1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Rosemary D. Van Antwerp, Esq.
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 2- 94560); accordingly, no fee is payable
herewith. Pursuant to Rule 429, this Registration Statement relates to the
aforementioned registration on Form N-1A. A Rule 24f-2 Notice for the
Registrant's fiscal year ended May 31, 1997 was filed with the Commission on or
about ________, 1997.
It is proposed that this filing will become effective on January 5,
1998 pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
EVERGREEN INVESTMENT TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Cross Reference Sheet; Cover
Statement and Outside Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary; Comparison
of Investment Objectives and
Policies; Risks
4. Information About the Summary; Reasons for the
Transaction Reorganization; Comparative
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
5. Information about the Cover Page; Summary; Risks;
Registrant Comparison of Investment
Objectives and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary; Risks;
Company Being Acquired Comparison of Investment
Objective and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
<PAGE>
7. Voting Information Cover Page; Summary; Voting
Information Concerning the
Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of Evergreen High
Grade Tax Free Fund dated
September 3, 1997
13. Additional Information Statement of Additional
about the Company Being Information of Blanchard Funds
Acquired - Blanchard Flexible Tax-Free
Bond Fund dated August 31,
1997
14. Financial Statements Financial Statements dated May
31, 1997 of Evergreen High
Grade Tax Free Fund; Financial
Statements of Blanchard
Flexible Tax-Free Bond Fund
dated September 30, 1997; Pro
Forma Financial Statements
Item of Part C of Form N-14
Incorporated by Reference to
15. Indemnification Part A Caption - "Comparative
Information on Shareholders'
Rights - Liability and
Indemnification of Trustees"
<PAGE>
16. Exhibits
Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
BLANCHARD FUNDS
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
January 5, 1998
Dear Shareholder,
I am writing to shareholders of the Blanchard Flexible Tax-Free Bond Fund, a
series of Blanchard Funds (the "Fund"), to inform you of a Special Shareholders'
meeting to be held on February 20, 1998. Before that meeting, I would like your
vote on the important issues affecting your Fund as described in the attached
Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes three proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Evergreen High Grade Tax Free Fund in exchange for Class A shares of Evergreen
High Grade Tax Free Fund and the assumption by Evergreen High Grade Tax Free
Fund of certain liabilities of the Fund. You will receive shares of Evergreen
High Grade Tax Free Fund having an aggregate net asset value equal to the
aggregate net asset value of your Fund shares. Details about Evergreen High
Grade Tax Free Fund's investment objective, portfolio management team,
performance, etc. are contained in the attached Prospectus/Proxy Statement. The
transaction is a non-taxable event for shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and Virtus Capital Management, Inc.
The third and final proposal requests shareholder consideration of an Interim
Sub-Advisory Agreement between Virtus Capital Management, Inc. and United States
Trust Company of New York.
Information relating to the Interim Investment Advisory Agreement and the
Interim Sub-Advisory Agreement is contained in the attached Prospectus/Proxy
Statement.
The Board of Trustees has unanimously approved the proposals and recommends that
you vote FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals presented and sign and return your proxy card in the enclosed
postage-paid envelope today.
<PAGE>
If we do not receive your completed proxy card after several weeks, you may be
contacted by our proxy solicitor, Shareholder Communications Corporation, who
will remind you to vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
[Name]
[Title]
Blanchard Funds
<PAGE>
[SUBJECT TO COMPLETION, December 4, 1997 PRELIMINARY COPY]
BLANCHARD FUNDS
BLANCHARD FLEXIBLE TAX-FREE FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Blanchard Flexible Tax-Free Bond Fund, a series of Blanchard
Funds ("Tax-Free"), will be held at the offices of the Evergreen Funds, 200
Berkeley Street, Boston, Massachusetts 02116, on February 20, 1998 at 2:00 p.m.
for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of November 26, 1997, providing for the acquisition of all
of the assets of Tax-Free Income by the Evergreen High Grade Tax Free Fund, a
series of Evergreen Municipal Trust ("Evergreen Tax Free"), in exchange for
shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain
identified liabilities of Tax-Free. The Plan also provides for distribution of
such shares of Evergreen Tax Free to shareholders of Tax-Free in liquidation and
subsequent termination of Tax-Free. A vote in favor of the Plan is a vote in
favor of the liquidation and dissolution of Tax-Free Income.
2. To consider and act upon the Interim Management Contract between
Tax-Free and Virtus Capital Management, Inc.
3. To consider and act upon the Interim Sub-Advisory
Agreement between Virtus Capital Management, Inc. and United
States Trust Company of New York.
4. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of Blanchard Funds on behalf of Tax-Free have fixed the
close of business on December 26, 1997 as the record date for the determination
of shareholders of Tax-Free entitled to notice of and to vote at the Meeting or
any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE
<PAGE>
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
John W. McGonigle
Secretary
January 5, 1998
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr.,
Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998
Acquisition of Assets of
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
a series of
Blanchard Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
EVERGREEN HIGH GRADE TAX FREE FUND
a series of
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Blanchard Flexible Tax-Free Bond Fund ("Tax- Free") in connection with a
proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Tax-Free for consideration at a Special Meeting of Shareholders
to be held on February 20, 1998 at 2:00 p.m. at the offices of the Evergreen
Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and any adjournments
thereof (the "Meeting"). The Plan provides for all of the assets of Tax-Free to
be acquired by Evergreen High Grade Tax Free Fund ("Evergreen Tax Free") in
exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax
Free of certain identified liabilities of Tax-Free (hereinafter referred to as
the "Reorganization"). Evergreen Tax Free and Tax-Free are sometimes hereinafter
referred to individually as the "Fund" and collectively as the "Funds."
Following the Reorganization, shares of Evergreen Tax Free will be distributed
to shareholders of Tax-Free in liquidation of Tax- Free and such Fund will be
terminated. Holders of shares of Tax- Free will receive Class A shares of
Evergreen Tax Free having the same Rule 12b-1 distribution-related fees as the
shares of Tax- Free held by such holders prior to the Reorganization. No initial
sales charge will be imposed in connection with Class A shares of Evergreen Tax
Free received by holders of shares of Tax-Free. As a result of the proposed
Reorganization, shareholders of Tax-Free will receive that number of full and
fractional Class A shares of Evergreen Tax Free having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's shares of
Tax-Free. The Reorganization is being structured as a tax-free reorganization
for federal income tax purposes.
<PAGE>
Evergreen Tax Free is a separate series of Evergreen Municipal Trust,
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). Evergreen Tax Free seeks a
high level of federally tax free income that is consistent with preservation of
capital. Such investment objective is substantially identical to that of
Tax-Free.
Shareholders of Tax-Free are also being asked to approve the Interim
Management Contract with Virtus Capital Management, Inc., a subsidiary of First
Union Corporation ("Virtus"), (the "Interim Advisory Agreement") with the same
terms and fees as the previous advisory agreement between Tax-Free and Virtus
and the Interim Sub-Advisory Agreement between Virtus and United States Trust
Company of New York ("U.S. Trust") with the same terms and fees as the previous
sub-advisory agreement between Virtus and U.S. Trust. The Interim Advisory
Agreement and Interim Sub-Advisory Agreement will be in effect for the period of
time between November 28, 1997, the date on which the merger of Signet Banking
Corporation with and into a wholly-owned subsidiary of First Union Corporation
was consummated, and the date of the Reorganization (scheduled for on or about
February 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Tax Free that
shareholders of Tax-Free 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 January 5, 1998,
relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen Tax Free dated May 31, 1997 and
Tax-Free dated September 30, 1997, 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 Evergreen Tax Free at 200 Berkeley Street, Boston,
Massachusetts 02116, or by calling toll-free 1-800-343- 2898.
The Prospectus of Evergreen Tax Free relating to Class A and Class B
shares dated September 3, 1997, as supplemented, and its Annual Report for the
year ended May 31, 1997 are incorporated herein by reference in their entirety,
insofar as they relate to Evergreen Tax Free Class A and Class B shares only,
and not to any other fund described therein. Shareholders of Tax-Free will
receive, with this Prospectus/Proxy Statement, copies of the Prospectus of
Evergreen Tax Free. Additional information about Evergreen Tax Free is contained
in its Statement of Additional
<PAGE>
Information of the same date which has been filed with the SEC and which is
available upon request and without charge by writing to or calling Evergreen Tax
Free at the address or telephone number listed in the preceding paragraph.
The Prospectus of Tax-Free dated August 31, 1997, insofar as it relates
to Tax-Free only, and not to any other funds described therein, is incorporated
herein in its entirety by reference. Copies of the Prospectus and related
Statement of Additional Information dated the same date are available upon
request without charge by writing to Tax-Free at the address listed on the cover
page of this Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
Included as Exhibits A, B and C to this Prospectus/Proxy Statement are
a copy of the Plan, the Interim Advisory Agreement and the Interim Sub-Advisory
Agreement, respectively.
