712 29.12%
Nola Maddox Falcone 2500 Westchester Ave. Small Cap - Y 56,117 14.93%
Purchase, NY 10577 U.S. Government - Y 32,818 5.38%
Tax Strategic - Y 98,977 10.72%
Pax Beale DBA Short-Intermediate-CA - Y 142,439 5.00%
Bush & Octavia Realty Co. 163 Alpine
San Francisco, CA 94117
</TABLE>
*As a result of his ownership of 27.49%, 30.72%, 40.18%, 45.33% and
26.64%, of the shares of National, Small Cap, U.S. Real Estate, Tax Strategic
and U.S. Government, respectively, on December 27, 1994, Mr. Lieber may be
deemed to "control" the Fund, as that term is defined in Section 2(a)(9) of the
Investment Company Act of 1940, as amended (the "1940 Act"). If any matter was
submitted for a shareholder vote while Mr. Lieber owned more than 50% of any
Fund's shares, the presence of Mr. Lieber or his proxy would be required for,
and constitute, a quorum and the vote of Mr. Lieber or his proxy would be
dispositive.
(footnote)
--------
* The following Funds changed their fiscal year ends during the periods
covered by the foregoing table: Global and U.S. Real Estate from December 31, to
September 30; and Limited Market, from May 31 to September 30. Accordingly, the
Trustees/Directors fees and expenses reported in the foregoing table reflect,
for Global and U.S. Real Estate, the period from January 1, 1994 to September
30, 1994 and, for Limited Market, the period from June 1, 1994 to September 30,
1994. Also Small Cap and Tax Strategic commenced operations on October 1, 1993,
November 2, 1993 and September 1, 1993, respectively, and therefore the figures
set forth in the table above reflect expenses incurred for the period from
commencement of operations through December 31, 1993.
(end footnote)
INVESTMENT ADVISER
(See also "Management of the Fund" in each Fund's Prospectus)
The investment adviser of each Fund in the Evergreen Group of Funds is
Evergreen Asset Management Corp., a New York corporation, with offices at 2500
Westchester Avenue, Purchase, New York (the "Adviser"). The Adviser is owned by
First Union National Bank of North Carolina (previously defined as "FUNB")
which, in turn, is a subsidiary of First Union Corporation. The Directors of the
Adviser are Richard K. Wagoner, Barbara I. Colvin and William R. Hackney, III.
The executive officers of the Adviser are Stephen A. Lieber, Chairman and
Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief
Executive Officer, Theodore J. Israel, Jr., Executive Vice President, Joseph J.
McBrien, Senior Vice President and General Counsel, and George R. Gaspari,
Senior Vice President and Chief Financial Officer.
On June 30, 1994, Evergreen and Lieber and Company ("Lieber") were
acquired by First Union Corporation ("First Union") through certain of its
subsidiaries. Evergreen was acquired by FUNB, a wholly-owned subsidiary (except
for directors' qualifying shares) of First Union, by merger into EAMC
Corporation ("EAMC") a wholly-owned subsidiary of FUNB. EAMC then assumed the
name "Evergreen Asset Management Corp." and succeeded to the business of
Evergreen. Contemporaneously with the succession of EAMC to the business of
Evergreen and its assumption of the name "Evergreen Asset Management Corp.",
each Fund entered into a new investment advisory agreement the ("Investment
Advisory Agreement") with EAMC and into a distribution agreement with Evergreen
Funds Distributor, Inc., a subsidiary of Furman Selz Incorporated. At that time,
EAMC also entered into a new sub-advisory agreement with Lieber pursuant to
which Lieber provides certain services to the Adviser in connection with its
duties as investment adviser to each Fund.
The partnership interests in Lieber, a New York general partnership,
were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned
subsidiaries of FUNB. The business of Lieber is being continued. The new
advisory and sub-advisory agreements were approved by the Funds' shareholders at
their meeting held on June 23, 1994, and became effective on June 30, 1994.
Under its Investment Advisory Agreement with each Fund, the Adviser has
agreed to furnish reports, statistical and research services and recommendations
with respect to each Funds portfolio of investments. In addition, the Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, share certificates, mailings, brokerage, custodian and stock
transfer charges, printing, legal and auditing expenses, expenses of shareholder
meetings and reports to shareholders. Notwithstanding the foregoing, the Adviser
will pay the costs of printing and distributing prospectuses used for
prospective shareholders.
For the performance of its services the Adviser is entitled to receive
a fee at the following annual rate of each Fund's daily net assets. These fees
are computed daily and paid monthly, and are accrued daily for purposes of
determining the redemption and offering price of each Fund's shares (exclusive
of Money Market and Tax Exempt, which seek to maintain a stable net asset value
of $1.00 per share):
Advisory Advisory
Name of Fund Fee Name of Fund Fee
Evergreen 1% Short-Intermediate .50%
Total Return 1% Short-Intermediate-CA .55%
Limited Market 1% National .50%
Growth and Income 1% Global 1%
American Retirement .75% U.S. Real Estate 1%
Small Cap 1% Foundation .875%
Money Market .50% Tax Strategic .875%
Tax Exempt .50% U.S. Government .50%
The rates of the advisory fees paid by Evergreen, Total Return, Limited Market,
Growth and Income, Small Cap, Global and U.S. Real Estate are higher than those
paid by most management investment companies. However the fee paid by Global is
not higher than that paid by other funds, which like Global, that invest a
substantial part of their assets in foreign securities. The advisory fees paid
by each Fund for the three most recent fiscal periods reflected in its
registration statement are set forth below:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EVERGREEN Year Ended Year Ended Year Ended GLOBAL Period Ended Year Ended Year Ended
9/30/94 9/30/93 9/30/92 9/30/94 12/31/93 12/31/92
Advisory Fee $5,738,633 $7,217,230 $7,588,372 Advisory Fee $1,133,380 $523, 294 $ 75,696
========== ========== ========== ========== ========= =========
Expense
Reimbursement $0 $ 41,226 $130,246
--------- --------
Reimbursement as a
% of Average Daily
Net Assets 0.08% 1.72%
----- -----
U.S. REAL ESTATE Year Ended Year Ended LIMITED MARKET Year Ended Year Ended Year Ended
9/30/94 12/31/93 9/30/94 5/31/94 5/31/93
Advisory Fee $57,506 $8,624 Advisory Fee $314,648 $964,383 $658,014
-------- ------- ======== ======== ========
Waiver ($57,506) ($8,624)
Net Advisory Fee $ 0 $ 0
============ ==========
Expense
Reimbursement $9,102 $18,480
TOTAL RETURN Year Ended Year Ended Year Ended GROWTH AND INCOME Year Ended Year Ended Year Ended
3/31/94 3/31/93 3/31/92 12/31/93 12/31/92 12/31/91
Advisory Fee $11,613,964 $10,671,425 $11,065,156 Advisory Fee $722,166 $528,190 $427,498
=========== =========== =========== ======== ======== ========
FOUNDATION Year Ended Year Ended Year Ended AMERICAN Year Ended Year Ended Year Ended
12/31/93 12/31/92 12/31/91 RETIREMENT 12/31/93 12/31/92 12/31/91
Advisory Fee $1,290,748 $257,141 $42,202 Advisory Fee $226,080 $152,055 $102,456
========== ======== ======= ======== ======== ========
Expense Expense
Reimbursement $ 7,926 $66,546 Reimbursement $ 16,093 $ 44,189
---------- ------- --------- ---------
SMALL CAP Year Ended TAX STRATEGIC Year Ended
12/31/93 12/31/93
Advisory Fee $ 4,929 Advisory Fee $ 4,989
-------- -------
Waiver ($ 4,929) Waiver ($4,989)
Net Advisory Fee 0 Net Advisory Fee $ 0
============ ==========
Expense Expense
Reimbursement $16,800 Reimbursement $12,700
------- -------
NATIONAL Year Ended Year Ended SHORT-INTERMEDIATE Year Ended Year Ended Year Ended
8/31/94 8/31/93 8/31/94 8/31/93 8/31/92
Advisory Fee $ 196,089 $72,564 Advisory Fee $301,565 $313,180 $135,976
--------- -------- -------- -------- ---------
Waiver ($190,396) ($72,564) Waiver ($150,194) ($256,324) ($124,013)
Net Advisory Fee $ 6, 413 $ 0 Net Advisory Fee $151,371 $56,856 $11,963
=========== ============ ======== ========== ==========
Expense Expense
Reimbursement $ 45,680 $61,146 Reimbursement $ 63,773
---------- -------- ---------
SHORT-INTERMEDIATE-C Year Ended Year Ended Year Ended TAX EXEMPT Year Ended Year Ended Year Ended
8/31/94 8/31/93 8/31/92 8/31/94 8/31/93 8/31/92
Advisory Fee $164,447 $158,025 $213,131 Advisory Fee $2,126,246 $ 2,028,966 $ 2,272,890
--------- --------- --------- ---------- ----------- ------------
Waiver ($129,952) ($150,551) ($170,867) Waiver ($1,256,653) ($1,168,131) ($1,411,094)
Net Advisory Fee $34,495 $7,474 $42,264 Net Advisory Fee $869,593 $ 860,835 $ 861,796
========= =========== ========= ============ ============ ============
Expense
Reimbursement $44,957
MONEY MARKET Year Ended Year Ended Year Ended U.S. GOVERNMENT Year Ended
8/31/94 10/31/93 10/31/92 3/31/94
Advisory Fee $1,245,513 $1,637,123 $2,089,939 Advisory Fee $20,607
---------- ---------- ---------- ---------
Waiver ($974,438) (1,047,935) ($1,507,506) Waiver ($20,607)
Net Advisory Fee $271,075 $589,188 $582,433 Net Advisory Fee $ 0
========== ========== ============ ============
Expense
Reimbursement $48,772
</TABLE>
The following Funds changed their fiscal year ends during the periods
covered by the foregoing table: Global and U.S. Real Estate from December 31, to
September 30; and Limited Market, from May 31 to September 30. Accordingly, the
investment advisory fees reported in the foregoing table reflect, for Global and
U.S. Real Estate, the period from January 1, 1994 to September 30, 1994 and, for
Limited Market, the period from June 1, 1994 to September 30, 1994. Also Small
Cap, Tax Strategic and U.S. Real Estate commenced operations on October 1, 1993,
November 2, 1993 and September 1, 1993, respectively, and therefore the figures
set forth in the table above reflect investment advisory fees paid for the
period from commencement of operations through December 31, 1993.
Expense Limitations
The Adviser's fee will be reduced by, or the Adviser will reimburse the
Funds (except Money Market, National, Tax Exempt, Short-Intermediate,
Short-Intermediate CA and U.S. Government, which have specific percentage
limitations described below) for any amount necessary to prevent such expenses
(exclusive of taxes, interest, brokerage commissions and extraordinary expenses,
but inclusive of the Adviser's fee) from exceeding the most restrictive of the
expense limitations imposed by state securities commissions of the states in
which the Fund's shares are then registered or qualified for sale.
Reimbursement, when necessary, will be made monthly in the same manner in which
the advisory fee is paid. Currently the most restrictive state expense
limitation is 2.5% of the first $30,000,000 of the Fund's average daily net
assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in
excess of $100,000,000.
With respect to Money Market, Tax Exempt, Short-Intermediate and
Short-Intermediate CA the Adviser has agreed to reimburse each Fund to the
extent that the Fund's aggregate operating expenses (including the Adviser's fee
but excluding interest, taxes, brokerage commissions and extraordinary expenses,
and, for Class A, Class B and Class C shares Rule 12b-1 distribution fees and
shareholder servicing fees payable) exceed 1% of its average daily net assets
for any fiscal year. With respect to U.S. Government and National, the Adviser
has agreed to reimburse each Fund to the extent that its aggregate operating
expenses (including the Adviser's fee, but excluding interest, taxes, brokerage
commissions and extraordinary expenses, and, for Class A, Class B and Class C
shares, Rule 12b-1 distribution fees and shareholder servicing fees) exceed
1.25% of its average net assets for any fiscal year.
In addition, the Adviser has in some instances voluntarily limited (and
may in the future limit) expenses of certain of the Funds. For the years ended
December 31, 1991 and 1992, and for the three month period ended March 31, 1993,
the Adviser limited the expenses of Global to 2% of the Fund's average net
assets on an annual basis.
For the four month period January 1, 1992 to April 30, 1992, the
Adviser voluntarily limited the expenses of American Retirement to 1.50% of
average net assets.
For U.S. Government, during the period from June 14, 1993 (commencement
of investment operations) through March 31, 1994, the Adviser voluntarily waived
its entire management fee of .50 of 1% of daily net assets which amounted to
$20,607, and reimbursed the Fund for all other expenses incurred by the Fund
representing 1.18% of average net assets
The Adviser has voluntarily agreed to reimburse Small Cap to the extent
that the Fund's aggregate operating expenses (including the Adviser's fee but
excluding interest, taxes, brokerage commissions and extraordinary expenses)
exceed 1.50% of its average net assets until such time as the Fund's net assets
reach $15 million.