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/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk, including
possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES...............................................6
SUMMARY .....................................................................8
Proposed Plan of Reorganization......................................9
Tax Consequences....................................................10
Investment Objectives and Policies of the Funds.....................11
Comparative Performance Information for each Fund............................11
Management of the Funds.............................................12
Investment Advisers and Sub-Adviser.................................12
Administrators......................................................13
Portfolio Management................................................14
Distribution of Shares..............................................14
Purchase and Redemption.............................................15
Exchange Privileges.................................................16
Dividend Policy.....................................................16
Risks ...........................................................17
REASONS FOR THE REORGANIZATION...............................................17
Agreement and Plan of Reorganization................................20
Federal Income Tax Consequences.....................................22
Pro-forma Capitalization............................................24
Shareholder Information.............................................25
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.............................25
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS..............................27
Forms of Organization...............................................27
Capitalization......................................................27
Shareholder Liability...............................................28
Shareholder Meetings and Voting Rights..............................29
Liquidation or Dissolution..........................................29
Liability and Indemnification of Trustees...........................30
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT.........................31
Introduction........................................................31
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT.....................34
Introduction........................................................34
Comparison of the Interim Sub-Advisory Agreement and the
Previous Sub-Advisory Agreement............................35
ADDITIONAL INFORMATION.......................................................36
VOTING INFORMATION CONCERNING THE MEETING....................................37
FINANCIAL STATEMENTS AND EXPERTS.............................................40
<PAGE>
OTHER BUSINESS...............................................................40
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class A shares of Evergreen Tax Free set forth in the
following tables and in the examples are based on the expenses of Evergreen Tax
Free for the fiscal year ended May 31, 1997. The amounts for shares of Tax-Free
set forth in the following tables and in the examples are based on the expenses
for Tax-Free for the fiscal year ended September 30, 1997. The pro forma amounts
for Class A shares of Evergreen Tax Free are based on what the combined expenses
would have been for Evergreen Tax Free for the fiscal year ending May 31, 1997.
All amounts are adjusted for voluntary expense waivers.
The following tables show for Evergreen Tax Free, Tax-Free and
Evergreen Tax Free pro forma, assuming consummation of the Reorganization, the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the Class A shares of Evergreen Tax Free and shares of
Tax-Free, as applicable.
<TABLE>
<CAPTION>
Comparison of Class A Shares
of Evergreen Tax Free With
Shares of Tax-Free
Evergreen
Evergreen Tax Free
Tax Free Tax-Free Pro Forma
--------- -------- --------
Shareholder
Transaction Class A Shares Class A
Expenses ------- ------ -------
<S> <C> <C> <C>
Maximum Sales Load 4.75% None 4.75%
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None
Imposed on
Reinvested Dividends
(as a percentage of
offering price)
<PAGE>
Contingent Deferred None None None
Sales Charge (as a
percentage of
original purchase
price or redemption
proceeds, whichever
is lower)
Exchange Fee None None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee (1) 0.50% 0.12% 0.50%
12b-1 Fees (2) 0.25% 0.00% 0.25%
Other Expenses 0.28% 0.88% 0.28%
------ ------ -----
Annual Fund 1.03% (4) 1.00% 1.03%
Operating Expenses ------ ------ ------
(3) ------ ------ ------
</TABLE>
- ---------------
(1) The management fee has been reduced to reflect the voluntary waiver by
the investment adviser. The adviser can terminate this voluntary waiver
at any time in its sole discretion. The maximum management fee is 0.70%
in the case of Evergreen Tax Free and is 0.75% in the case of Tax-Free.
(2) Class A shares of Evergreen Tax Free can pay up to 0.75% of average
daily net assets as a 12b-1 fee. For the foreseeable future, the Class
A 12b-1 fees will be limited to 0.25% of average daily net assets.
(3) Total Fund Operating Expenses for Evergreen Tax Free and Tax-Free would
have been 1.10% and 2.05%, respectively, absent the voluntary waivers.
(4) Includes indirectly paid expenses.
Examples. The following tables show for Evergreen Tax Free and Tax-Free,
and for Evergreen Tax Free pro forma, assuming consummation of the
Reorganization, examples of the cumulative effect of shareholder transaction
expenses and annual fund
<PAGE>
operating expenses indicated above on a $1,000 investment in each class of
shares for the periods specified, assuming (i) a 5% annual return, and (ii)
redemption at the end of such period. In the case of Evergreen Tax Free pro
forma, the example does not reflect the imposition of the 4.75% maximum sales
load on purchases since Tax-Free shareholders who receive Class A shares of
Evergreen Tax Free in the Reorganization or who purchase additional Class A
shares subsequent to the Reorganization will not incur any sales load.
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Evergreen Tax Free $58 $79 $102 $167
Class A
Tax-Free $10 $32 $55 $122
Evergreen Tax Free $11 $33 $57 $126
- - Pro Forma
Class A
</TABLE>
The purpose of the foregoing examples is to assist Tax-Free
shareholders in understanding the various costs and expenses that an investor in
Evergreen Tax Free as a result of the Reorganization would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in Tax-Free. These examples should not be considered a
representation of past or future expenses or annual return. Actual expenses may
be greater or less than those shown.
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
Prospectus of Evergreen Tax Free dated September 3, 1997, as supplemented, and
the Prospectus of Tax-Free dated August 31, 1997 (which are incorporated herein
by reference), the Plan, the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement, forms of which are attached to this Prospectus/Proxy
Statement as Exhibits A, B and C, respectively.
Proposed Plan of Reorganization
<PAGE>
The Plan provides for the transfer of all of the assets of Tax-Free in
exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax
Free of certain identified liabilities of Tax-Free. The identified liabilities
consist only of those liabilities reflected on the Fund's statement of assets
and liabilities immediately preceding the Reorganization. The Plan also calls
for the distribution of shares of Evergreen Tax Free to Tax-Free shareholders in
liquidation of Tax-Free as part of the Reorganization. As a result of the
Reorganization, the shareholders of Tax-Free will become the owners of that
number of full and fractional Class A shares of Evergreen Tax Free having an
aggregate net asset value equal to the aggregate net asset value of the
shareholder's shares of Tax-Free as of the close of business immediately prior
to the date that Tax-Free's assets are exchanged for shares of Evergreen Tax
Free. See "Reasons for the Reorganization - Agreement and Plan of
Reorganization."
The Trustees of Blanchard Funds, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of Tax-Free, and that the interests of the
shareholders of Tax-Free 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 Tax-Free's shareholders.
THE BOARD OF TRUSTEES OF BLANCHARD FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF TAX-FREE
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Municipal Trust have also approved the Plan,
and accordingly, Evergreen Tax Free's participation in the Reorganization.
Approval of the Reorganization on the part of Tax-Free will require the
affirmative vote of a majority of Tax-Free's shares voted and entitled to vote,
with all classes voting together as a single class at a Meeting at which a
quorum of the Fund's shares is present. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, is required to constitute a
quorum at the Meeting. See "Voting Information Concerning the Meeting."
The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
has been consummated and, as a result, by law the Merger terminated the
investment advisory agreement between Virtus and Tax-Free and the sub-advisory
agreement between Virtus and U.S. Trust. Prior to consummation of the Merger,
Tax-Free received an order from the SEC which
<PAGE>
permitted the implementation, without formal shareholder approval, of a new
investment advisory agreement between the Fund and Virtus and a new sub-advisory
agreement between Virtus and U.S. Trust for a period of not more than 120 days
beginning on the date of the closing of the Merger and continuing through the
date the Interim Advisory Agreement and Interim Sub-Advisory Agreement are
approved by the Fund's shareholders (but in no event later than April 30, 1998).
The Interim Advisory Agreement and the Interim Sub-Advisory Agreement have the
same terms and fees as the previous investment advisory agreement between Tax-
Free and Virtus and the previous sub-advisory agreement between Virtus and U.S.
Trust, respectively. The Reorganization is scheduled to take place on or about
February 27, 1998.
Approval of the Interim Advisory Agreement and Interim Sub- Advisory
Agreement requires the affirmative vote of (i) 67% or more of the shares of
Tax-Free present in person or by proxy at the Meeting, if holders of more than
50% of the shares of Tax- Free outstanding on the record date are present, in
person or by proxy, or (ii) more than 50% of the outstanding shares of Tax-
Free, whichever is less. See "Voting Information Concerning the Meeting."
If the shareholders of Tax-Free do not vote to approve the
Reorganization, the Trustees will consider other possible courses of action in
the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, Tax- Free will
have received an opinion of counsel that the Reorganization has been structured
so that no gain or loss will be recognized by the Fund or its shareholders for
federal income tax purposes as a result of the receipt of shares of Evergreen
Tax Free in the Reorganization. The holding period and aggregate tax basis of
shares of Evergreen Tax Free that are received by Tax-Free's shareholders will
be the same as the holding period and aggregate tax basis of shares of the Fund
previously held by such shareholders, provided that shares of the Fund are held
as capital assets. In addition, the holding period and tax basis of the assets
of Tax-Free in the hands of Evergreen Tax Free as a result of the Reorganization
will be the same as in the hands of the Fund immediately prior to the
Reorganization, and no gain or loss will be recognized by Evergreen Tax Free
upon the receipt of the assets of the Fund in exchange for shares of Evergreen
Tax Free and the assumption by Evergreen Tax Free of certain identified
liabilities.
Investment Objectives and Policies of the Funds
<PAGE>
The investment objectives and policies of Evergreen Tax Free and
Tax-Free are substantially identical.
The investment objective of Evergreen Tax Free is to seek a high level
of federally tax free income that is consistent with preservation of capital. At
least 65% of the value of the total assets of the Fund will be invested in high
grade bonds. High grade bonds mean: bonds insured by a municipal bond insurance
company which is rated AAA by Standard & 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, if unrated, of comparable quality as determined by the Fund's
investment adviser. The insurance guarantees the timely payment of principal and
interest, but not the value of the municipal bonds or the shares of the Fund.
The investment objective of Tax-Free is to provide a high level of
current interest income exempt from federal income tax consistent with the
preservation of principal. The Fund invests primarily in bonds of varying
maturities issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities, the interest from which, in the
opinion of bond counsel for the issuer, is exempt from Federal income tax. The
Fund has no restrictions on the maturities of bonds that it may purchase.
Rather, it retains the flexibility to lengthen or shorten the overall maturity
of its portfolio based on the Sub-Adviser's outlook on interest rate movements,
as it attempts to reduce any price volatility. The Fund invests primarily in
high quality, investment-grade bonds. See "Comparison of Investment Objectives
and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectus and Statement of Additional Information of the
Funds. The total return of Evergreen Tax Free and Tax-Free for the one and five
year periods ended September 30, 1997, and for both Funds for the periods from
inception through September 30, 1997 are set forth in the table below. The
calculations of total return assume the reinvestment of all dividends and
capital gains distributions on the reinvestment date and the deduction of all
recurring expenses (including sales charges) that were charged to shareholders'
accounts.
Average Annual Total Return (1)
<PAGE>
<TABLE>
<CAPTION>
1 Year
Ended 5 Years From
September Ended Inception To
30, September September Inception
1997 30, 1997 30, 1997 Date
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen 2.86% 5.81% 6.42% 2/21/92
Tax Free
Class A
shares
Tax-Free 9.59% N/A 7.63% 8/12/93
</TABLE>
- --------------
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total return during the periods would have been lower.
Important information about Evergreen Tax Free is also contained in
management's discussion of Evergreen Tax Free's performance, attached hereto as
Exhibit D. This information also appears in Evergreen Tax Free's most recent
Annual Report.
Management of the Funds
The overall management of Evergreen Tax Free and of Tax-Free is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Municipal Trust and Blanchard Funds, respectively.
Investment Advisers and Sub-Adviser
The Capital Management Group ("CMG") of First Union National Bank
("FUNB") serves as investment adviser to Evergreen Tax Free. FUNB is a
subsidiary of First Union, the sixth largest bank holding company in the United
States based on total assets as of September 30, 1997. CMG, Evergreen Asset
Management Corp. ("Evergreen Asset") and Keystone Investment Management Company
("Keystone") manage the Evergreen Keystone family of mutual funds with assets of
approximately $40 billion as of November 30, 1997. For further information
regarding CMG, FUNB and First Union, see "Management of the Funds - Investment
Advisers" in the Prospectus of Evergreen Tax Free.
CMG manages investments and supervises the daily business affairs of
Evergreen Tax Free. CMG is entitled to receive an annual fee for its services
equal to 0.50% of the Fund's average daily net assets.
<PAGE>
Virtus serves as the investment adviser for Tax-Free. As investment
adviser, Virtus is responsible for providing or procuring for the Fund all
management and administrative services. In carrying out its obligations, Virtus
provides or arranges for investment research and supervision of the Fund's
investments; selects and evaluates the performance of the Fund's sub-adviser
(U.S. Trust); and conducts or arranges for a continuous program of appropriate
sale or other disposition of the Fund's assets, subject at all times to the
direction of the Board of Trustees. Virtus compensates U.S. Trust from the
advisory fee received from Tax-Free. See "Information Regarding the Interim
Sub-Advisory Agreement." For its services as investment adviser, Virtus receives
a fee at an annual rate of 0.75% of the Fund's average daily net assets.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Administrators
Evergreen Investment Services ("EIS") serves as administrator to
Evergreen Tax Free. As administrator, EIS provides facilities, equipment and
personnel to Evergreen Tax Free and is entitled to receive an administration fee
from the Fund based on the aggregate average daily net assets of all the mutual
funds advised by CMG and its affiliates, calculated in accordance with the
following schedule: 0.050% on the first $7 billion, 0.035% on the next $3
billion, 0.030% on the next $5 billion, 0.020% on the next $10 billion, 0.015%
on the next $5 billion and 0.010% on assets in excess of $30 billion.
Federated Administrative Services ("FAS") provides Tax-Free with
certain administrative personnel and services including shareholder servicing
and certain legal and accounting services. FAS is entitled to receive a fee for
such services at the following annual rates: 0.15% on the first $250 million of
average daily net assets of combined assets of the funds in the Blanchard/Virtus
mutual fund family; 0.125% on the next $250 million of such assets, 0.10% on the
next $250 million of such assets, and 0.075% on assets in excess of $750
million.
Portfolio Management
The portfolio manager of Evergreen Tax Free is James T. Colby, III. Mr.
Colby is a Vice President of CMG and has been associated with Evergreen Asset
and its predecessor since 1992. He has served as portfolio manager of the Fund
and was portfolio
<PAGE>
manager of Evergreen National Tax Free Fund, the assets of which were acquired
by the Fund on July 7, 1995, since that fund's inception in 1992.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Tax Free's shares. EDI distributes
the Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen Tax Free offers three classes of
shares: Class A, Class B and Class Y. Each class has separate distribution
arrangements. (See "Distribution-Related and Shareholder Servicing-Related
Expenses" below.) No class bears the distribution expenses relating to the
shares of any other class.
In the proposed Reorganization, shareholders of Tax-Free will receive
Class A shares of Evergreen Tax Free. Class A shares of Evergreen Tax Free have
substantially similar arrangements with respect to the imposition of Rule 12b-1
distribution and service fees as the shares of Tax-Free. Because the
Reorganization will be effected at net asset value without the imposition of a
sales charge, Evergreen Tax Free shares acquired by shareholders of Tax-Free
pursuant to the proposed Reorganization would not be subject to any initial
sales charge or contingent deferred sales charge as a result of the
Reorganization.
The following is a summary description of charges and fees for the
Class A shares of Evergreen Tax Free which will be received by Tax-Free
shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
each Fund's respective Prospectus and each Fund's respective Statement of
Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the Prospectus for Evergreen Tax Free. Holders of
shares of Tax-Free who receive Class A shares of Evergreen Tax Free in the
Reorganization will be able to purchase additional Class A shares of Evergreen
Tax Free and of any other Evergreen fund at net asset value. No initial sales
charge will be imposed.
<PAGE>
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectus and Statement of Additional Information.
Distribution-Related Expenses. Evergreen Tax Free has adopted a Rule
12b-1 plan with respect to its Class A shares under which the Class may pay for
distribution-related expenses at an annual rate which may not exceed 0.75% of
average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.25% of average daily net assets
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
Tax-Free has adopted a Rule 12b-1 plan with respect to its shares under
which such shares may pay for distribution-related expenses at an annual rate of
0.25% of average daily net assets.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the Funds are not
insured. The minimum initial purchase requirement for Evergreen Tax Free is
$1,000 and the minimum investment for Tax-Free is $3,000 ($2,000 for qualified
pension plans). Tax- Free has a minimum investment requirement of $200 for
subsequent investments. There is no minimum for subsequent purchases of shares
of Evergreen Tax Free. Each Fund provides for telephone, mail or wire redemption
of shares at net asset value as next determined after receipt of a redemption
request on each day the New York Stock Exchange ("NYSE") is open for trading.
Additional information concerning purchases and redemptions of shares, including
how each Fund's net asset value is determined, is contained in the respective
Prospectus for each Fund. Each Fund may involuntarily redeem shareholders'
accounts that have less than $1,000 of invested funds. All funds invested in
each Fund are invested in full and fractional shares. The Funds reserve the
right to reject any purchase order.
Exchange Privileges
Tax-Free currently permits shareholders to exchange such shares for
shares of another fund in the Blanchard Group of Funds or for Investment shares
of other funds managed by Virtus. In addition, such shares may be exchanged for
shares of Federated Emerging Market Fund. Holders of shares of a class of
Evergreen
<PAGE>
Tax Free generally may exchange their shares for shares of the same class of any
other Evergreen fund. Tax-Free shareholders will be receiving Class A shares of
Evergreen Tax Free in the Reorganization and, accordingly, with respect to
shares of Evergreen Tax Free received by Tax-Free shareholders in the
Reorganization, the exchange privilege is limited to the Class A shares of other
Evergreen funds. No sales charge is imposed on an exchange. An exchange which
represents an initial investment in another Evergreen fund must amount to at
least $1,000. The current exchange privileges, and the requirements and
limitations attendant thereto, are described in each Fund's respective
Prospectus and Statement of Additional Information.