During the fiscal years ended December 31, 1991 and December 31, 1992,
the Adviser voluntarily absorbed a portion of Foundation's expenses and
reimbursed the Fund for expenses in excess of the voluntary expense limitation
in an amount equal to 1.38% of its average daily net assets for fiscal 1991 and
in an amount equal to .03% of its average daily net assets for fiscal 1992; the
voluntary expense limitation and the absorption of Fund expenses ceased on May
1, 1992.
The Adviser has agreed to voluntarily reimburse Tax Strategic until the
Fund reaches $15 million in net assets, to the extent that the Fund's aggregate
operating expenses (including the Advisory Fees, but excluding interest, taxes,
brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing
fees and extraordinary expenses) exceed 1.50% of its average net assets for any
fiscal year. During the period from November 2, 1993 (commencement of investment
operations) to December 31, 1993, the Adviser voluntarily waived its advisory
fee with respect to Tax Strategic, which amounted to $4,989, and reimbursed the
Fund for all of the Fund's other expenses which aggregated $12,700 (2.23% of
average net assets).
Until U.S. Real Estate reaches $15 million in net assets, the Adviser
has voluntarily agreed to reimburse the Fund to the extent that the Fund's
aggregate operating expenses (including the Adviser's fee but excluding taxes,
interest, brokerage commissions and extraordinary expenses) exceed 1.50% of its
average net assets for any fiscal year.
During the period from December 30, 1992 (commencement of investment
operations) to August 31, 1993, the Adviser voluntarily waived National's entire
management fee of .50 of 1% of daily net assets and reimbursed the Fund for all
other expenses incurred by the Fund representing .42% of the daily net assets.
During the fiscal year ended August 31, 1994, the Adviser voluntarily waived .78
of 1% of its advisory fee and absorbed a portion of the Fund's other expenses
equal to .12 % of average net assets. The Adviser may, at its discretion, revise
or cease the voluntary absorption of Fund expenses at any time.
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of each
Fund's Trustees/Directors or by the Adviser. The Investment Advisory Agreements
will automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. The Investment
Advisory Agreements were approved by each Fund's shareholders on June 23, 1994,
became effective on June 30, 1994, and will continue in effect until June 30,
1996, and thereafter from year to year provided that their continuance is
approved annually by a vote of a majority of the Trustees/Directors of each Fund
who are not parties thereto or interested persons (as defined in the 1940 Act)
of any such party, cast in person at a meeting duly called for the purpose of
voting on such approval, and by a vote of the Trustees/Directors of each Fund or
a majority of the outstanding voting shares of each Fund. With respect to Money
Market, National, Short-Intermediate, Short-Intermediate-California, Tax Exempt
and U.S. Government, the Investment Advisory Agreements were amended on December
13, 1994 by shareholder vote to clarify that distribution fees and shareholder
servicing fees applicable only to a particular class of shares of any such Funds
will not be included for the purpose of calculating the expense limitations
contained in such Investment Advisory Agreements.
Certain other clients of the Adviser may have investment objectives and
policies similar to those of the Funds. The Adviser (including the
sub-adviser)may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients simultaneously
with a Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of the Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the Adviser to the
accounts involved, including the Funds. When two or more of the clients of the
Adviser (including one or more of the Funds) are purchasing or selling the same
security on a given day from the same broker-dealer, such transactions may be
averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which the Adviser acts as investment
adviser or between the Fund and any advisory clients of the Adviser or Lieber &
Company. Each Fund may from time to time engage in such transactions but only in
accordance with these procedures and if they are equitable to each participant
and consistent with each participant's investment objectives.
DISTRIBUTION PLANS
Reference is made to "Management of the Fund - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, B and C shares and are charged as class expenses,
as accrued. The distribution fees attributable to the Class B shares and Class C
shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of an initial sales charge, and, in the
case of Class C shares, without the assessment of a contingent deferred sales
charge after the first year following purchase, 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 and the Class C shares, are the same as those of the initial 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 Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (to the
extent that each Fund offers such classes) (each a "Plan" and collectively, the
"Plans"), the Treasurer of each Fund reports the amounts expended under the Plan
and the purposes for which such expenditures were made to the Trustees or
Directors of each Fund for their review on a quarterly basis. Also, each Plan
provides that the selection and nomination of Trustees or Directors who are not
interested persons of each Fund (as defined in the 1940 Act) are committed to
the discretion of such disinterested Trustees or Directors then in office.
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
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.
As of the date of this Statement of Additional Information, no Fund has
offered Class A, B or C shares.
Each Plan became effective on December 30, 1994 and was initially
approved by the sole shareholder of each Class of shares of each Fund with
respect to which a Plan was adopted on that date and by the unanimous vote of
the Trustees or Directors of each Fund, including the disinterested Trustees or
Directors voting separately, at a meeting called for that purpose and held on
December 13, 1994. The Distribution Agreements between each Fund and Evergreen
Funds Distributor, Inc., pursuant to which distribution fees are paid under the
Plans by each Fund with respect to its Class A, Class B and Class C shares were
also approved at the December 13, 1994 meeting by the unanimous vote of the
Trustees or Directors of each Fund, including the disinterested Trustees or
Directors voting separately. Each Plan and Distribution Agreement will continue
in effect for successive twelve-month periods provided, however, that such
continuance is specifically approved at least annually by the Trustees or
Directors of each Fund or by vote of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that Class, and,
in either case, by a majority of the Directors of the Fund who are not parties
to the Agreement or interested persons, as defined in the 1940 Act, of any such
party (other than as trustees or directors of the Fund) and who have no direct
or indirect financial interest in the operation of the Plan or any agreement
related thereto.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by 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 Distribution Agreement must be
approved by a vote of the Trustees or Directors of a Fund or the holders of the
Fund's outstanding voting securities, voting separately by Class, and in either
case, by a majority of the disinterested Trustees or Directors, cast in person
at a meeting called for the purpose of voting on such approval; and any Plan or
Distribution Agreement may not be amended in order to increase materially the
costs that a particular Class of shares of a Fund may bear pursuant to the Plan
or Distribution Agreement without the approval of a majority of the holders of
the outstanding voting shares of the Class affected. Any Plan or Distribution
Agreement may be terminated (a) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by Class or by a majority vote of the Trustees or Directors
who are not "interested persons" as defined in the 1940 Act, or (b) 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.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by the Adviser,
subject to the supervision and control of the Trustees/Directors. Orders for the
purchase and sale of securities and other investments are placed by employees of
the Adviser, all of whom are associated with Lieber. In general, the same
individuals perform the same functions for the other funds managed by the
Adviser. A Fund will not effect any brokerage transactions with any broker or
dealer affiliated directly or indirectly with the Adviser unless such
transactions are fair and reasonable, under the circumstances, to the Fund's
shareholders. Circumstances that may indicate that such transactions are fair or
reasonable include the frequency of such transactions, the selection process and
the commissions payable in connection with such transactions.
Most of the transactions in equity securities for each Fund will occur
on domestic and, in the case of Global foreign, stock exchanges. Transactions on
stock exchanges involve the payment of brokerage commissions. In transactions on
stock exchanges in the United States, these commissions are negotiated, whereas
on many foreign stock exchanges these commissions are fixed. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. Over-the-counter transactions will generally be placed
directly with a principal market maker, although the Fund may place an
over-the-counter order with a broker-dealer if a better price (including
commission) and execution are available.
It is anticipated that most purchase and sale transactions involving
Money Market, National, Short Intermediate, Short Intermediate-Ca, Tax Exempt
and U.S. Government (and the other Funds to the extent they purchase fixed
income securities) will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. Any such research and analysis is not expected to reduce the costs of the
Adviser.
No Fund, other than Global, allocated brokerage commissions to firms in
exchange for research during the most recent fiscal year. Of the total brokerage
commissions paid by Global for its fiscal year ended September 30, 1994,
$738,237 or 80% were allocated in exchange for best execution and research.
Under Section 11(a) of the Securities Exchange Act of 1934, as amended,
and the rules adopted thereunder by the Securities and Exchange Commission,
Lieber & Company may be compensated for effecting transactions in portfolio
securities for a Fund on a national securities exchange provided the conditions
of the rules are met. Each Fund has entered into an agreement with Lieber
authorizing Lieber to retain compensation for brokerage services. In accordance
with such agreement, it is contemplated that Lieber a member of the New York and
American Stock Exchanges, will, to the extent practicable, provide brokerage
services to the Fund with respect to substantially all securities transactions
effected on the New York and American Stock Exchanges. In such transactions, a
Fund will seek the best execution at the most favorable price while paying a
commission rate no higher than that offered to other clients of Lieber & Company
or that which can be reasonably expected to be offered by an unaffiliated
broker-dealer having comparable execution capability in a similar transaction.
However, no Fund will engage in transactions in which Lieber would be a
principal. While no Fund contemplates any ongoing arrangements with other
brokerage firms, brokerage business may be given from time to time to other
firms. In addition, the Trustees or Directors have adopted procedures pursuant
to Rule 17e-1 under the 1940 Act to ensure that all brokerage transactions with
Lieber & Company, as an affiliated broker-dealer, are fair and reasonable.
Any profits from brokerage commissions accruing to Lieber & Company as
a result of portfolio transactions for the Fund will accrue to FUNB and to its
ultimate parent, First Union Corporation. The Investment Advisory Agreements
does not provide for a reduction of the Adviser's fee with respect to any fund
by the amount of any profits earned by Lieber & Company from brokerage
commissions generated by portfolio transactions of the Fund.
<PAGE>
The following chart shows: (1) the brokerage commissions paid by each
Fund during their last three fiscal years; (2) the amount and percentage thereof
paid to Lieber & Company; ; and (3) the percentage of the total dollar amount of
all portfolio transactions with respect to which commission have been paid which
were effected by Lieber & Company:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EVERGREEN Year Ended Year Ended Year Ended GLOBAL Period Ended Year Ended Year Ended
9/30/94 9/30/93 9/30/92 9/30/94 12/31/93 12/31/92
Total Brokerage $535,816 $534,533 $595,552 Total Brokerage $917,989 $868,367 $196,719
Commissions Commissions
Dollar Amount and % $478,391 89% $477,691 89% $548,346 92% Dollar Amount and % $174,137 19% $154,666 18% $51,684 26%
paid to Lieber paid to Lieber
% of Transactions % of Transactions
Effected by Lieber 90% 90% 91% Effected by Lieber 33% 29% 35%
U.S. REAL ESTATE Period Ended Year Ended Year Ended LIMITED MARKET Period Ended Year Ended Year Ended
9/30/94 12/31/93 9/30/94 5/31/94 5/31/93
Total Brokerage $49,723 $14,287 Total Brokerage $94,996 $183,282 $43,664
Commissions Commissions
Dollar Amount and % $48,400 97% $13,657 96% Dollar Amount and % $51,736 54% $82,104 45% $25,221 58%
paid to Lieber paid to Lieber
% of Transactions % of Transactions
Effected by Lieber 98% 97% Effected by Lieber 50% 40% 57%
TOTAL RETURN Year Ended Year Ended Year Ended GROWTH AND INCOME Year Ended Year Ended Year Ended
3/31/94 3/31/93 3/31/92 12/31/93 12/31/92 12/31/91
Total Brokerage $3,234,684 4,873,169 $4,105,695 Total Brokerage $76,427 $66,266 $41,514
Commissions Commissions
Dollar Amount and % $3,199,114 $4,842,437 $4,047,326 Dollar Amount and % $66,670 87% $57,686 87% $38,829 94%
paid to Lieber 99% 99% 99% paid to Lieber
% of Transactions % of Transactions
Effected by Lieber 99% 99% 99% Effected by Lieber 84% 86% 92%
FOUNDATION Year Ended Year Ended Year Ended AMERICAN RETIREMENT Year Ended Year Ended Year Ended
12/31/93 12/31/92 12/31/91 12/31/93 12/31/92 12/31/91
Total Brokerage $291,259 $128,811 $36,180 Total Brokerage $99,435 $99,293 $46,018
Commissions Commissions
Dollar Amount and % $284,864 98% $124,801 97% $35,655 99% Dollar Amount and % $96,950 98% $98,793 99.5% $45,868
paid to Lieber paid to Lieber 99.7%
% of Transactions % of Transactions
Effected by Lieber 98% 96% 98% Effected by Lieber 98% 99.6% 99.5%
SMALL CAP Period Ended TAX STRATEGIC Period Ended
12/31/93 12/31/93
Total Brokerage $2,091 Total Brokerage $3,260
Commissions Commissions
Dollar Amount and % $1,729 Dollar Amount and % $3,210
paid to Lieber 83% paid to Lieber 98%
% of Transactions % of Transactions
Effected by Lieber 73% Effected by Lieber 98%
</TABLE>
The following Funds changed their fiscal year ends during the periods
covered by the foregoing table: Global and U.S. Real Estate from December 31 to
September 30; and Limited Market, from May 31 to September 30. Accordingly, the
commissions reported in the foregoing table reflect, for Global and U.S. Real
Estate, the period from January 1, 1994 to September 30, 1994 and, for Limited
Market, the period from June 1, 1994 to September 30, 1994. Also Small Cap, Tax
Strategic and U.S. Real Estate commenced operations on October 1, 1993, November
2, 1993 and September 1, 1993, respectively, and therefore the figures set forth
in the table above reflect commissions paid for the period from commencement of
operations through December 31, 1993.
The transactions in which National, U.S. Government, Money Market,
Short-Intermediate, Tax Exempt, and Short-Intermediate-CA engage do not involve
the payment of brokerage commissions and are executed with brokers other than
Lieber & Company.
ADDITIONAL TAX INFORMATION
(See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of 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 regulated investment company, a Fund must,
among other things, (a) 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 and other income (including gains
from options) derived with respect to its business of investing in such
securities; (b) derive less than 30% of its gross income from the sale or other
disposition of securities of any of the following: options, futures or forward
contracts (other than those on foreign currencies), or foreign currencies (or
options, futures or forward contracts thereon) that are not directly related to
the RIC's principal business of investing in securities (or options and futures
with respect thereto) held less than three months; and (c) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) 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 (ii) 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). By so qualifying, a Fund is not subject to
Federal income tax if it timely distributes its investment company taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed on a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund anticipates meeting
such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains are taxable
to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net
long-term capital gains will be taxable as ordinary income as described above to
shareholders (who are not exempt from tax), whether made in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the net asset value of a share of a Fund on the reinvestment date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive,
what in effect is, a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
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 his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S.citizens and residents and U.S.domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to Federal,
state and local consequences of investing in shares of a Fund. Each shareholder
who is not a U.S. person should consult his or her tax adviser regarding the
U.S. and foreign tax consequences of ownership of shares of a Fund, including
the possibility that such a shareholder may be subject to a U.S. withholding tax
at a rate of 30% (or at a lower rate under a tax treaty)on amounts treated as
income from U.S. sources under the Code.
Special Tax Consideration for Tax Exempt, Short Intermediate,
Short Intermediate-CA, National and Tax Strategic
With respect to Tax Exempt, Short Intermediate, Short Intermediate-CA,
National and Tax Strategic, to the extent that the Fund distributes exempt
interest dividends to a shareholder, interest on indebtedness incurred or
continued by such shareholder to purchase or carry shares of the Fund is not
deductible. Furthermore, entities or persons who are "substantial users" (or
related persons) of facilities financed by "private activity" bonds (some of
which were formerly referred to as "industrial development" bonds) should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user" is defined generally as including a "non-exempt person" who regularly uses
in its trade or business a part of a facility financed from the proceeds of
industrial development bonds.
Special Tax Considerations for Global
Global maintains accounts and calculates income in U.S. dollars. In
general, gains or losses on the disposition of debt securities denominated in a
foreign currency that are attributable to fluctuations in exchange rates between
the date the debt security is acquired and the date of disposition, gains and
losses attributable to fluctuations in exchange rates that occur between the
time the Fund accrues interest or other receivable or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivable or pays such liabilities, and gains and losses from the
disposition of foreign currencies and foreign currency forward contracts will be
treated as ordinary income or loss. These gains or losses increase or decrease,
respectively, the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
The Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) are subject to special provisions of the Code that, among
other things, may affect the character of gains and losses by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) require the Fund to mark-to-market
certain types of positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding U.S. Federal income and
excise taxes. The Fund will monitor its transactions, make appropriate tax
elections and make appropriate entries in its books and records when it acquires
any foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules. The Fund anticipates
that its hedging activities will not adversely affect its regulated investment
company status.
Income received by the Fund from sources within various foreign
countries may be subject to foreign income tax. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of the stock
or securities of foreign corporations, the Fund may elect to "pass through" to
the Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required: (i) to treat a
proportionate share of dividends paid by the Fund which represent foreign source
income received by the Fund plus the foreign taxes paid by the Fund as foreign
source income; and (ii) either to deduct their pro-rata share of foreign taxes
in computing their taxable income, or to use it as a foreign tax credit against
Federal income taxes (but not both). No deduction for foreign taxes could be
claimed by a shareholder who does not itemize deductions.
The Fund intends to meet for each taxable year the requirements of the
Code to "pass through" to its shareholders foreign income taxes paid if it is
determined by the Adviser to be beneficial to do so. There can be no assurance
that the Fund will be able to pass through foreign income taxes paid. Each
shareholder will be notified within 60 days after the close of each taxable year
of the Fund whether the foreign taxes paid by the Fund will "pass through" for
that year, and, if so, the amount of each shareholder's pro-rata share (by
country) of (i) the foreign taxes paid and (ii) the Fund's gross income from
foreign sources. Of course, shareholders who are not liable for Federal income
taxes, such as retirement plans qualified under Section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.
The Fund may invest in certain entities that may qualify as "passive
foreign investment companies." Generally, the income of such companies may
become taxable to the Fund prior to the receipt of distributions, or,
alternatively, income taxes and interest charges may be imposed on the Fund on
"excess distributions" received by the Fund or on gain from the disposition of
such investments by the Fund. In addition, gains from the sale of such
investments held for less than three months will count toward the 30% of gross
income test described above. The Fund will take steps to minimize income taxes
and interest charges arising from such investments, and will monitor such
investments to ensure that the Fund complies with the 30% of gross income test.
Proposed tax regulations, if they become effective, will allow the Fund to mark
to market and recognize gains on such investments at the Fund's taxable year
end. The Fund would not be subject to income tax on these gains if they are
distributed subject to these proposed rules.
<PAGE>
NET ASSET VALUE
The following information supplements that set forth in each Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Initial Sales Charge Alternative -- Class
A Shares." On each Fund business day on which a purchase or redemption order is
received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with each Fund's
Declaration of Trust or Articles of Incorporation, as applicable, and By-Laws as
of the next close of regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the
Fund's total assets, less its liabilities, by the total number of its shares
then outstanding. A Fund business day is any weekday, exclusive of national
holidays on which the Exchange is closed and Good Friday. For Tax Exempt and
Money Market, securities are valued at amortized cost. Under this method of
valuation, a security is initially valued at its acquisition cost and,
thereafter, a constant straight line amortization of any discount or premium is
assumed each day regardless of the impact of fluctuating interest rates on the
market value of the security. For each other Fund, Exchange-listed securities
and over-the-counter securities admitted to trading on the NASDAQ National List
are valued at the last quoted sale or, if no sale, at the mean of closing bid
and asked prices and portfolio bonds are presently valued by a recognized
pricing service when such prices are believed to reflect the fair value of the
security. Unlisted securities for which market quotations are readily available
are valued at a price quoted by one or more brokers. If accurate quotations are
not available, securities will be valued at fair value determined in good faith
by the Board of Trustees or Directors.
The respective per share net asset values of the Class A, Class B,
Class C (if Class C shares are offered by a Fund) and Class Y shares are
expected to be substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may be lower than
the per share net asset value of the Class A shares (and, in turn, that of Class
A shares may be lower than Class Y shares) as a result of the greater daily
expense accruals, relative to Class A and Class Y shares, of Class B and Class C
shares relating to distribution and, to the extent applicable, transfer agency
fees and the fact that Class Y shares bear no additional distribution or
transfer agency related fees. While it is expected that, in the event each Class
of shares of a Fund realizes net investment income or does not realize a net
operating loss for a period, the per share net asset values of the four classes
will tend to converge immediately after the payment of dividends, which
dividends will differ by approximately the amount of the expense accrual
differential among the classes, there is no assurance that this will be the
case. In the event one or more Classes of a Fund experiences a net operating
loss for any fiscal period, the net asset value per share of such Class or
Classes will remain lower than that of Classes that incurred lower expenses for
the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees or Directors will monitor, on an ongoing basis, a Fund's method of
valuation. Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well before the
close of business on each business day in New York. In addition, European or Far
Eastern securities trading generally or in a particular country or countries may
not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and on which the Fund's net asset value is not calculated. Such calculation does
not take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be reflected in
a Fund's calculation of net asset value unless the Trustees or Directors deem
that the particular event would materially affect net asset value, in which case
an adjustment will be made. Securities transactions are accounted for on the
trade date, the date the order to buy or sell is executed. Dividend income and
other distributions are recorded on the ex-dividend date, except certain
dividends and distributions from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Prospectus
under the heading "Purchase and Redemption of Shares - How To Buy Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "initial sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), or without any initial
sales charge, but with a contingent deferred sales charge imposed only during
the first year after purchase (the "level-load alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any initial or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Distributor ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their affiliates, that have entered into selected agent agreements with the
Distributor ("selected agents"), or (iii) the Distributor. The minimum for
initial investments is $1,000; there is no minimum for subsequent investments.
The subscriber may use the Share Purchase Application available from the
Distributor for his or her initial investment. Sales personnel of selected
dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("ACH"). If a shareholder's
telephone purchase request is received before 4:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed the same Fund
business day for non-money market funds, and two days following the day the
order is received for money market funds, and the applicable public offering
price will be the public offering price determined as of the close of business
on such business day. Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to a Fund, stock certificates
representing Class Y shares of a Fund are not issued except upon written request
to the Fund by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen certificates. No
certificates are issued for fractional shares, although such shares remain in
the shareholder's account on the records of a Fund, or for Class A, B or C
shares of any Fund.
In addition to the discount or commission amount paid to selected
dealers or agents, the Distributor may from time to time pay additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares, other than Class Y shares, of a Fund. On some occasions, such bonuses or
incentives may be conditioned upon the sale of a specified minimum dollar amount
of the shares of the Fund and/or other Evergreen Mutual Funds, as defined below,
during a specific period of time. At the option of the dealer such bonuses or
other incentives may take the form of payment for travel expenses, including
lodging incurred in connection with trips taken by persons associated with the
dealer and members of their families to places within or outside of the United
States.
Alternative Purchase Arrangements
Except as noted, each Fund issues four classes of shares: (i) Class A
shares, which are sold to investors choosing the initial sales charge
alternative; (ii) Class B shares, which are sold to investors choosing the
deferred sales charge alternative and which are not currently offered by Tax
Exempt; (iii) Class C shares, which are sold to investors choosing the
level-load sales charge alternative and which are not currently offered by
National, Short-Intermediate, Short-Intermediate-CA, Tax Exempt and Money
Market; and (iv) Class Y shares, which are offered only to (a) shareholders in
one or more of the Evergreen Mutual Funds prior to December 30, 1994., (b)
certain investment advisory clients of the Adviser and its affiliates, and (c)
institutional investors. The four classes of shares each represent an interest
in the same portfolio of investments of the Fund, have the same rights and are
identical in all respects, except that (I) only Class A, Class B and Class C
shares are subject to a Rule 12b-1 distribution fee, (II) Class A shares bear
the expense of the initial sales charge and Class B and Class C shares bear the
expense of the deferred sales charge, (III) Class B shares and Class C shares
each bear the expense of a higher Rule 12b-1 distribution fee than Class A
shares and, in the case of Class B shares, higher transfer agency costs, (IV)
with the exception of Class Y Shares, each Class of each Fund has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid which relates to a specific Class
and other matters for which separate Class voting is appropriate under
applicable law, provided that, if the Fund submits to a simultaneous vote of
Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder with respect to
the Class A shares, the Class A shareholders and the Class B and Class C
shareholders will vote separately by Class, and (V) only the Class B shares are
subject to a conversion feature. Each Class has different exchange privileges
and certain different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services fee and
contingent deferred sales charges on Class B shares prior to conversion, or the
accumulated distribution services fee on Class C shares, would be less than the
initial sales charge and accumulated distribution services fee on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher return of Class A shares. Class B and Class C shares will normally
not be suitable for the investor who qualifies to purchase Class A shares at the
lowest applicable sales charge. For this reason, the Distributor will reject any
order (except orders for Class B shares from certain retirement plans) for more
than $2,500,000 for Class B or Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares or Class C shares may exceed the initial sales charge
on Class A shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that, because of such
initial sales charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution charges and, in the case of Class B shares, being subject to a
contingent deferred sales charge for a seven-year period. For example, based on
current fees and expenses, an investor subject to the 4.75% initial sales charge
would have to hold his or her investment approximately seven years for the B and
Class C distribution services fee, to exceed the initial sales charge plus the
accumulated distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer period might
consider purchasing Class A shares. This example does not take into account the
time value of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net asset value or
the effect of different performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the seven year period
during which Class B shares are subject to a contingent deferred sales charge
may find it more advantageous to purchase Class C shares.