Dividend Policy
Each Fund declares dividends from its net investment income daily and
distributes such dividends monthly. Distributions of any net realized gains of a
Fund will be made at least annually. Shareholders begin to earn dividends on the
first business day after shares are purchased unless shares were not paid for,
in which case dividends are not earned until the next business day after payment
is received. Dividends and distributions are reinvested in additional shares of
the same class of the respective Fund, or paid in cash, as a shareholder has
elected. See the respective Prospectus of each Fund for further information
concerning dividends and distributions.
After the Reorganization, shareholders of Tax-Free who have elected to
have their dividends and/or distributions reinvested will have dividends and/or
distributions received from Evergreen Tax Free reinvested in shares of Evergreen
Tax Free. Shareholders of Tax-Free who have elected to receive dividends and/or
distributions in cash will receive dividends and/or distributions from Evergreen
Tax Free in cash after the Reorganization, although they may, after the
Reorganization, elect to have such dividends and/or distributions reinvested in
additional shares of Evergreen Tax Free.
Each of Evergreen Tax Free and Tax-Free 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 net investment company taxable income
and any net realized gains to shareholders, it is expected that a Fund will not
be required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
<PAGE>
Risks
Since the investment objectives and policies of each Fund are
substantially identical, the risks involved in investing in each Fund's shares
are similar. For a discussion of each Fund's objectives and policies, see
"Comparison of Investment Objectives and Policies." There is no assurance that
investment performances will be positive and that the Funds will meet their
investment objectives.
Neither Fund may invest more than 5% of its assets in securities of any
one issuer or purchase more than 10% of the outstanding voting securities of any
one issuer. As a diversified portfolio under the 1940 Act, these restrictions
apply to 75% of the assets of Evergreen Tax Free. However, because Tax-Free is a
non-diversified portfolio for purposes of the 1940 Act, these 5% restrictions
apply to 50% of the assets of Tax-Free. The remaining 50% of the assets of
Tax-Free may be invested up to 25% in the securities of a single issuer.
Nondiversification may increase investment risks.
The ability of the Funds to meet their investment objectives is 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
fixed income securities held by the Funds.
REASONS FOR THE REORGANIZATION
On July 18, 1997, First Union entered into an Agreement and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with and into a wholly-owned subsidiary of First Union. The Merger was
consummated on November 28, 1997. As a result of the Merger it is expected that
FUNB and its affiliates will succeed to the investment advisory and
administrative functions currently performed for Tax-Free by various units of
Signet and various unaffiliated parties. It is also expected that Signet will no
longer, upon completion of the Reorganization and similar reorganizations of
other funds in the Signet mutual fund family, provide investment advisory or
administrative services to investment companies.
At a regular meeting held on September 16, 1997, the Board of Trustees
of Blanchard Funds considered and approved the Reorganization as in the best
interests of shareholders of Tax- Free and determined that the interests of
existing shareholders of Tax-Free will not be diluted as a result of the
transactions contemplated by the Reorganization. In addition, the Trustees
<PAGE>
approved the Interim Advisory Agreement and Interim Sub-Advisory
Agreement with respect to Tax-Free.
As noted above, Signet has merged with and into a wholly-owned
subsidiary of First Union. Signet is the parent company of Virtus, investment
adviser to the mutual funds which comprise Blanchard Funds. The Merger caused,
as a matter of law, termination of the investment advisory agreement between
each series of Blanchard Funds and Virtus and the sub-advisory agreement between
Virtus and U.S. Trust with respect to the Fund. Blanchard Funds have received an
order from the SEC which permits Virtus and U.S. Trust to continue to act as
Tax-Free's investment adviser and sub-adviser, respectively, without shareholder
approval, for a period of not more than 120 days from the date the Merger was
consummated (November 28, 1997) to the date of shareholder approval of a new
investment advisory agreement and sub-advisory agreement. Accordingly, the
Trustees considered the recommendations of Signet in approving the proposed
Reorganization.
In approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen Tax Free and Tax-Free. Specifically, Evergreen Tax Free and
Tax-Free have substantially identical investment objectives and policies and
comparable risk profiles. See "Comparison of Investment Objectives and Policies"
below. At the same time, the Board of Trustees evaluated the potential economies
of scale associated with larger mutual funds and concluded that operational
efficiencies may be achieved upon the combination of Tax-Free with an Evergreen
fund with a greater level of assets. As of September 30, 1997, Evergreen Tax
Free's net assets were approximately $103 million and Tax-Free's net assets were
approximately $24 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Tax-Free continue its existence and be separately managed by
CMG or one of its affiliates, Tax-Free would be offered through common
distribution channels with the substantially similar Evergreen Tax Free. Tax-
Free would also have to bear the cost of maintaining its separate existence.
Signet and FUNB believe that the prospect of dividing the resources of the
Evergreen mutual fund organization between two substantially identical funds
could result in each Fund being disadvantaged due to an inability to achieve
optimum size, performance levels and the greatest possible economies of scale.
Accordingly, for the reasons noted above and recognizing that there can be no
assurance that any economies of scale or other benefits will be realized, Signet
and FUNB believe that the proposed Reorganization would be in the best interests
of each Fund and its shareholders.
<PAGE>
The Board of Trustees of Blanchard Funds met and considered the
recommendation of Signet and FUNB and, in addition, considered among other
things, (i) the terms and conditions of the Reorganization; (ii) whether the
Reorganization would result in the dilution of shareholders' interests; (iii)
expense ratios, fees and expenses of Evergreen Tax Free and Tax-Free; (iv) the
comparative performance records of each of the Funds; (v) compatibility of their
investment objectives and policies; (vi) the investment experience, expertise
and resources of CMG; (vii) the service and distribution resources available to
the Evergreen funds and the broad array of investment alternatives available to
shareholders of the Evergreen funds; (viii) the personnel and financial
resources of First Union and its affiliates; (ix) the fact that FUNB will bear
the expenses incurred by Tax-Free in connection with the Reorganization; (x) the
fact that Evergreen Tax Free will assume certain identified liabilities of
Tax-Free; and (xi) the expected federal income tax consequences of the
Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Tax-Free from the sale of its assets to Evergreen Municipal. In this regard,
the Trustees considered the potential benefits of being associated with a larger
entity and the economies of scale that could be realized by the participation in
such an entity by shareholders of Tax-Free.
In addition, the Trustees considered that there are alternatives
available to shareholders of Tax-Free, including the ability to redeem their
shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen Municipal Trust also concluded at a meeting
on September 17, 1997 that the proposed Reorganization would be in the best
interests of shareholders of Evergreen Tax Free and that the interests of the
shareholders of Evergreen Tax Free would not be diluted as a result of the
transactions contemplated by the Reorganization.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF TAX-FREE APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
<PAGE>
The Plan provides that Evergreen Tax Free will acquire all of the
assets of Tax-Free in exchange for shares of Evergreen Tax Free and the
assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free
on or about February 27, 1998 or such other date as may be agreed upon by the
parties (the "Closing Date"). Prior to the Closing Date, Tax-Free will endeavor
to discharge all of its known liabilities and obligations. Evergreen Tax Free
will not assume any liabilities or obligations of Tax-Free other than those
reflected in an unaudited statement of assets and liabilities of Tax-Free
prepared as of the close of regular trading on the NYSE, currently 4:00 p.m.
Eastern time, on the business day immediately prior to the Closing Date. The
number of full and fractional shares of each class of Evergreen Tax Free to be
received by the shareholders of Tax-Free will be determined by multiplying the
respective outstanding class of shares of Tax-Free by a factor which shall be
computed by dividing the net asset value per share of the respective class of
shares of Tax-Free by the net asset value per share of the respective class of
shares of Evergreen Tax Free. Such computations will take place as of the close
of regular trading on the NYSE on the business day immediately prior to the
Closing Date. The net asset value per share of each class will be determined by
dividing assets, less liabilities, in each case attributable to the respective
class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for Evergreen Tax
Free, will compute the value of each Fund's respective portfolio securities. The
method of valuation employed will be consistent with the procedures set forth in
the Prospectus and Statement of Additional Information of Evergreen Tax Free,
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, Tax-Free will have declared a dividend
or dividends and distribution or distributions which, together with all previous
dividends and distributions, shall have the effect of distributing to the Fund's
shareholders (in shares of the Fund, or in cash, as the shareholder has
previously elected) all of the Fund's net investment company taxable income for
the taxable period ending on the Closing Date (computed without regard to any
deduction for dividends paid) and all of its net capital gains realized in all
taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Tax-Free
will liquidate and distribute pro rata to shareholders of record as of the close
of business on the Closing Date the
<PAGE>
full and fractional shares of Evergreen Tax Free received by Tax- Free. Such
liquidation and distribution will be accomplished by the establishment of
accounts in the names of the Fund's shareholders on the share records of
Evergreen Tax Free's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of Evergreen Tax Free due to the
Fund's shareholders. All issued and outstanding shares of Tax-Free, including
those represented by certificates, will be canceled. The shares of Evergreen Tax
Free to be issued will have no preemptive or conversion rights. After such
distributions and the winding up of its affairs, Tax-Free will be terminated. In
connection with such termination, Blanchard Funds will file with the SEC an
application for termination as a registered investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Tax- Free's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of Tax-Free's shareholders,
the Plan may be terminated (a) by the mutual agreement of Tax-Free and Evergreen
Tax Free; or (b) at or prior to the Closing Date by either party (i) because of
a breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
The expenses of Tax-Free in connection with the Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the Reorganization is consummated. No portion of such expenses will be
borne directly or indirectly by Tax-Free or its shareholders. There are not any
liabilities or any expected reimbursements in connection with the 12b-1 Plan of
Tax-Free. As a result, no 12b-1 liabilities will be assumed by Evergreen Tax
Free following the Reorganization.