The Trustees or Directors of each Fund have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees and Directors of each
Fund, pursuant to their fiduciary duties under the 1940 Act and state laws, will
seek to ensure that no such conflict arises.
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the net asset value plus a sales charge
(except for Money Market and Tax Exempt), as set forth in the Prospectus for
each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act of 1933, as amended.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth above at a price based upon the net asset value of
Class A shares of each Fund at the end of each Fund's latest fiscal year.
<TABLE>
<CAPTION>
Net Per Share Offering Net Per Share Offering
Asset Sales Price Asset Sales Price Per
Value Charge Date Per Share Value Charge Date Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Evergreen $14.62 $.73 9/30/94 $15.35% Foundation $12.12 $.65 12/31/93 $13.77
Global $13.81 $.69 9/30/94 $14.50 Tax Strategic $10.31 $.51 12/31/93 $10.82
U.S. Real Short-Inter-
Estate $10.07 $.50 9/30/94 $10.57 mediate $10.21 $.51 8/31/94 $10.72
Short-Inter-
Limited Market $21.74 $1.08 9/30/94 $22.82 mediate-CA $10.09 $.50 8/31/94 $10.59
Growth and
Income $15.41 $.77 12/31/93 $16.18 National $9.99 $.47 8/31/94 $10.46
Total Return $18.29 $.91 3/31/94 $19.20 Tax Exempt $1.00 N/A 8/31/94 $1.00
American
Retirement $11.60 $.58 12/31/93 $12.18 U.S. Government $9.34 $.47 3/31/94 $9.81
Small Cap $10.15 $.51 12/31/93 $10.66 Money Market $1.00 N/A 8/31/94 $1.00
</TABLE>
Prior to the date of this Statement of Additional Information, shares
of the Funds were offered exclusively on a no-load basis and, accordingly, no
underwriting commissions have been paid in respect of sales of shares of the
Funds or retained by the Distributor. In addition, since Class B and Class C
shares were not offered prior to the date hereof, no contingent deferred sales
charges have been paid to the distributor with respect to Class B or Class C
shares.
Investors choosing the initial sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Funds into a
single "purchase," if the resulting "purchase" totals at least $100,000. The
term "purchase" refers to: (i) a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account(s); (ii)
a single purchase by a trustee or other fiduciary purchasing shares for a single
trust, estate or single fiduciary account although more than one beneficiary is
involved; or (iii) a single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by any "company," as the
term is defined in the 1940 Act, but does not include purchases by any such
company which has not been in existence for at least six months or which has no
purpose other than the purchase of shares of a Fund or shares of other
registered investment companies at a discount. The term "purchase" does not
include purchases by any group of individuals whose sole organizational nexus is
that the participants therein are credit card holders of a company, policy
holders of an insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include shares,
purchased at the same time through a single selected dealer or agent, of any
Evergreen Mutual Fund.
Currently, the Evergreen Mutual Funds include:
The Evergreen Fund
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen National Tax-Free Fund
Evergreen Tax Exempt Money Market Fund
The Evergreen Money Market Trust
Evergreen U.S. Government Securities Fund
Evergreen Foundation Fund
Prospectuses for the Evergreen Mutual Funds may be obtained without
charge by contacting the Distributor or the Adviser at the address or telephone
number shown on the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C shares
of the Fund held by the investor and (b) all such shares of
any other Evergreen Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, B or C shares of an
Evergreen Mutual Fund worth $200,000 at their then current net asset value and,
subsequently, purchased Class A shares of a Fund worth an additional $100,000,
the sales charge for the $100,000 purchase would be at the 3.00% rate applicable
to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Statement of Intention. Class A investors may also obtain the reduced
sales charges shown in the table above by means of a written Statement of
Intention, which expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in Class A shares (or Class A, Class B
and/or Class C shares) of the Fund or any other Evergreen Mutual Fund. Each
purchase of shares under a Statement of Intention will be made at the public
offering price or prices applicable at the time of such purchase to a single
transaction of the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases of Class A, B
or C shares of the Fund or any other Evergreen Mutual Fund made not more than 90
days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the Statement of Intention is in
effect will begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Mutual Funds under a single Statement
of Intention. For example, if at the time an investor signs a Statement of
Intention to invest at least $100,000 in Class A shares of the Fund, the
investor and the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to invest a total of
$60,000 during the following 13 months in shares of the Fund or any other
Evergreen Mutual Fund, to qualify for the 3.75% sales charge on the total amount
being invested (the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount. Shares purchased with the
first 5% of such amount will be held in escrow (while remaining registered in
the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased, and such escrowed shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on escrowed shares, whether
paid in cash or reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will be released.
To the extent that an investor purchases more than the dollar amount indicated
on the Statement of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Class A shares of the Fund should complete the
appropriate portion of the Subscription Application found in the Prospectus
while current Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting a Fund at the address or telephone numbers
shown on the cover of this Statement of Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen Funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative". The Adviser may provide compensation
to organizations providing administrative and recordkeeping services to plans
which make shares of the Evergreen Funds available to their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except that no loss will
be recognized to the extent that the proceeds are reinvested in shares of the
Fund. The reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with transactions whose sole
purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. The Fund may sell its Class A shares at net
asset value, i.e., without any sales charge, to certain categories of investors
including: (i) certain investment advisory clients of the Adviser or its
affiliates; (ii) officers and present or former Trustees or Directors of the
Fund; present or former directors and trustees of other investment companies
managed by the Adviser; present or retired full-time employees of the Adviser;
officers, directors and present or retired full-time employees of the Adviser,
the Distributor, and their affiliates; officers, directors and present and
full-time employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives") of any such
person; or any trust, individual retirement account or retirement plan account
for the benefit of any such person or relative; or the estate of any such person
or relative, if such shares are purchased for investment purposes (such shares
may not be resold except to the Fund); (iii) certain employee benefit plans for
employees of the Adviser, the Distributor. and their affiliates; and (iv)
persons participating in a fee-based program, sponsored and maintained by a
registered broker-dealer and approved by the Distributor, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its affiliate or agent,
for service in the nature of investment advisory or administrative services.
These provisions are intended to provide additional job-related incentives to
persons who serve the Funds or work for companies associated with the Funds and
selected dealers and agents of the Funds. Since these persons are in a position
to have a basic understanding of the nature of an investment company as well as
a general familiarity with the Fund, sales to these persons, as compared to
sales in the normal channels of distribution, require substantially less sales
effort. Similarly, these provisions extend the privilege of purchasing shares at
net asset value to certain classes of institutional investors who, because of
their investment sophistication, can be expected to require significantly less
than normal sales effort on the part of the Funds and the Distributor.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without an initial
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee enables the Fund to sell the Class B shares without a sales charge
being deducted at the time of purchase. The higher distribution services fee
incurred by Class B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within seven years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions. The amount of the contingent deferred sales charge,
if any, will vary depending on the number of years from the time of payment for
the purchase of Class B shares until the time of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed, that the redemption is first of any Class A
shares or Class C shares in the shareholder's Fund account, second of Class B
shares held for over eight years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B shares held
longest during the eight-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a CDSC
of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), of a shareholder, or (ii) to the extent that
the redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70-1/2.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee imposed on Class B
shares. Such conversion will be on the basis of the relative net asset values of
the two classes, without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee and transfer agency costs
with respect to Class B shares does not result in the dividends or distributions
payable with respect to other Classes of a Fund's shares being deemed
"preferential dividends" under the Code, and (ii) the conversion of Class B
shares to Class A shares does not constitute a taxable event under Federal
income tax law. The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time such conversion
is to occur. In that event, no further conversions of Class B shares would
occur, and shares might continue to be subject to the higher distribution
services fee for an indefinite period which may extend beyond the period ending
eight years after the end of the calendar month in which the shareholder's
purchase order was accepted, subject to the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
Level-Load Alternative--Class C Shares
Class C shares are offered by all Funds except Short-Intermediate,
Short-Intermediate-CA, Money Market and Tax Exempt. Investors choosing the level
load sales charge alternative purchase Class C shares at the public offering
price equal to the net asset value per share of the Class C shares on the date
of purchase without the imposition of a sales charge. However, you will pay a
1.0% CDSC if you redeem shares during the first year after purchase. No charge
is imposed in connection with redemptions made more than one year from the date
of purchase . Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment and
after the first year without a contingent deferred sales charge so that the
investor will receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee enables the
Fund to sell Class C shares without either an initial or contingent deferred
sales charge. However, unlike Class B shares, Class C shares do not convert to
any other class of shares of the Fund. Class C shares incur higher distribution
services fees than Class A shares, and will thus have a higher expense ratio and
pay correspondingly lower dividends than Class A shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) investors that held shares in one or more of the Evergreen Mutual
Funds prior to December 30, 1994., (ii) certain investment advisory clients of
the Adviser and its affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION
Capitalization and Organization.
All of the Funds, except Limited Market, are series of Massachusetts business
trusts (the "Trusts"). Evergreen is the only series of the Evergreen Fund, which
was originally organized in 1971 as a Delaware corporation under the name "The
Evergreen Fund, Inc." and reincorporated as a Maryland corporation in 1981. On
January 30, 1987, Evergreen was reorganized from a Maryland corporation into a
Massachusetts business trust. Total Return is the only series of the Evergreen
Total Return Fund and was originally organized in 1978 as a Maryland corporation
under the name "The Evergreen Total Return Fund, Inc." On August 1, 1986, the
Total Return was reorganized from a Maryland corporation into a Massachusetts
business trust. American Retirement and Small Cap are series of The Evergreen
American Retirement Trust, which was organized as a Massachusetts business trust
in 1987. National, Short-Intermediate, Short-Intermediate-CA and Tax Exempt, are
series of the Evergreen Municipal Trust, which was organized as a Massachusetts
business trust in 1988. Money Market is the only series of the Evergreen Money
Market Trust, which was organized as a Massachusetts business trust in 1987.
Global and U.S. Real Estate are the two series of Evergreen Real Estate Equity
Trust, which was organized as a Massachusetts business trust in 1988. Growth and
Income, is the only series of a Massachusetts business trust organized in 1986.
U.S. Government is the only series of Evergreen Fixed Income Trust, which was
organized as a Massachusetts business trust in 1992. Foundation and Tax
Strategic are the two series of Evergreen Foundation Trust which was organized
as a Massachusetts business trust in 1989. Limited Market is a Maryland
corporation initially organized in 1983.
<PAGE>
Liability Under Massachusetts Law
Under Massachusetts law, trustees and shareholders of a business trust
may, in certain circumstances, be held personally liable for its obligations.
The Declaration of Trust under which the Fund operates provides that no trustee
or shareholder will be personally liable for the obligations of the Trust and
that every written contract made by the Trust contain a provision to that
effect. If any Trustee or shareholder were required to pay any liability of the
Trust, that person would be entitled to reimbursement from the general assets of
the Trust.
Total Return, Evergreen and Growth and Income may issue an unlimited
number of shares of beneficial interest with a $0.001 par value. American
Retirement, Small Cap, Global, U.S. Real Estate, Foundation, Tax Strategic, U.S.
Government, Money Market, Tax Exempt, Short-Intermediate, Short-Intermediate-CA
and National may issue an unlimited number of shares of beneficial interest with
a $0.0001 par value. All shares of these Funds have equal rights and privileges.
Each share is entitled to one vote, to participate equally in dividends and
distributions declared by the Funds and on liquidation to their proportionate
share of the assets remaining after satisfaction of outstanding liabilities.
Shares of these Funds are fully paid, nonassessable and fully transferable when
issued and have no pre-emptive, conversion or exchange rights. Fractional shares
have proportionally the same rights, including voting rights, as are provided
for a full share.
The authorized capital stock of Limited Market consists of 25,000,000
shares of Common Stock having a par value of $0.10 per share. Each share of
Limited Market is entitled to one vote and to participate equally in dividends
and distributions declared by Limited Market and, on liquidation, to its
proportionate share of the net assets remaining after satisfaction of
outstanding liabilities (including fractional shares on a proportional basis).
All shares of Limited Market when issued will be fully paid and non-assessable
and have no preemptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share. The rights of the holders of shares of Common Stock may not be
modified except by vote of the holders of a majority of the outstanding shares.