If the Reorganization is not approved by shareholders of Tax-Free, the
Board of Trustees of Blanchard Funds will consider other possible courses of
action in the best interests of shareholders.
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, Tax-Free will receive an opinion
of counsel to the effect that,
<PAGE>
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 all of the assets of Tax-Free solely in exchange
for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of
certain identified liabilities, followed by the distribution of Evergreen Tax
Free's shares by Tax-Free in dissolution and liquidation of Tax-Free, will
constitute a "reorganization" within the meaning of section 368(a)(1)(C) of the
Code, and Evergreen Tax Free and Tax-Free 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 Tax-Free on the transfer of
all of its assets to Evergreen Tax Free solely in exchange for Evergreen Tax
Free's shares and the assumption by Evergreen Tax Free of certain identified
liabilities of Tax-Free or upon the distribution of Evergreen Tax Free's shares
to Tax- Free's shareholders in exchange for their shares of Tax-Free;
(3) The tax basis of the assets transferred will be the same to
Evergreen Tax Free as the tax basis of such assets to Tax-Free immediately prior
to the Reorganization, and the holding period of such assets in the hands of
Evergreen Tax Free will include the period during which the assets were held by
Tax-Free;
(4) No gain or loss will be recognized by Evergreen Tax Free upon the
receipt of the assets from Tax-Free solely in exchange for the shares of
Evergreen Tax Free and the assumption by Evergreen Tax Free of certain
identified liabilities of Tax- Free;
(5) No gain or loss will be recognized by Tax-Free's shareholders upon
the issuance of the shares of Evergreen Tax Free to them, provided they receive
solely such shares (including fractional shares) in exchange for their shares of
Tax-Free; and
(6) The aggregate tax basis of the shares of Evergreen Tax Free,
including any fractional shares, received by each of the shareholders of
Tax-Free pursuant to the Reorganization will be the same as the aggregate tax
basis of the shares of Tax-Free held by such shareholder immediately prior to
the Reorganization, and the holding period of the shares of Evergreen Tax Free,
including fractional shares, received by each such shareholder will include the
period during which the shares of Tax-Free exchanged therefor were held by such
shareholder (provided that the shares of Tax-Free were held as a capital asset
on the date of the Reorganization).
<PAGE>
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, shareholders of Tax-Free would recognize
a taxable gain or loss equal to the difference between his or her tax basis in
his or her Fund shares and the fair market value of Evergreen Tax Free shares he
or she received. Shareholders of Tax-Free should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. It is not anticipated that the securities of the
combined portfolio will be sold in significant amounts in order to comply with
the policies and investment practices of Evergreen Tax Free. Since the foregoing
discussion relates only to the federal income tax consequences of the
Reorganization, shareholders of Tax-Free should also consult their tax advisers
as to the state and local tax consequences, if any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen Tax
Free and Tax-Free as of September 30, 1997 and the capitalization of Evergreen
Tax Free on a pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value. The pro forma data reflects an
exchange ratio of approximately _____ Class A shares of Evergreen Tax Free
issued for each share of Tax-Free.
<TABLE>
<CAPTION>
Capitalization of Tax-Free,
Evergreen Tax Free and Evergreen
Tax Free (Pro Forma)
Evergreen Tax
Free (After
Evergreen Reorgani-
Tax-Free Tax Free zation)
--------- -------- ------------
<S> <C> <C> <C>
Net Assets
Shares $24,076,686 N/A N/A
Class A........................ N/A $45,817,820 $69,894,506
Class B........................ N/A $32,427,388 $32,427,388
Class Y . . . . N/A $24,636,669 $24,636,699
Total Net
Assets....................... $24,076,686 $102,881,877 $126,958,563
Net Asset Value Per
Share
Shares $5.56 N/A N/A
Class A........................ N/A $11.19 $11.19
Class B........................ N/A $11.19 $11.19
<PAGE>
Evergreen Tax
Free (After
Evergreen Reorgani-
Tax-Free Tax Free zation)
--------- -------- ------------
Class Y . . . . N/A $11.19 $11,19
Shares Outstanding
Shares $4,328,344 N/A N/A
Class A........................ N/A $4,094,883 $6,245,517
Class B........................ N/A $2,898,047 $2,898,047
Class Y . . . . N/A $2,201,748 $2,201,748
All Classes.................... $4,328,344 $9,194,678 $11,345,312
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.
Shareholder Information
As of December 26, 1997 (the "Record Date"), there were shares of
beneficial interest of Tax-Free outstanding.
As of October 31, 1997, the officers and Trustees of Blanchard Funds
beneficially owned as a group less than 1% of the outstanding shares of
Tax-Free. To Tax-Free's knowledge, the following persons owned beneficially or
of record more than 5% of Tax-Free's total outstanding shares as of October 31,
1997:
<TABLE>
<CAPTION>
Percentage of
Percentage of Shares of
No. of Shares Before Class After
Name and Address Shares Reorganization Reorganization
<S> <C> <C> <C>
Stephens, Inc.
111 Center Street
Little Rock, AR
72201-3507 ______% Class A
William J. Harnett
Waldorf, MD ______% Class A
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
<PAGE>
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 Prospectus and Statement of Additional
Information of the Funds. The investment objective, policies and restrictions of
Evergreen Tax Free can be found in the Prospectus of Evergreen Tax Free under
the caption "Investment Objectives and Policies." Evergreen Tax Free's
Prospectus also offers additional funds advised by affiliates of FUNB. These
additional funds are not involved in the Reorganization, their investment
objectives and policies are not discussed in this Prospectus/Proxy Statement and
their shares are not offered hereby. The investment objective, policies and
restrictions of Tax-Free can be found in the Prospectus of the Fund under the
caption "The Funds' Investment Objectives and Policies." Unlike the investment
objective of Tax-Free, which is fundamental, the investment objective of
Evergreen Tax Free is non-fundamental and can be changed by the Board of
Trustees without shareholder approval.
The investment objective of Evergreen Tax Free is to seek a high level of
federally tax free income that is consistent with preservation of capital. At
least 65% of the value of Evergreen Tax Free's assets will be invested in high
grade bonds. High grade bonds means: bonds insured by a municipal bond insurance
company which is rated AAA by S&P and/or Aaa by Moody's; bonds rated A or better
by S&P or Moody's; or, if unrated, of comparable quality as determined by the
Fund's investment adviser. The insurance guarantees the timely payment of
principal and interest but not the value of the municipal bonds or the shares of
the Fund.
Evergreen Tax Free may invest in municipal 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
statistical rating organization ("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. In addition, the Fund may invest up to 35% of its assets in general
obligation municipal bonds which are rated BBB by S&P, Baa by Moody's or bear a
similar rating from another SRO. These medium grade bonds are more susceptible
to adverse economic conditions or changing circumstances than higher grade
bonds. However, like the higher rated bonds, these securities are considered to
be investment grade.
The investment objective of Tax-Free is to provide a high level of
current interest income exempt from federal income tax consistent with the
preservation of principal. The Fund invests at least 65% of its assets in
municipal obligations which are determined by the Fund's sub-adviser to present
minimal credit
<PAGE>
risks. Tax-Free invests in substantially identical types of municipal
obligations in which Evergreen Tax Free invests. However, Tax-Free invests only
in (1) municipal bonds that are rated "A" or better by Moody's or by S&P, or in
lower rated municipal bonds that are deemed by the sub-adviser to be comparable
to A-rated issues; (2) municipal notes rated MIG-2 or VMIG-2 by Moody's or SP-2
or better by S&P; and (3) municipal commercial paper rated Prime-2 or better by
Moody's or A-2 or better by S&P.
Under normal conditions, each Fund will maintain at least 80% of its assets
in obligations exempt from federal income tax including the alternative minimum
tax.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds 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
Forms of Organization
Evergreen Municipal Trust and Blanchard Funds are open-end management
investment companies registered with the SEC under the 1940 Act, which
continuously offer shares to the public. Evergreen Municipal Trust is organized
as a Delaware business trust and Blanchard Funds is organized as a Massachusetts
business trust. Each Trust is governed by a Declaration of Trust, By-Laws and a
Board of Trustees. Each Trust is also governed by applicable Delaware,
Massachusetts and federal law. Evergreen Tax Free is a series of Evergreen
Municipal Trust and Tax-Free is a series of Blanchard Funds.