The Trustees of the Funds (with the exception of Limited Market) were
elected by the shareholders of each Fund at a Joint Special Meeting of
Shareholders held on June 23, 1994. Under each Funds Declaration of Trust, each
Trustee will continue in office until the termination of the Fund or his or her
earlier death, incapacity, resignation or removal. Shareholders can remove a
Trustee upon a vote of two-thirds of the outstanding shares of beneficial
interest of the Trust. Vacancies will be filled by a majority of the remaining
Trustees, subject to the 1940 Act. As a result, normally no annual or regular
meetings of shareholders will be held, unless otherwise required by the
Declaration of Trust of each Fund or the 1940 Act.
The Directors of Limited Market were elected by the shareholders of the
Fund at their meeting held June 23, 1994. Under the Fund's Bylaws, each Director
will continue in office until such time as less than a majority of the Directors
then holding office have been elected by the shareholders or upon the occurrence
of any of the conditions described under Section 16 of the 1940 Act. As a
result, normally no annual or regular meetings of shareholders will be held,
unless otherwise required by the Bylaws or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees or Directors
can elect 100% of the Trustees or Directors if they choose to do so and in such
event the holders of the remaining shares so voting will not be able to elect
any Trustees or Directors.
The Trustees or Directors of each Fund are authorized to reclassify and
issue any unissued shares to any number of additional series without shareholder
approval. Accordingly, in the future, for reasons such as the desire to
establish one or more additional portfolios of a Trust or Limited market with
different investment objectives, policies or restrictions, additional series of
shares may be created by one or more Funds. Any issuance of shares of another
series or class would be governed by the 1940 Act and the law of either the
State of Massachusetts or the State of Maryland. If shares of another series of
a Trust or Limited Market were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees or Directors, that affected all portfolios in substantially the same
manner. As to matters affecting each portfolio differently, such as approval of
the Investment Advisory Contract and changes in investment policy, shares of
each portfolio would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related an other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders' meeting for the removal of the
Trustees or Directors of each Fund, similar to those set forth in Section 16(c)
of the 1940 Act will be available to shareholders of each Fund. The rights of
the holders of shares of a series of a Fund may not be modified except by the
vote of a majority of the outstanding shares of such series.
An order has been received from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in each Fund. In the event a Fund were to issue additional Classes of
shares other than those described herein, no further relief from the Securities
and Exchange Commission would be required.
At December 30, 1994 each Fund had not yet commenced a public offering
of Class A, B or C shares. As of such date each Fund had outstanding the
following number of shares of each Class:
<TABLE>
<CAPTION>
Total Shares Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C>
Evergreen 39,402,697 1 1 1 39,402,694
Total Return 55,580,326 1 1 1 55,580,323
Limited Market 5,196,340 1 1 1 5,196,337
Growth and Income 5,085,242 1 1 1 5,085,239
Money Market 265,964,184 1 1 1 265,964,181
American Retirement 3,490,804 1 1 1 3,490,801
Small Cap 372,171 1 1 1 372,168
Tax Exempt 379,262,588 1 1 1 379,262,585
Short-Intermediate 4,613,339 1 1 1 4,613,336
Short-Intermediate-CA 2,593,455 1 1 1 2,593,452
National 3,044,795 1 1 1 3,044,792
Global 8,120,881 1 1 1 8,120,878
U.S. Real Estate 934,022 1 1 1 934,019
Foundation 27,016,435 1 1 1 27,016,432
Tax Strategic 1,027,453 1 1 1 1,027,450
U.S. Government 466,372 1 1 1 466,369
</TABLE>
Custodian and Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian for the securities and cash of each Fund
but plays no part in deciding the purchase or sale of portfolio securities.
State Street has entered into sub-custodian agreements with a number of major
financial institutions, pursuant to which cash and Global's portfolio securities
which are purchased outside the United States will be maintained in the custody
of such institutions. All sub-custodian arrangements will be approved by
Global's Trustees in accordance with Rule 17f-5 of the 1940 Act.
Distributor
Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue,
New York, New York 10169, serves as each Fund's principal underwriter, and as
such may solicit orders from the public to purchase shares of any Fund.
Evergreen Funds Distributor, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders for shares.
Under the Agreement between the Fund and the Distributor, the Fund has agreed to
indemnify the Distributor, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended.
Counsel
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue,
New York, New York 10022 serves as counsel to the Funds.
Independent Auditors
Ernst & Young LLP has been selected to be the independent auditors of
Total Return, Limited Market, Growth and Income and the two series funds of The
Evergreen American Retirement Trust.
Price Waterhouse LLP has been selected to be the independent auditors
of Evergreen, Money Market, the four series funds of The Evergreen Municipal
Trust, the two series funds of Evergreen Real Estate Equity Trust, the two
series funds of Evergreen Foundation Trust and the sole series of Evergreen
Fixed-Income Trust.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return" . Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the Securities
and Exchange Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been paid. The Fund
will include performance data for Class A, Class B and Class C shares in any
advertisement or information including performance data of the Fund.
The shares of each Fund outstanding prior to January 3, 1995 have been
reclassified as Class Y shares. The average annual compounded total return, or
where applicable yield, for each Class of shares offered by the Funds for the
most recently completed one, five and ten year fiscal periods is set forth in
the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EVERGREEN 1 Year 5 Years 10 Years TOTAL RETURN 1 Year 5 Years 10 Years
-------
Ended Ended Ended Ended Ended Ended
------
9/30/94 9/30/94 9/30/94 3/31/94 3/31/94 3/31/94
Class A 1.12% 5.73% 11.57% Class A -6.78% 7.11% 11.25%
Class B 1.16% 6.46% 12.11% Class B -6.51% 7.87% 11.79%
Class C 5.16% 6.77% 12.11% Class C -3.01% 8.16% 11.79%
Class Y 6.16% 6.77% 12.11% Class Y -2.13% 8.16% 11.79%
LIMITED MARKET 1 Year 5 Years 10 Years GROWTH AND INCOME 1 Year 5 Years From
Ended Ended Ended Ended Ended 10/15/86
9/30/94 9/30/94 9/30/94 12/31/93 12/31/93 (inception)
Class A -2.74% 8.58% 15.32% Class A 9.00% 13.34% 11.81%
Class B -2.71% 9.37% 15.89% Class B 9.44% 14.22% 12.50%
Class C 1.15% 9.64% 15.89% Class C 13.44% 14.45% 12.57%
Class Y 2.11% 9.64% 15.89% Class Y 14.44% 14.45% 12.57%
MONEY MARKET 1 Year 5 Years From AMERICAN RETIREMENT 1 Year 5 Years From
Ended Ended 11/2/87 Ended Ended 3/14/88
8/31/94 8/31/94 (inception) 12/31/93 12/31/93 (inception)
Class A 3.60% 5.31% 6.16% Class A 8.64% 10.25% 9.82%
Class B -1.40% 4.98% 6.06% Class B 9.06% 11.07% 10.64%
Class Y 3.60% 5.31% 6.16% Class C 13.06% 11.33% 10.75%
Class Y 14.06% 11.33% 10.75%
SMALL CAP From TAX EXEMPT 1 Year 5 Years From
10/1/93 Ended Ended 11/2/88
(inception) 8/31/94 8/31/94 (inception)
Class A -2.41% Class A 2.50% 4.08% 4.44%
Class B -2.54% Class Y 2.50% 4.08% 4.44%
Class C 1.46%
Class Y 2.46%
SHORT INTERMEDIATE 1 Year From SHORT-INTERMEDIATE-CA 1 Year From
Ended 11/18/91 Ended 10/16/92
8/31/94 (inception) 8/31/94 (inception)
Class A -3.40% 3.96% -3.00% 2.12%
Class B -3.41% 4.81% -3.04% 2.74%
Class Y 1.42% 5.79% 1.84% 4.79%
NATIONAL 1 Year From GLOBAL 1 Year 5 Years From 2/1/89
Ended 10/1/93 Ended Ended (inception)
-----------
8/31/94 (inception) 9/30/94 9/30/94
Class A -6.93% 3.30% -1.74% 6.28% 5.92%
Class B -6.86% 4.04% -1.84% 7.01% 5.70%
Class C -2.29% 6.33% 2.16% 7.32% 6.83%
Class Y 3.16% 7.32% 6.83%
U.S. REAL ESTATE 1 Year From 9/1/93 FOUNDATION 1 Year From 1/2/90
Ended (inception) Ended (inception)
----------- -----------
9/30/94 12/31/93
Class A -6.89% -3.37% 10.21% 17.76%
Class B -7.11% -2.62% 10.71% 18.76%
Class C -3.22% 1.08% 14.71% 19.20%
Class Y -2.25% 1.08% 15.71% 19.20%
TAX STRATEGIC From 11/02/93 U.S. GOVERNMENT From 6/14/93 (inception)
(inception) to 12/31/93 to 3/31/94
Class A -1.37% -5.38%
Class B -1.45% -5.33%
Class C -2.55% -1.56%
Class Y 3.55% -0.66%
</TABLE>
The performance numbers for the Class A, B and C shares are
hypothetical numbers based on the performance for Class Y shares as adjusted for
any applicable front-end sales charge or CDSC. The performance data does not
reflect any Rule 12b-1 fees. If such fees were reflected the returns would be
lower.
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS - NON-MONEY MARKET FUNDS
The yields used by U.S. Government, National, Short-Intermediate and
Short-Intermediate-CA in advertising are computed by dividing the Fund's
interest income (as defined in the SEC yield formula) for a given 30-day or one
month period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the Fund's net
asset value per share at the end of the period and annualizing the result
(assuming compounding of income) in order to arrive at an annual percentage
rate. The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = 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
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Gains and losses
generally are excluded from the calculation. Income calculated for purposes of
determining a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield examples for National, Short-Intermediate and Short-Intermediate-CA are
shown under "Tax Equivalent Yield', below. An example of the 30-day yield for
U.S. Government is set forth below:
Year Ended: Yield
U.S. Government 3/31/94 6.95%
Tax Equivalent Yield
National, Short-Intermediate and Short-Intermediate-CA invest principally in
obligations the interest from which is exempt from federal income tax other than
the AMT. In addition, the securities in which Short-Intermediate-CA invests will
also, to the extent practicable, be exempt from California income taxes. However
from time to time the Funds may make investments which generate taxable income.
A Fund's tax-equivalent yield is the rate an investor would have to earn from a
fully taxable investment in order to equal the Fund's yield after taxes.
Tax-equivalent yields are calculated by dividing a Fund's yield by the result of
one minus a stated federal or combined federal and state tax rate. (If only a
portion of the Fund's yield is tax-exempt, only that portion is adjusted in the
calculation.) Of course, no assurance can be given that a Fund will achieve any
specific tax-exempt yield. If only a portion of the Fund's yield is tax-exempt,
only that portion is adjusted in the calculation. Of course, no assurance can be
given that the Fund will achieve any specific tax-exempt yield.
The following formula is used to calculate Tax Equivalent Yield without taking
into account state tax:
Fund's Yield
1 - Fed Tax Rate
The following formula is used to calculate Tax Equivalent Yield taking into
account state tax:
Fund's Yield
1 - Fed Tax Rate + (State Tax Rate - [State Tax Rate x Fed Tax Rate])
Examples of the 30-day tax exempt and tax equivalent yields, assuming the 36%
federal income tax bracket and, for Short-Intermediate-CA only, the 11%
California income tax bracket, are set forth below:
Year Ended: Yield Tax Equivalent Yield
National 8/31/94 5.20% 8.12%
Short-Intermediate 8/31/94 4.23% 6.61%
Short-Intermediate-CA 8/31/94 4.10% 7.20%
CURRENT YIELD - MONEY MARKET FUNDS
Money Market and Tax Exempt may quote a "Current Yield" or "Effective Yield"
from time to time. The Current Yield is an annualized yield based on the actual
total return for a seven-day period. The Effective Yield is an annualized yield
based on a compounding of the Current Yield. These yields are each computed by
first determining the "Net Change in Account Value" for a hypothetical account
having a share balance of one share at the beginning of a seven-day period
("Beginning Account Value"), excluding capital changes. The Net Change in
Account Value will generally equal the total dividends declared with respect to
the account.
The yields are then computed as follows:
Current Yield = Net Change in Account Value
Beginning Account Value x 365/7
Effective Yield = (1 + Total Dividend for 7 days)365/7- 1
Yield fluctuations may reflect changes in a Fund's net investment income, and
portfolio changes resulting from net purchases or net redemptions of the Fund's
shares may affect the yield. Accordingly, a Fund's yield may vary from day to
day, and the yield stated for a particular past period is not necessarily
representative of its future yield. Since the Funds use the amortized cost
method of net asset value computation, it does not anticipate any change in
yield resulting from any unrealized gains or losses or unrealized appreciation
or depreciation not reflected in the yield computation, or change in net asset
value during the period used for computing yield. If any of these conditions
should occur, yield quotations would be suspended. A Fund's yield is not
guaranteed, and the principal is not insured. However, a Fund will use its best
efforts to maintain its net asset value at $1.00 per share. Examples of seven
day current and effective yields for Money Market and Tax-Exempt are set forth
below:
7-Day Period Ended Current Yield Effective Yield
Money Market 8/31/94 4.21% 4.30%
Tax Exempt 8/31/94 2.87% 2.91%
GENERAL
From time to time, a Fund may quote its performance in advertising and other
types of literature as compared to the performance of the S & P Index, the Dow
Jones Industrial Average, Russell 2000 Index, or any other commonly quoted index
of common stock prices. The S & P Index, the Dow Jones Industrial Average and
the Russell 2000 Index are unmanaged indices of selected common stock prices. A
Fund's performance may also be compared to those of other mutual funds having
similar objectives. This comparative performance would be expressed as a ranking
prepared by Lipper Analytical Services, Inc., an independent service which
monitors the performance of mutual funds. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker
or to the Adviser. at the address or telephone numbers shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statement filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933. Copies of the Registration Statement may be obtained
at a reasonable charge from the Securities and Exchange Commission or may be
examined, without charge, at the offices of the Securities and Exchange
Commission in Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements appearing in their most current fiscal
year Annual Report to shareholders and the report thereon of the independent
auditors appearing therein, namely Ernst & Young, LLP (in the case of Total
Return, Limited Market, Growth and Income and the two series funds of The
Evergreen American Retirement Trust) or Price Waterhouse, (in the case of
Evergreen, Money Market, the four series funds of The Evergreen Municipal Trust,
the two series funds of Evergreen Real Estate Equity Trust, the two series funds
of Evergreen Foundation Trust and the sole series fund of Evergreen Fixed-Income
Trust) , and for Total Return, Growth and Income, American Retirement, Small
Cap, Foundation, Tax Strategic and U.S. Government the Semi-Annual Report for
the most recently completed semi-annual period, along with the reports of each
Fund for the aforementioned periods filed with the Securities and Exchange
Commission on form NSAR are incorporated by reference in this Statement of
Additional Information. The Annual and Semi-Annual Reports to Shareholders for
each Fund, which contain the referenced statements, are available upon request
and without charge.
<PAGE>
APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS
NOTE RATINGS
Moody's Investors Service: MIG-1 -- the best quality. MIG-2 -- high
quality, with margins of protection ample though not so large as in the
preceding group. MIG-3 -- favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the preceding grades.
Market access for refinancing, in particular, is likely to be less well
established.
Standard & Poor's Ratings Group: SP-1 - Very strong or strong capacity to pay
principal and interest. SP-2 -- Satisfactory capacity to pay principal
and interest.
BOND RATINGS
Moody's Investors Service: Aaa -- judged to be the best quality, carry
the smallest degree of investment risk; Aa -- judged to be of high quality by
all standards; A -- possess many favorable investment attributes and are to be
considered as higher medium grade obligations; Baa -- considered as medium grade
obligations which are neither highly protected nor poorly secured. Moody's
Investors Service, Inc. also applies numerical indicators, 1, 2 and 3, to rating
categories Aa through Baa. The modifier 1 indicates that the security is in the
higher end of its rating category; the modifier 2 indicates a mid-range ranking;
and 3 indicates a ranking toward the lower end of the category.
Standard Poor's Ratings Group: AAA -- highest grade obligations,
possesses the ultimate degree of protection as to principal and interest; AA --
also qualify as high grade obligations, and in the majority of instances differ
from AAA issues only in small degree; A -- regarded as upper medium grade, have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions, interest and principal are regarded
as safe; BBB -- regarded as having adequate capacity to pay interest and repay
principal but are more susceptible than higher rated obligations to the adverse
effects of changes in economic and trade conditions. Standard Poor's Corporation
applies indicators "+", no character, and "-" to the above rating categories AA
through BBB. The indicators show relative standing within the major rating
categories.
Duff Phelps: AAA - highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly from time to time because of economic
conditions; A -- average credit quality with adequate protection factors, but
with greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch: AAA -- highest credit quality, with an exceptionally strong
ability to pay interest and repay principal; AA -- very high credit quality,
with a very strong ability to pay interest and repay principal; A -- high credit
quality, considered strong as regards principal and interest protection, but may
be more vulnerable to adverse changes in economic conditions; and BBB --
satisfactory credit quality with adequate ability with regard to interest and
principal, and likely to be affected by adverse changes in economic conditions
and circumstances. The indicators "+" and "-" to the AA, A and BBB categories
indicate the relative position of a credit within those rating categories.
COMMERCIAL PAPER RATINGS
Moody's Investors Service: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote
relative strength within this highest classification.
Standard Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by SP which uses the numbers 1+, 1, 2 and 3 to denote
relative strength within its "A" classification.
Duff Phelps: Duff 1 is the highest commercial paper rating category
utilized by Duff Phelps which uses + or - to denote relative strength within
this classification. Duff 2 represents good certainty of timely payment, with
minimal risk factors. Duff 3 represents satisfactory protection factors, with
risk factors larger and subject to more variation.
Fitch: F-1+ -- denotes exceptionally strong credit quality given to
issues regarded as having strongest degree of assurance for timely payment; F-1
-- very strong credit quality, with only slightly less degree of assurance for
timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory
degree of assurance for timely payment.
<PAGE>
APPENDIX B - ADDITIONAL INFORMATION CONCERNING CALIFORNIA
The following information as to certain California risk factors is
given to investors in view of Short-Intermediate-CA's policy of investing
primarily in California state and municipal issuers. The information is based
primarily upon information derived from public documents relating to securities
offerings of California state and municipal issuers, from independent municipal
credit reports and historically reliable sources, but has not been independently
verified by the Fund.
On June 6, 1978, California voters approved Proposition 13, which added
Article XIIIA to the California Constitution. The principal thrust of Article
XIIIA is to limit the amount of ad valorem taxes on real property to one percent
of the full cash value as determined by the county assessor. The assessed
valuation of all real property may be increased, but not in excess of two
percent per year, or decreased to reflect the rate of inflation or deflation as
shown by the consumer price index. Article XIIIA requires a vote of two thirds
of the qualified electorate to impose special taxes, and completely prohibits
the imposition of any additional ad valorem, sales or transaction tax on real
property (other than ad valorem taxes to repay general obligation bonds issued
to acquire or improve real property), and requires the approval of two-thirds of
all members of the State Legislature to change any state tax laws resulting in
increased tax revenues.
On November 6, 1979, California voters approved the initiative seeking
to amend the California Constitution entitled "Limitation of Government
Appropriations" which added Article XIIIB to the California Constitution. Under
Article XIIIB state and local governmental entities have an annual
appropriations limit and may not spend certain monies which are called
appropriations subject to limitations (consisting of tax revenues, state
subventions and certain other funds) in an amount higher than the appropriations
limit. Generally, the appropriations limit is to be based on certain 1978-79
expenditures, and is to be adjusted annually to reflect changes in consumer
prices, population and services provided by these entities.
Decreased in state and local revenues in future fiscal years as a
consequence of these initiatives may continue to result in reductions in
allocations of state revenues to California municipal issuers or reduce the
ability of such California issuers to pay their obligations.
With the apparent onset of recovery in California's economy, revenue
growth over the next few years could recommence at levels that would enable
California to restore fiscal stability. The political environment, however,
combined with pressures on the state's financial flexibility, may frustrate its
ability to reach this goal. Strong interests in long-established state programs
ranging from low-cost public higher education access to welfare and health
benefits join with the more recently emerging pressure for expanded prison
construction and a heightened awareness and concern over the state's business
climate.
Adopted on July 8, 1994, the fiscal 1994 budget is designed to address
California's accumulated deficit over a 22-month period. In order to balance the
budget and generate sufficient cash to retire the $4 billion deficit Revenue
Anticipation Warrant and a $3 billion Revenue Anticipation Note to be issued in
July 1995, the state's fiscal plan relies upon aggressive assumptions of federal
aid, projected at about $760 million in fiscal year 1995 and $2.8 billion in
fiscal year 1995, to compensate the state for its costs of providing service to
illegal immigrants. These assumptions, combined with fiscal year 1996
constitutionally mandated increases in spending for K-14 education, and
continued growth in social services and corrections expenditures, are risky. To
offset this risk, the state has enacted a Budget Adjustment Law, known as the
"trigger" legislation, which established a set of backup budget adjustment
mechanisms to address potential shortfalls in cash. The trigger mechanism will
be in effect for both fiscal years 1995 and 1996.
In July of 1994, S& P and Moody's lowered the general obligation bond
rating of the state of California. The rating agencies explained their actions
by citing the state's continuing deferral of substantial portions of its
estimated $3.8 billion accumulated deficit; continuing structural budgetary
constraints including a funding guarantee for K-14 education; overly optimistic
expectation of federal aid to balance fiscal year 1995's budget and fiscal year
1996's cash flow projections; and reliance upon a trigger mechanism to reduce
spending if the plan's federal aid assumptions prove to be inflated.
Evergreen
National
Tax-Free Fund
------------------------
Annual Report
August 31, 1994
The Evergreen Funds [LOGO]
<PAGE>
Dear Fellow Shareholder: August 31, 1994
In this, our second annual report for Evergreen National Tax-Free Fund, we
stand in stark contrast to our report of one year ago when we reported on a
weakened economy and declining interest rates. As evidenced by the Federal
Reserve's five increases in short-term interest rates year-to-date, the national
economy appears to have rebounded during 1994 with gains in employment,
industrial production and housing that have set the fixed-income markets on
their heels. In September of 1993, long-term U.S. Treasuries were yielding
6.00%, as compared to current long-term U.S. Treasuries at 7.70%. Similarly,
30-year insured municipals yielding 5.25% in September 1993, are currently
yielding 6.30% or higher. Although insured municipals performed better than
long-term treasuries during this period, the resulting impact upon the
performance of the Fund was still, of course, to the negative. The details are
as follows: As of the date of this writing, the Fund's 30-day annualized yield
is 5.20% producing a taxable-equivalent yield of 8.12%* for investors in the 36%
Federal marginal tax bracket. The Fund's cumulative total return for the
calendar year-to-date is -4.47%**, with the 12-month total return at -2.29%.
Since its inception on December 30, 1992, the Fund's average annual compounded
rate of return through August 31, 1994, is +6.33%.
As of August 31, 85% of the Fund's investments were in securities that are
insured as to payment of principal and interest, which produced an Aaa weighted
average credit quality rating for the Fund's securities. While insurance on the
Fund's securities does not remove market risks, it does reduce the risk of
default on the Fund's investments. Our weighted average maturity of 14.2 years
and duration of 8.4 years are significantly below levels of one year ago,
reflecting our concern about rising rates and our desire to preserve principal
during this period of market volatility.
Since there is a decided bias toward higher interest rates going forward,
the strategy employed these past eight months, to reduce exposure to interest
rate risk, remains in place. So that the Fund may continue to seek to protect
principal, we will sacrifice some yield until such time as the economy shows
signs of weakening or the Federal Reserve signals an end to inflation fears.
Further, it is important to note that great value remains in the tax-free market
place relative to taxable investments. After tax, you would still have to assume
more rate risk (longer maturities) and credit risk (lower quality) to equal or
better your returns versus that of long-term tax-free funds. Finally, municipal
issuance is down 40% from 1993, which has meant stronger price performance
relative to most fixed-income securities, despite the rise in rates. We will
continue to be vigilant in our attempt to not only maximize the Fund's returns
but also guard against any further erosion due to volatile market activities.
We thank you for investing in Evergreen National Tax-Free Fund and look
forward to serving your continued investment needs.
Sincerely,
/s/ Stephen A. Lieber /s/ James T. Colby, III
Stephen A. Lieber James T. Colby, III
Chairman Portfolio Manager
Evergreen Asset
Management Corp.
-----------------------------------
Figures represent past performance which does not guarantee future results.
* Currently, the Adviser is waiving a portion of its advisory fee. Had this fee
not been waived, the Fund's 30-day annualized and tax-equivalent yields would
have been 4.81% and 7.52%, respectively, and returns would have been lower. Fee
waivers may be revised at any time.
The tax-equivalent yield would be lower for investors in lower tax brackets.
** Performance figures include reinvestment of income dividend and capital gain
distributions, if any.
The Fund's return, net asset value and yield will fluctuate and there can be no
guarantee that the Fund will achieve its objective or any particular tax exempt
yield. Shares, when redeemed may be worth more or less than their original cost.
Income may be subject to some state and local taxes, and the Federal alternative
minimum tax for certain investors.