As set forth in the Supplement to Evergreen Tax Free's Prospectus,
effective December 22, 1997, Evergreen High Grade Tax Free, a series of
Evergreen Investment Trust, a Massachusetts business trust, was reorganized (the
"Delaware Reorganization") into a corresponding series (Evergreen Tax Free) of
Evergreen Municipal Trust. In connection with the Delaware Reorganization, the
Fund's investment objectives were reclassified from "fundamental" to
"non-fundamental" and therefore may be changed without shareholder approval; the
Fund adopted certain standardized investment restrictions; and eliminated or
reclassified from fundamental to non-fundamental certain of the Fund's other
fundamental investment restrictions.
Capitalization
<PAGE>
The beneficial interests in Evergreen Tax Free are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. The beneficial interests in Tax-Free are represented by an unlimited
number of transferable shares of beneficial interest without par value. The
respective Declaration of Trust under which each Fund has been established
permits the Trustees to allocate shares into an unlimited number of series, and
classes thereof, with rights determined by the Trustees, all without shareholder
approval. Fractional shares may be issued. Each Fund's shares represent equal
proportionate interests in the assets belonging to the Funds. Shareholders of
each Fund are entitled to receive dividends and other amounts as determined by
the Trustees. Shareholders of each Fund vote separately, by class, as to
matters, such as approval of or amendments to Rule 12b-1 distribution plans,
that affect only their particular class and by series as to matters, such as
approval of or amendments to investment advisory agreements or proposed
reorganizations, that affect only their particular series.
Shareholder Liability
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the Declaration of Trust under which Tax-Free was
established disclaims shareholder liability for acts or obligations of the
series and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
The Declaration of Trust provides for indemnification out of the series property
for all losses and expenses of any shareholder held personally liable for the
obligations of the 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 series or
the trust itself would be unable to meet its obligations.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Municipal Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability. To guard
against this risk, the Declaration of Trust of Evergreen Municipal Trust (a)
provides that any written obligation of the Trust may contain a statement that
such obligation may only be enforced against the assets of the Trust
<PAGE>
or the particular series in question and the obligation is not binding upon the
shareholders of the Trust; however, the omission of such a disclaimer will not
operate to create personal liability for any shareholder; and (b) provides for
indemnification out of trust property of any shareholder held personally liable
for the obligations of Evergreen Municipal Trust. Accordingly, the risk of a
shareholder of Evergreen Municipal Trust incurring financial loss beyond that
shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself
would be unable to meet its obligations. In light of Delaware law, the nature of
the Trust's business, and the nature of its assets, the risk of personal
liability to a shareholder of Evergreen Municipal Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Municipal Trust on behalf of Evergreen Tax Free nor
Blanchard Funds on behalf of Tax-Free is required to hold annual meetings of
shareholders. However, a meeting of shareholders for the purpose of voting upon
the question of removal of a Trustee must be called when requested in writing by
the holders of at least 10% of the outstanding shares of Evergreen Municipal
Trust or Blanchard Funds. In addition, each is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders. Each
Trust currently does not intend to hold regular shareholder meetings. Each Trust
does not permit cumulative voting. Except when a larger quorum is required by
applicable law, a majority of the outstanding shares entitled to vote of each
Fund constitutes a quorum for consideration of such matter. For Evergreen Tax
Free and Tax-Free, a majority of the votes cast and entitled to vote, is
sufficient to act on a matter (unless otherwise specifically required by the
applicable governing documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Municipal Trust, each share
of Evergreen Tax Free is entitled to one vote for each dollar of net asset value
applicable to each share. Under the voting provisions governing Tax-Free, each
share is entitled to one vote. Over time, the net asset values of the mutual
funds which are each a series of Blanchard Funds have changed in relation to one
another and are expected to continue to do so in the future. Because of the
divergence in net asset values, a given dollar investment in a fund which is a
series of Blanchard Funds and which has a lower net asset value will purchase
more shares and, under the current voting provisions of Blanchard
<PAGE>
Funds, have more votes, than the same investment in a series with a higher net
asset value. Under the Declaration of Trust of Evergreen Municipal Trust, voting
power is related to the dollar value of a shareholder's investment rather than
to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Tax Free and Tax-Free, the
shareholders are entitled to receive, when, and as declared by the Trustees, the
excess of the assets belonging to such Fund or attributable to the class over
the liabilities belonging to the Fund or attributable to the class. In either
case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
The Declaration of Trust of Blanchard Funds provides that no Trustee
shall be liable for errors of judgment or mistakes of fact or law. No Trustee
shall be subject to liability unless such Trustee is found to have acted in bad
faith, with willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
The Declaration of Trust of Blanchard Funds provides that a present or
former Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his or her position with the Trust,
provided that no indemnification shall be provided to a Trustee or officer
against any liability to the Trust or any series thereof or the shareholders of
any series by reasons of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Under the Declaration of Trust of Evergreen Municipal Trust, a Trustee
is liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and
<PAGE>
(iii) in a criminal proceeding, had reasonable cause to believe that such
Trustee's conduct was unlawful (collectively, "disabling conduct"). A
determination that the Trustee did not engage in disabling conduct and is,
therefore, entitled to indemnification may be based upon the outcome of a court
action or administrative proceeding or by (a) a vote of a majority of those
Trustees who are neither "interested persons" within the meaning of the 1940 Act
nor parties to the proceeding or (b) an independent legal counsel in a written
opinion. The Trust may also advance money for such litigation expenses provided
that the Trustee undertakes to repay the Trust if his or her conduct is later
determined to preclude indemnification and certain other conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declarations of Trust, By-Laws, Delaware and
Massachusetts
law directly for more complete information.
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of Blanchard Funds recommends that shareholders of
Tax-Free approve the Interim Advisory Agreement. The Merger became effective on
November 28, 1997. Pursuant to an order received from the SEC all fees payable
under the Interim Advisory Agreement will be placed in escrow and paid to Virtus
if shareholders approve the contract within 120 days of its effective date. The
Interim Advisory Agreement will remain in effect until the earlier the Closing
Date for the Reorganization or two years from its effective date. The terms of
the Interim Advisory Agreement are essentially the same as the Previous Advisory
Agreement (as defined below). The only difference between the Previous Advisory
Agreement and the Interim Advisory Agreement, if approved by shareholders, is
the length of time each Agreement is in effect. A description of the Interim
Advisory Agreement pursuant to which Virtus continues as investment adviser to
Tax-Free, as well as the services to be provided by Virtus pursuant thereto is
set forth below under "Advisory Services." The description of the Interim
Advisory Agreement in this Prospectus/Proxy Statement is qualified in its
entirety by reference to the Interim Advisory Agreement, attached hereto as
Exhibit B.
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management, is an indirect wholly-owned subsidiary of
First Union. Virtus' address is 707 East Main Street, Suite 1300, Richmond,
Virginia 23219. Virtus has served as investment adviser pursuant to an
Investment Advisory Contract dated July 12, 1995. As used herein, the Investment
Advisory Agreement, as amended, for Tax-Free is referred to as the "Previous
Advisory Agreement." At a meeting of the Board of Trustees of Blanchard Funds
held on September 16, 1997, the Trustees, including a majority of the
Independent Trustees, approved the Interim Advisory Agreement for Tax-Free.
The Trustees have authorized Blanchard Funds, on behalf of Tax-Free, to
enter into the Interim Advisory Agreement with Virtus. Such Agreement became
effective on November 28, 1997. If the Interim Advisory Agreement for Tax-Free
is not approved by shareholders, the Trustees will consider appropriate actions
to be taken with respect to Tax-Free's investment advisory arrangements at that
time. The Previous Advisory Agreement was last approved by the Trustees,
including a majority of the Independent Trustees, on May 11, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by Virtus under the Interim Advisory Agreement are identical to those currently
provided by Virtus under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, Virtus is responsible for
managing the Fund and overseeing the investment of its assets, subject at all
times to the supervision of the Board of Trustees. Virtus selects, monitors and
evaluates the Fund's sub- adviser. Virtus periodically reviews the sub-adviser's
performance record and will make a change, if necessary, subject to approval of
the Board of Trustees and shareholders.
FAS currently acts as administrator of Tax-Free. FAS will continue
during the term of the Interim Advisory Agreement as Tax-Free's administrator
for the same compensation as currently received; except that on February 9,
1998, FAS' obligations to provide transfer agency services for Tax-Free's
shareholders will terminate and such services will be provided for the same fees
by Evergreen Service Company. See "Summary - Administrators."
Fees and Expenses. The investment advisory fees and expense limitations for
Tax-Free under the Previous Advisory Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers and Sub-Adviser."
Expense Reimbursement. Virtus may, if it deems appropriate, assume expenses
of the Fund or a class to the extent that the
<PAGE>
Fund's or classes' expenses exceed such lower expense limitation as Virtus may,
by notice to the Fund, voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, Blanchard Funds was required to pay or cause to be paid on
behalf of the Fund, all of the Fund's expenses and the Fund's allocable share of
Blanchard Funds' expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Agreement on the part of Virtus,
Virtus was not liable to Blanchard Funds or to the Fund or to any shareholder
for any act or omission in the course of or connected in any way with rendering
services or for any losses that may be sustained in the purchase, holding or
sale of any security.
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of Tax-Free (as defined in the 1940 Act) or by a vote of the
Trustees of Blanchard Funds on 60 days' written notice to Virtus or by Virtus on
60 days' written notice to Blanchard Funds. Also, the Interim Advisory Agreement
will automatically terminate in the event of its assignment (as defined in the
1940 Act). The Previous Advisory Agreement contained identical provisions as to
termination and assignment.
Information about Tax-Free's Investment Adviser
Virtus, a registered investment adviser, manages, in addition to the
Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three
fixed income trust funds. The name and address of each executive officer and
director of Virtus are set forth in Appendix A to this Prospectus/Proxy
Statement.
For the fiscal year ended September 30, 1997 and the period from May 1,
1996 to September 30, 1996, Virtus received from Tax- Free management fees of
$169,751 and $71,788, respectively, of
<PAGE>
which $142,067 and $71,788, respectively, were voluntarily waived. For the
fiscal year ended April 30, 1996, the Fund's investment management fee paid to
Virtus and the prior manager was $162,655, all of which was voluntarily waived.
Signet acts as custodian for Tax-Free and received $16,080 for the fiscal year
ended September 30, 1997. Signet will continue to act as Tax-Free's custodian
during the term of the Interim Advisory Agreement.
The Board of Trustees considered the Interim Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Reasons for the Reorganization."
The Board of Trustees also considered the fact that there were no material
differences between the terms of the Interim Advisory Agreement and the terms of
the Previous Advisory Agreement.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE
SHAREHOLDERS OF TAX-FREE APPROVE THE INTERIM
ADVISORY AGREEMENT.
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of Blanchard Funds recommends that shareholders of
Tax-Free approve the Interim Sub- Advisory Agreement. Such Agreement became
effective on November 28, 1997. Pursuant to an order from the SEC, all fees
payable under the Interim Sub-Advisory Agreement will be placed in escrow and
paid to U.S. Trust if shareholders approve the contract within 120 days of its
effective date. The Interim Sub-Advisory Agreement will remain in effect until
the earlier of the Closing Date for the Reorganization or two years from its
effective date. The terms of the Interim Sub-Advisory Agreement are essentially
the same as the Previous Sub-Advisory Agreement (as defined below). The only
difference between the Previous Sub-Advisory Agreement and the Interim
Sub-Advisory Agreement, if approved by shareholders, is the length of time the
Agreement is in effect. A description of the Interim Sub-Advisory Agreement
pursuant to which U.S. Trust continues as the investment sub-adviser to Tax-
Free, as well as the services to be provided by U.S. Trust pursuant thereto, is
set forth below under "Sub-Advisory Services." The description of the Interim
Sub-Advisory Agreement in this Prospectus/Proxy Statement is qualified in its
entirety by reference to the Interim Sub-Advisory Agreement, attached hereto as
Exhibit C.
U.S. Trust, 114 West 47th Street, New York, New York 10036, has served
as investment adviser to Tax-Free pursuant to a Sub- Advisory Agreement, dated
July 12, 1995. U.S. Trust, a New York State chartered bank and trust company
established in 1853, manages in excess of $58 billion in assets. U.S. Trust is a
financial services company that specializes in asset management, private
banking, fiduciary and securities services. Kenneth J. McAlley, an executive
vice president of U.S. Trust, has been actively engaged in municipal obligation
portfolio management with U.S. Trust for over 10 years and has been responsible
for the Fund's day-to-day investment decisions since the Fund commenced
operations in July 1993. See "Summary - Investment Advisers and Sub-Adviser." As
used herein, the Sub-Advisory Agreement for Tax-Free is referred to as the
"Previous Sub- Advisory Agreement." At a meeting of the Board of Trustees of
Blanchard Funds held on September 16, 1997, the Trustees, including a majority
of the Independent Trustees, approved the Interim Sub-Advisory Agreement for
Tax-Free.
The Trustees have authorized Blanchard Funds, on behalf of Tax-Free, to
enter into the Interim Sub-Advisory Agreement with Virtus and U.S. Trust. Such
Agreement became effective on November 28, 1997. If the Interim Sub-Advisory
Agreement for Tax-Free is not approved by shareholders, the Trustees will
consider appropriate actions to be taken with respect to Tax- Free's investment
sub-advisory arrangements at that time. The Previous Sub-Advisory Agreement was
last approved by the Trustees, including a majority of the Independent Trustees,
on May 11, 1997.
Comparison of the Interim Sub-Advisory Agreement and the Previous
Sub-Advisory Agreement
Sub-Advisory Services. The management and advisory services to be
provided by U.S. Trust under the Interim Sub-Advisory Agreement are identical to
those currently provided by U.S. Trust under the Previous Sub-Advisory
Agreement. Under the Previous Sub-Advisory Agreement, U.S. Trust supervised the
investment and reinvestment of the cash, securities or other properties
comprising the Fund's portfolio, subject at all times to the direction of Virtus
and the policies and control of Blanchard Funds' Board of Trustees.
Fees and Expenses. The investment sub-advisory fees under the Previous
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical. As
compensation for its sub-advisory services under the Previous Sub-Advisory
Agreement U.S. Trust was paid by Virtus a monthly fee at the annual rate of .20%
of the Fund's average daily net assets.
The fee paid to U.S. Trust by Virtus for the fiscal year ended September
30, 1997 was $45,267. The fee paid to U.S. Trust
<PAGE>
by Virtus for the period from May 1, 1996 through September 30, 1996 was
$19,145. The fee paid to U.S. Trust and the prior sub- adviser by the prior
manager and by Virtus for the fiscal year ended April 30, 1996 was $42,605.
The name and address of the principal executive officers and directors
of U.S. Trust are set forth in Appendix B to this Prospectus/Proxy Statement.
Limitation of Liability. The Previous Sub-Advisory Agreement provided
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of U.S. Trust or reckless disregard by U.S. Trust of its duties under the
Agreement, U.S. Trust shall not be liable to Virtus, Blanchard Funds or to any
shareholder of Blanchard Funds for any act or omission in the course of, or
connected with, rendering services thereunder or for any losses that may
sustained in the purchase, holding or sale of any security. The Interim
Sub-Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Sub-Advisory Agreement provides
that it may be terminated without penalty by vote of a majority of the
outstanding voting securities of Tax-Free (as defined in the 1940 Act) or by a
vote of a majority of Blanchard Funds' entire Board of Trustees on 60 days'
written notice to U.S. Trust or by Virtus or U.S. Trust on 60 days' written
notice to the other party to the Agreement. Also, the Interim Sub- Advisory
Agreement will automatically terminate in the event of its assignment (as
defined in the 1940 Act). The Previous Sub- Advisory Agreement contained
identical provisions as to termination and assignment.
The Board of Trustees considered the Interim Sub-Advisory Agreement as
part of its overall approval of the Plan. The Board of Trustees considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Trustees also considered the fact that there were
no material differences between the terms of the Interim Sub-Advisory Agreement
and the terms of the Previous Sub-Advisory Agreement.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE
SHAREHOLDERS OF TAX-FREE APPROVE THE INTERIM
SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen Tax Free. Information concerning the operation and management
of Evergreen Tax Free is incorporated herein by reference from the Prospectus
dated September 3, 1997, as supplemented, a copy of which is enclosed, and
Statement of Additional Information dated September 3, 1997. A copy of such
<PAGE>
Statement of Additional Information is available upon request and without charge
by writing to Evergreen Tax Free at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Tax-Free. Information about Tax-Free is included in its current
Prospectus dated August 31, 1997 and in the Statement of Additional Information
of the same date that have been filed with the SEC, all of which are
incorporated herein by reference. Copies of the Prospectus and Statement of
Additional Information are available upon request and without charge by writing
to Tax- Free at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-829- 3863.
Evergreen Tax Free and Tax-Free are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information, including proxy
material and charter documents, with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of Blanchard Funds to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts
02116, and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the meeting and a proxy card, is first being mailed to
shareholders of Tax-Free on or about January 5, 1998. 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 outstanding shares entitled to vote, at the close of business on
the Record Date, present in person or represented by proxy, will constitute a
quorum for the Meeting. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Reorganization, FOR the
Interim Advisory Agreement, FOR the Interim Sub-Advisory Agreement 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)
<PAGE>
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will not be counted as shares voted and will have no effect on the vote
regarding the Plan. However, such "broker non-votes" will have the effect of
being counted as votes against the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement which must be approved by a percentage of the shares
present at the Meeting or a majority of the outstanding votes securities. A
proxy may be revoked at any time on or before the Meeting by written notice to
the Secretary of Blanchard Funds, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. 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, FOR approval of the Interim Advisory Agreement and FOR approval of the
Interim Sub-Advisory Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the shares voted and entitled to vote at the Meeting at which a quorum of the
Fund's shares is present. Approval of the Interim Advisory Agreement and Interim
Sub-Advisory Agreement will require the affirmative vote of (i) 67% or more of
the outstanding voting securities if holders of more than 50% of the outstanding
voting securities are present, in person or by proxy, at the Meeting, or (ii)
more than 50% of the outstanding voting securities, whichever is less. Each full
share outstanding is entitled to one vote and each fractional share outstanding
is entitled to a proportionate share of one vote.