<PAGE>
Evergreen National Tax-Free Fund
Statement of Investments
August 31, 1994
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--87.1%
--------------------------------------------------------------------------------
ALASKA--1.2%
--------------------------------------------------------------------------------
Municipality of $ 500 6.20% 12/01/13 $ 502,275
Anchorage Senior
Lien Electric Series
1993 RRB (MBIA)
--------------------------------------------------------------------------------
ARKANSAS--2.4%
--------------------------------------------------------------------------------
Beaver Water District 1,000 5.75 11/15/07 1,010,670
of Benton and
Washington
Counties RRB
Series 1994 (MBIA)
--------------------------------------------------------------------------------
CALIFORNIA--11.6%
--------------------------------------------------------------------------------
City and County of 1,000 6.75 05/01/13 1,052,700
San Francisco
Airports Commission,
San Francisco
International Airport
RRB Second Series
Issue 2 Bonds
(MBIA)
--------------------------------------------------------------------------------
City of Fresno Sewer 1,500 6.25 09/01/14 1,539,780
System Series
1993A RB (AMBAC)
--------------------------------------------------------------------------------
Redevelopment 750 6.00 08/01/15 741,150
Agency of the City 1,000 6.00 08/01/08 1,018,860
of San Jose Merged
Area Redevelopment
Project Tax
Allocation Bonds
Series 1993 (MBIA)
--------------------------------------------------------------------------------
San Mateo County 500 6.50 07/01/16 523,895
Joint Powers
Financing Authority
Lease (Capital
Projects Program)
Series 1993A RRB
(MBIA)
--------------------------------------------------------------------------------
4,876,385
--------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.1%
--------------------------------------------------------------------------------
Metropolitan 500 5.75 10/01/20 462,570
Washington Airports
Authority Airports
System RB Series
1994A (MBIA)
--------------------------------------------------------------------------------
FLORIDA--1.1%
--------------------------------------------------------------------------------
Orlando-Orange 500 5.50 07/01/18 457,245
County Expressway
Authority Senior
Lien Series 1993
RRB (FGIC)
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
GEORGIA--2.5%
--------------------------------------------------------------------------------
City of Atlanta Airport $ 500 6.50% 01/01/10 $ 529,420
Facilities Series
1994A RRB
(AMBAC)
--------------------------------------------------------------------------------
Municipal Electric 500 6.40 01/01/13 522,570
Authority of Georgia
Project One Special
Obligation Bonds,
Fifth Crossover
Series (AMBAC)
--------------------------------------------------------------------------------
1,051,990
--------------------------------------------------------------------------------
HAWAII--3.2%
--------------------------------------------------------------------------------
Hawaii State Airport 1,250 7.50 07/01/20 1,362,563
Systems Second
Series 1990 RB
(FGIC)
--------------------------------------------------------------------------------
IDAHO--2.4%
--------------------------------------------------------------------------------
Idaho Housing Agency 1,000 6.30 07/01/11 1,003,200
Single Family
Mortgage Bonds
Series 1994C-1
Term Mezzanine
Bonds
--------------------------------------------------------------------------------
ILLINOIS--4.2%
--------------------------------------------------------------------------------
City of Chicago Water 1,250 6.50 11/01/15 1,302,775
Series 1993 RRB
(FGIC)
--------------------------------------------------------------------------------
Illinois State University 500 5.75 04/01/14 470,875
Board of Regents
(Auxiliary Facilities
System) Series
1993 RRB (MBIA)
--------------------------------------------------------------------------------
1,773,650
--------------------------------------------------------------------------------
INDIANA--2.8%
--------------------------------------------------------------------------------
Indiana Health 500 5.875 08/01/13 479,865
Facilities Finance
Authority Hospital
(Lafayette Home
Hospital) Series
1993 RRB (MBIA)
--------------------------------------------------------------------------------
Indianapolis Airport 750 5.875 01/01/13 713,197
Authority Series
1993 RB (MBIA)
--------------------------------------------------------------------------------
1,193,062
--------------------------------------------------------------------------------
IOWA--1.2%
--------------------------------------------------------------------------------
City of Iowa City, 500 6.00 07/01/12 499,950
Johnson County
Sewer Series 1993
RB (AMBAC)
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
MAINE--2.7%
--------------------------------------------------------------------------------
Maine Turnpike $1,000 7.125% 07/01/08 $1,129,850
Authority Turnpike
RB Series 1994
(MBIA)
--------------------------------------------------------------------------------
MARYLAND--1.2%
--------------------------------------------------------------------------------
Community 500 5.70 04/01/17 498,710
Development
Administration
Department of
Housing and
Community Single
Family Program
Bonds, First Series
1994
--------------------------------------------------------------------------------
MASSACHUSETTS--8.0%
--------------------------------------------------------------------------------
Massachusetts 1,000 6.00 07/01/11 1,001,360
Municipal Wholesale
Electric
Company Series
1992E RB (MBIA)
--------------------------------------------------------------------------------
Massachusetts 1,100 6.15 10/01/15 1,092,212
Housing Finance
Agency Housing
Project Series
1993A RB (AMBAC)
--------------------------------------------------------------------------------
Massachusetts 250 6.60 07/01/14 253,245
Housing Finance
Agency Insured
Rental Housing
Bonds, Series
1994A (AMBAC)
--------------------------------------------------------------------------------
Massachusetts 500 6.30 07/01/13 507,720
Industrial Finance
Agency (Mt.
Holyoke College)
RRB (MBIA)
--------------------------------------------------------------------------------
Massachusetts State 500 6.25 07/01/20 500,725
Health & Educational
Facilities
Authority Series
1992F (Massachusetts
General
Hospital Project)
RB (AMBAC)
--------------------------------------------------------------------------------
3,355,262
--------------------------------------------------------------------------------
MICHIGAN--3.6%
--------------------------------------------------------------------------------
City of Detroit Water 1,000 6.50 07/01/15 1,051,560
Supply System
Series 1993 RRB
(FGIC)
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
MICHIGAN--continued
--------------------------------------------------------------------------------
City of Grand Haven $ 510 5.25% 07/01/13 $ 460,214
Electric System
Series 1993 RRB
(MBIA)
--------------------------------------------------------------------------------
1,511,774
--------------------------------------------------------------------------------
MINNESOTA--2.4%
--------------------------------------------------------------------------------
Minnesota Housing 1,000 6.70 01/01/18 1,030,290
Finance Agency
Single Family
Mortgage Bonds
Series 1994H
--------------------------------------------------------------------------------
NEVADA--4.1%
--------------------------------------------------------------------------------
City of Henderson 500 5.60 05/01/13 467,040
Series 1993A GO
(FGIC)
--------------------------------------------------------------------------------
City of Henderson 500 6.375 12/01/14 508,020
Water Bonds Series
1993A GO
(AMBAC)
--------------------------------------------------------------------------------
Washoe County, 750 6.30 12/01/14 751,800
Nevada Gas &
Water Facilities
(Sierra Pacific)
Series 1987 RRB
(AMBAC)
--------------------------------------------------------------------------------
1,726,860
--------------------------------------------------------------------------------
NEW HAMPSHIRE--0.6%
--------------------------------------------------------------------------------
New Hampshire State 250 5.95 07/01/13 236,455
Housing Finance
Authority Single
Family Mortgage
Series 1993B RRB
--------------------------------------------------------------------------------
NEW JERSEY--3.0%
--------------------------------------------------------------------------------
New Jersey Health 300 5.75 07/01/14 286,656
Care Facilities
Finance Authority
(St. Clares-
Riverside Medical
Center Obligated
Group Issue) Series
1994 RB (MBIA)
--------------------------------------------------------------------------------
New Jersey Housing 1,000 6.30 04/01/25 999,920
& Mortgage Finance
Agency Home
Buyer Series
1990F-2 RB (MBIA)
--------------------------------------------------------------------------------
1,286,576
--------------------------------------------------------------------------------
<PAGE>
Evergreen National Tax-Free Fund
Statement of Investments (continued)
August 31, 1994
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
NEW MEXICO--1.2%
--------------------------------------------------------------------------------
City of Farmington $ 500 6.375% 12/15/22 $ 503,495
Pollution Control
(Public Service Co.
of New Mexico)
Series 1992A RRB
(AMBAC)
--------------------------------------------------------------------------------
NEW YORK--5.4%
--------------------------------------------------------------------------------
New York State 1,000 7.75 01/01/24 1,072,180
Energy Reserve &
Development
Authority Electric
Facilities Series
1989A RB
(Consolidated Edison
Company of New
York, Inc. Project)
--------------------------------------------------------------------------------
Westchester County, 1,225 5.75 07/01/09 1,216,425
Industrial Development
Agency Resource Recovery
Bonds (Westchester
Resco Company
Project) Series
1994A RRB
(AMBAC)
--------------------------------------------------------------------------------
2,288,605
--------------------------------------------------------------------------------
OHIO--2.4%
--------------------------------------------------------------------------------
Ohio Housing Finance 270 6.10 09/01/14 266,620
Agency Residential
Mortgage (GNMA
Mortgage-Backed
Securities Program)
Series 1994A-1 RB
--------------------------------------------------------------------------------
Ohio Water Development 750 6.00 12/01/16 749,910
Authority Water
Development RRB
1992 Clean Water
Refunding Bonds
(MBIA)
--------------------------------------------------------------------------------
1,016,530
--------------------------------------------------------------------------------
OKLAHOMA--1.5%
--------------------------------------------------------------------------------
Tulsa Industrial 645 5.75 02/15/05 650,521
Authority Hospital
(St. John's Medical
Center Project) RB
Series 1994
--------------------------------------------------------------------------------
PENNSYLVANIA--3.7%
--------------------------------------------------------------------------------
Pennsylvania Industrial 500 7.00 01/01/07 554,150
Development
Authority RB Series
1994 (AMBAC)
--------------------------------------------------------------------------------
Pennsylvania Turnpike 1,000 5.80 12/01/07 1,009,900
Commission Series
1992P RB (MBIA)
--------------------------------------------------------------------------------
1,564,050
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
TEXAS--2.8%
--------------------------------------------------------------------------------
City of Houston Water $1,000 7.50% 12/15/14 $ 1,168,000
Conveyance
Systems Contract
Series 1993H COP
(AMBAC)
--------------------------------------------------------------------------------
VIRGINIA--1.6%
--------------------------------------------------------------------------------
Fairfax County, Public 250 5.50 10/01/03 256,067
Improvement Series
1992C RB
--------------------------------------------------------------------------------
County of Roanoke 500 5.00 07/01/21 418,000
Water System
Series 1993 RRB
(FGIC)
--------------------------------------------------------------------------------
674,067
--------------------------------------------------------------------------------
WASHINGTON--7.4%
--------------------------------------------------------------------------------
Tacoma, Washington
Electric System
Series 1992A RRB 500 6.25 01/01/11 504,865
(AMBAC)
Series 1992B RRB 500 6.15 01/01/08 508,460
(AMBAC)
--------------------------------------------------------------------------------
Washington Health 1,000 6.25 10/01/18 976,820
Care Facilities
Authority Series
1992 RB (The
Children's Hospital
and Medical Center,
Seattle) (FGIC)
--------------------------------------------------------------------------------
Washington State 1,000 7.125 07/01/16 1,121,360
Public Power
Supply System
Series 1989B
(Nuclear Project
No. 3) RRB (MBIA)
--------------------------------------------------------------------------------
3,111,505
--------------------------------------------------------------------------------
WISCONSIN--1.8%
--------------------------------------------------------------------------------
Wisconsin Housing & 500 6.875 09/01/24 502,945
Economic Development
Authority
Home Ownership
Series 1992 RRB
--------------------------------------------------------------------------------
Wisconsin Health & 250 5.875 10/01/13 236,688
Education Facilities
Authority Series
1994A RB
(Froedtert Memorial
Lutheran Hospital,
Inc.) (MBIA)
--------------------------------------------------------------------------------
739,633
--------------------------------------------------------------------------------
Total Long-Term Investments
(Cost $37,377,070) 36,685,743
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--10.9%
--------------------------------------------------------------------------------
CALIFORNIA--0.7%
--------------------------------------------------------------------------------
California Pollution $ 300 3.25% VR $ 300,000
Control Financing
Authority Series
1987 Adjustable
Tender Resource
Recovery RB (OMS
Equity of Stanislaus,
Inc. Project) (LOC;
Swiss Bank Corp.,
NY)
--------------------------------------------------------------------------------
INDIANA--1.0%
--------------------------------------------------------------------------------
City of Indianapolis 400 3.35 VR 400,000
Series 1987
Adjustable Tender
Resource Recovery
RB (Ogden Martin
Systems of
Indianapolis, Inc.
Project) (LOC; Swiss
Bank Corp., NY)
--------------------------------------------------------------------------------
NEW YORK--9.0%
--------------------------------------------------------------------------------
New York City 300 3.15 VR 300,000
Municipal Water
Finance Authority
Series 1992-C
Water and Sewer
Systems RB (FGIC)
--------------------------------------------------------------------------------
New York State 3,500 3.00 VR 3,500,000
Energy Research
and Development
Authority Pollution
Control Series
1994A RRB (Orange
and Rockland
Utilities, Inc.
Projects) (FGIC)
(LOC; Bank of NY)
--------------------------------------------------------------------------------
3,800,000
--------------------------------------------------------------------------------
Par Interest Maturity
Issue (000) Rate Date Value
--------------------------------------------------------------------------------
WYOMING--0.2%
--------------------------------------------------------------------------------
Lincoln County, WY $100 3.15% VR $ 100,000
Pollution Control
(Exxon Corporation)
Series 1984B RB
--------------------------------------------------------------------------------
Total Short-Term Investments
(Cost $4,600,000) 4,600,000
--------------------------------------------------------------------------------
Total Investments (Cost $41,977,070)++ 98.0% $41,285,743
Other Assets and Liabilities-Net 2.0 857,590
--------------------------------------------------------------------------------
Total Net Assets 100.0% $42,143,333
--------------------------------------------------------------------------------
COP--Certificates of Participation
GO--General Obligations
LOC--Letter of Credit
RB--Revenue Bonds
RRB--Revenue Refunding Bonds
VR--Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly. Interest rates presented for these securities are those
in effect at August 31, 1994.
++ At August 31, 1994, the percentage breakdown of total investments which are
insured by municipal bond insurance companies are as follows:
AMBAC--American Municipal Bond Assurance Corp. 26%
FGIC--Financial Guaranty Insurance Corp. 24
MBIA--Municipal Bond Insurance Association 35
--
% of Total Investments Insured 85%
==
<PAGE>
Evergreen National Tax-Free Fund
Statement of Assets and Liabilities
August 31, 1994
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value (identified cost $41,977,070) $41,285,743
Cash 70,422
Receivable for investment securities sold 1,017,308
Receivable for Fund shares sold 12,000
Interest receivable 554,480
Unamortized organization expenses 31,316
Prepaid expenses 13,709
---------------------------------------------------------------------------------------------------------------------
Total assets 42,984,978
---------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 773,449
Payable for Fund shares repurchased 5,054
Accrued advisory fees 4,805
Accrued expenses 37,127
Dividend payable in cash 21,210
---------------------------------------------------------------------------------------------------------------------
Total liabilities 841,645
---------------------------------------------------------------------------------------------------------------------
Net assets:
Paid-in capital 44,080,537
Accumulated net realized loss on investment transactions (1,245,877)
Net unrealized depreciation of investments (691,327)
---------------------------------------------------------------------------------------------------------------------
Net assets $42,143,333
=====================================================================================================================
Net asset value per share, based on 4,216,459 shares of beneficial interest
outstanding (unlimited shares authorized of $.0001 par value) $9.99
=====================================================================================================================
</TABLE>
<TABLE>
Statement of Operations
For the Year Ended August 31, 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income:
Interest $ 2,109,228
Expenses:
Custodian fee $ 44,432
Registration and filing fees 25,523
Professional fees 24,619
Transfer agent expense 21,795
Reports and notices to shareholders 14,583
Amortization of organization expenses 9,400
Insurance expense 6,486
Advisory fee--net of $190,396 fee waiver 6,413
Trustees' fees and expenses 3,620
Other 2,343
-------
159,214
Less-expense reimbursement (45,680)
-------
Total expenses 113,534
---------------------------------------------------------------------------------------------------------------------
Net investment income 1,995,694
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments:
Net realized loss on investments (1,159,204)
Net change in unrealized appreciation (depreciation) of investments (1,935,794)
---------------------------------------------------------------------------------------------------------------------
Net loss on investments (3,094,998)
---------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,099,304)
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Evergreen National Tax-Free Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
December 30, 1992*
Year Ended through
August 31, 1994 August 31, 1993
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,995,694 $ 799,883
Net realized gain (loss) on investments (1,159,204) 494,382
Net change in unrealized appreciation
(depreciation) of investments (1,935,794) 1,244,467
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) resulting from operations (1,099,304) 2,538,732
------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (1,995,694) (799,883)
From net realized gains on investment transactions (494,382) --
In excess of net realized gains on investment transactions (86,673) --
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (2,576,749) (799,883)
------------------------------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares 29,696,495 33,316,196
Net asset value of shares issued on reinvestment of distributions 2,424,612 780,126
------------------------------------------------------------------------------------------------------------------------------------
32,121,107 34,096,322
Cost of shares repurchased (19,386,827) (2,750,075)
------------------------------------------------------------------------------------------------------------------------------------
Net increase resulting from Fund share transactions 12,734,280 31,346,247
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 9,058,227 33,085,096
Net assets:
Beginning of year 33,085,106 10
------------------------------------------------------------------------------------------------------------------------------------
End of year $ 42,143,333 $ 33,085,106
====================================================================================================================================
Number of Fund shares:
Sold 2,815,233 3,212,540
Issued on reinvestment of distributions 231,806 73,620
Repurchased (1,860,323) (256,418)
------------------------------------------------------------------------------------------------------------------------------------
Net increase 1,186,716 3,029,742
Outstanding at beginning of year 3,029,743 1
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,216,459 3,029,743
====================================================================================================================================
</TABLE>
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
Evergreen National Tax-Free Fund
Notes to Financial Statements
Note 1--Organization
Evergreen National Tax-Free Fund (formerly Evergreen Insured National Tax-Free
Fund) (the "Fund") is a portfolio of The Evergreen Municipal Trust (the
"Trust"). The Trust was organized in the Commonwealth of Massachusetts as a
Massachusetts business trust on July 13, 1988. The Fund is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
diversified management investment company and commenced investment operations on
December 30, 1992.
Note 2--Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Security Valuation--Portfolio securities (other than short-term obligations
purchased with a remaining maturity of 60 days or less) are valued on the
basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Short-term
obligations purchased with a remaining maturity of 60 days or less are
valued at amortized cost, which approximates market value.
Securities Transactions and Investment Income--Securities transactions are
recorded on the trade date (the date the order to buy or sell is executed).
Interest income, including the accretion or amortization of discount and
premium, is recognized on the accrual basis.
Distributions to Shareholders--The Fund declares substantially all of its
net investment income as dividends each business day to shareholders of
record. At the end of each month, such dividends are either reinvested in
Fund shares and credited to the shareholder's account or, if elected by the
shareholder, paid in cash. Distributions of net realized capital gains (if
any) will be made at least annually.
Federal Income Taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable and other income
to its shareholders. Therefore, no Federal income tax provision is
required. During the year ended August 31, 1994, the Fund distributed net
realized gains for Federal income tax purposes of $581,055 resulting in a
distribution of $86,673 in excess of net realized gains recognized for
financial statement purposes. This excess distribution is due to net
realized losses on securities sold after October 31, 1993, in the amount of
$1,246,378, which are deferred for Federal income tax purposes.
Unamortized Organization Expenses--The expenses of the Fund incurred in
connection with its organization and initial registration are being
deferred and amortized by the Fund over a period of benefit not to exceed
60 months from the date the Fund commenced investment operations.
Other--Expenses incurred directly by the Fund in connection with its
operations are charged to the Fund. Expenses common to the Trust as a
whole, including the compensation of all non-affiliated trustees of the
Trust, are primarily allocated to the funds in the Trust in proportion to
net assets.
Note 3--Advisory Fee and Related Party
Transactions
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994 to the
advisory business of the same name, but under different ownership. The Adviser
is entitled to a fee, accrued daily and payable monthly, for the performance of
its services at the annual rate of .50 of 1% of the daily net assets of the
Fund.
The Adviser has agreed to reimburse the Fund to the extent that the Fund's
aggregate annual operating expenses (including the Adviser's fee and
amortization of organization expenses, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) exceed 1.25% of its average daily net
assets for any fiscal year.
For the year ended August 31, 1994, the Adviser waived a portion of its advisory
fee totalling $190,396. Additionally, the Adviser voluntarily reimbursed the
<PAGE>
Fund for certain of its expenses in the amount of $45,680 representing .12% of
average net assets. The Adviser ceased this voluntary expense reimbursement on
May 23, 1994. The Adviser may, at its discretion, revise or cease voluntary
Advisory fee waivers and expense reimbursements at any time.
Lieber & Company is the investment sub-adviser to the Fund. Lieber & Company is
reimbursed by the Adviser, at no additional expense to the Fund, for its cost of
providing investment advisory services to the Adviser.
Evergreen Funds Distributor, Inc. (the "Distributor"), a subsidiary of Furman
Selz Incorporated, is the distributor of the Fund's shares and provides
personnel to serve as officers of the Trust. For its services, the Distributor
is paid an annual fee by the Adviser. No portion of this fee is borne by the
Fund.
Note 4--Portfolio Transactions
Cost of purchases and proceeds from sales of investments, other than short-term
obligations, aggregated $56,185,153 and $49,328,814 respectively, for the year
ended August 31, 1994.
The aggregate cost of investments owned at August 31, 1994, is the same for
financial statement and Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at August 31, 1994, was $152,543 and
$843,870 respectively.
Note 5--Concentration of Credit Risk
The Fund invests in obligations issued by states, territories and possessions of
the United States and by the District of Columbia, and by their political
subdivisions and duly constituted authorities. The issuers' abilities to meet
their obligations may be affected by economic and political developments in a
specific state or region. The Fund intends to invest at least 80% of its total
assets in obligations that, at the time of purchase, are insured as to the
payment of interest and principal. Certain debt obligations held in the Fund's
portfolio may be entitled to the benefit of standby letters of credit or other
guarantees of banks or other financial institutions.
--------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
December 30, 1992*
Year Ended through
Per Share Data August 31, 1994 August 31, 1993
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $10.92 $10.00
---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .53 .40
Net realized and unrealized gain (loss) on investments (.77) .92
---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.24) 1.32
---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (.53) (.40)
From net realized gains (.14) --
In excess of net realized gains (.02) --
---------------------------------------------------------------------------------------------------------------------
Total distributions (.69) (.40)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.99 $10.92
=====================================================================================================================
Total return (2.3)% 13.5%+
Ratios & Supplemental Data
Net assets, end of year (000's omitted) $42,143 $33,085
Ratios to average net assets:
Expenses .29%(a) 0%(b)
Net investment income 5.07%(a) 5.51%(b)
Portfolio turnover rate 135% 166%
=====================================================================================================================
</TABLE>
* Commencement of operations.
(a) Net of partial advisory fee waiver of .48 of 1.00% of daily net assets and
the absorption of a portion of all other Fund expenses by the Adviser equal
to .12% of average daily net assets.
(b) Annualized and net of full advisory fee waiver of .50 of 1.00% of daily net
assets and the absorption of all other Fund expenses by the Adviser equal
to .42% of average daily net assets.
+ Total return is calculated for the period December 30, 1992 through August
31, 1993 is not annualized. See accompanying notes to financial statements.
See accompanying notes to financial statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders
of Evergreen National Tax-Free Fund
In our opinion, the accompanying Statement of Assets and Liabilities, including
the Statement of Investments, and the related Statements of Operations and of
Changes in Net Assets and the Financial Highlights present fairly, in all
material respects, the financial position of Evergreen National Tax-Free Fund
(the "Fund"), formerly Evergreen Insured National Tax-Free Fund, constituting
one of The Evergreen Municipal Trust portfolios, at August 31, 1994, the results
of its operations for the year then ended and the changes in its net assets and
the financial highlights for the year then ended and for the period December 30,
1992 (commencement of operations) through August 31, 1993, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1994 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 17, 1994
--------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF
DISTRIBUTIONS (UNAUDITED)
During the year ended August 31, 1994, the Evergreen National Tax-Free Fund
paid distributions from net investment income aggregating $.5290 per share.
For Federal income tax purposes these distributions represent tax-exempt
interest which is 100% exempt from all Federal income taxes other than the
alternative minimum tax. On December 31, 1993, the Fund paid a net short-term
gain distribution of $.1639 per share, which, for Federal income tax purposes
is taxable as ordinary income.
--------------------------------------------------------------------------------
<PAGE>
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
Ben Weberman
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment adviser to the Evergreen Funds is Evergreen Asset Management
Corp., which is wholly owned by First Union National Bank of North Carolina.
Investments in the Evergreen Funds are not endorsed or guaranteed by First
Union, are not deposits or other obligations of First Union, are not insured or
otherwise protected by the U.S. government, the FDIC or any other government
agency, and involve investment risks, including possible loss of principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
Evergreen National Tax-Free Fund
2500 Westchester Avenue
Purchase, New York 10577