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 FUNB or Signet, their affiliates or other
representatives of Tax- Free (who will not be paid for their soliciting
activities). Shareholders Communications Corporation has been engaged by Tax-
Free to assist in soliciting proxies.
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement or attend in person. Any
proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by February 20, 1998, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the
<PAGE>
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any such adjournment will require an
affirmative vote by the holders of a majority of the shares present in person or
by proxy and entitled to vote at the Meeting. The persons named as proxies will
vote upon such adjournment after consideration of all circumstances which may
bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of Blanchard
Funds 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 Evergreen Tax Free which they receive in the
transaction at their then-current net asset value. Shares of Tax-Free may be
redeemed at any time prior to the consummation of the Reorganization.
Shareholders of Tax-Free may wish to consult their tax advisers as to any
differing consequences of redeeming Fund shares prior to the Reorganization or
exchanging such shares in the Reorganization.
Tax-Free does not hold annual shareholder meetings. If the
Reorganization is not approved, 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 Blanchard Funds
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of Evergreen Tax Free 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 Tax-Free whether other persons are beneficial owners of shares for
which proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Tax Free as of May 31, 1997, and
the financial statements and financial highlights for
<PAGE>
the periods indicated therein, have been incorporated by reference herein and in
the Registration Statement in reliance upon the report of Price Waterhouse LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements and financial highlights of Tax- Free
incorporated in this Prospectus/Proxy Statement by reference from the Annual
Report of Tax-Free for the year ended September 30, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Tax Free will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Blanchard Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND APPROVAL OF THE PLAN, THE
INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM
SUB-ADVISORY AGREEMENT.
January 5, 1998
<PAGE>
APPENDIX A
The names and addresses of the principal executive officers
and directors of Virtus Capital Management, Inc. are as follows:
OFFICERS:
Name Address
- ---- -------
Tanya Orr Bird Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Clemons Rosson Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
DIRECTORS:
Name Address
- ---- -------
Tanya Orr Bird Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
<PAGE>
APPENDIX B
The names and addresses of the principal executive officers and
directors of United States Trust Company of New York are as follows:
OFFICERS AND DIRECTORS:
Name Address
- ---- -------
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of November, 1997, by and between the Evergreen Municipal
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to the
Evergreen High Grade Tax Free Fund series (the "Acquiring Fund"), and Blanchard
Funds, a Massachusetts business trust, with its principal place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect to
its Blanchard Flexible Tax-Free Bond Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A shares of
beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of
beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of Blanchard Funds have determined that the
Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that
<PAGE>
the interests of the existing shareholders of the Selling Fund will not be
diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable time prior to the
Closing Date, furnish the Acquiring Fund with a list of its portfolio securities
and other investments. In the event that the Selling Fund holds any investments
that the Acquiring Fund may not hold, the Selling Fund, if requested by the
Acquiring Fund, will dispose of such securities prior to the Closing Date. In
addition, if it is determined that the Selling Fund and the Acquiring Fund
portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein shall require the Selling Fund to dispose of any investments or
securities if, in the reasonable judgment of the Selling Fund, such disposition
would adversely affect the tax-free nature of the Reorganization or would
violate the Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for
purposes of calculating the maximum amount of sales charges (including asset
based sales charges) permitted to be imposed by the Acquiring Fund under the
National Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate
NASD Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately
prior to the Reorganization the Aggregate NASD Cap of the Selling Fund
immediately prior to the Reorganization, in each case calculated in accordance
with such Rule 2830.
<PAGE>
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
<PAGE>
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of shares of
the Selling Fund will receive Class A shares of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about February 27, 1998 or such other date as the parties may agree to in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously immediately prior to the opening of business
on the Closing Date unless otherwise provided. The Closing shall be held as of
9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
<PAGE>
3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date; and (b) all necessary taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent as of the Closing Date, to
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of Blanchard Funds 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:
<PAGE>
(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
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 Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Blanchard Funds' Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected on the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or
<PAGE>
governmental body that materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
(g) The financial statements of the Selling Fund at September
30, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (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.
<PAGE>
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series
of a Delaware business trust that is registered as an investment
<PAGE>
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 misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at May 31,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since May 31, 1997 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
<PAGE>
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund shall
not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with
<PAGE>
federal securities and other laws and regulations applicable
thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and
warranties set forth in Section 4.2.1 shall be deemed to include, to the extent
applicable, representations and warranties made by and on behalf of Evergreen
High Grade Tax Free Fund (the "Predecessor Fund"), a series of Evergreen
Investment Trust, a Massachusetts business trust, as of the date hereof. The
Acquiring Fund shall deliver to the Selling Fund a certificate of the
Predecessor Fund of even date making the representations set forth in Section
4.2.1 with respect to the Predecessor Fund to the extent applicable to the
Predecessor Fund as of the date hereof.
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. Blanchard Funds 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
<PAGE>
thereof other than in accordance with the terms of this
Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by Price
Waterhouse LLP and certified by Blanchard Funds' President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause Price Waterhouse LLP to issue a letter addressed to the
Acquiring Fund and the Selling Fund, in form and substance satisfactory to the
Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of 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.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
<PAGE>
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable. No shareholder
of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the
<PAGE>
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects its business, other than as previously disclosed in the
Registration Statement.
Such 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 (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the 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 the Registration Statement, and that such opinion is solely for the
benefit of Blanchard Funds and the Selling Fund. Such opinion shall contain such
other assumptions and limitations as shall be in the opinion of Sullivan &
Worcester LLP appropriate to render the opinions expressed therein.
In this paragraph 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.
6.3 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
6.4 The acquisition of the assets of the Predecessor Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
<PAGE>
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 Blanchard Funds'
President or Vice President and the 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 Blanchard Funds.
7.3.1 The Acquiring Fund shall have received on the Closing Date an
opinion of Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
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 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 knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or
<PAGE>
affecting creditors' rights generally and to general equity
principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of Blanchard Funds' Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of Reorganization," the Interim Advisory Agreement and the
Previous Advisory Agreement, as set forth under the caption "Information
Regarding the Interim Advisory Agreement," the Interim Sub- Advisory Agreement
and the Previous Sub-Advisory Agreement, as set forth under the caption
"Information Regarding the Interim Sub-Advisory Agreement" and the description
of voting requirements applicable to approval of the Interim Advisory Agreement
and Interim Sub-Advisory Agreement, as set forth under the caption "Voting
Information Concerning the Meeting," insofar as the latter constitutes a summary
of applicable voting requirements under the Investment Company Act of 1940, as
amended, are, in each case, accurate and fairly present the information required
to be shown by the applicable requirements of Form N-14.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
<PAGE>
(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.
7.3.2 The Acquiring Fund shall have received on the closing Date an
opinion of C. Grant Anderson, Esq., Assistant Secretary of the Blanchard Funds,
in form satisfactory to the Acquiring Fund as follows: Assuming that a
consideration therefor of not less than the net asset value thereof has been
paid, and assuming that such shares were issued in accordance with the terms of
the Selling Fund's registration statement, or any amendment thereto, in effect
at the time of such issuance, all issued and outstanding shares of the Selling
Fund are legally issued and fully paid and non-assessable (except that, under
Massachusetts law, Selling Fund Shareholders could under certain circumstances
be held personally liable for obligations of the Selling Fund).
Mr. Anderson shall also state that he has reviewed and is familiar with
the contents of the Prospectus and Proxy Statement and, although he is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement on the basis of the foregoing, no facts have come to his attention
that lead him 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 he 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.
The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that
such opinions are solely for the benefit of the Acquiring Fund. Such opinions
shall contain such other assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable,
appropriate to render the opinions expressed therein, and shall indicate, with
respect to matters of Massachusetts law, that as Dickstein Shapiro Morin &
Oshinsky LLP and C. Grant
<PAGE>
Anderson are not admitted to the bar of Massachusetts, such opinions are based
either upon the review of published statutes, cases and rules and regulations of
the Commonwealth of Massachusetts or upon an opinion of Massachusetts counsel.
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.
7.4 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Blanchard Funds'
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
<PAGE>
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
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 stated liabilities of the Selling Fund or upon the distribution (whether
actual or
<PAGE>
constructive) of the Acquiring Fund Shares to Selling Fund Shareholders in
exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from Price Waterhouse LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) 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 Blanchard Funds responsible for financial and accounting
matters, nothing came to their attention that caused them to believe that such
unaudited pro forma financial statements do not comply as to form in all
material respects with
<PAGE>
the applicable accounting requirement of the 1933 Act and the
published rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the 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;
(d) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements that 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 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;
(e) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
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),
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 Price Waterhouse LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants
with respect to the Acquiring Fund within the meaning of the 1933
<PAGE>
Act and the applicable published rules and regulations
thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) 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 written estimates by each Fund's management and were found
to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant
<PAGE>
not set forth herein and that this Agreement constitutes the entire agreement
between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, Blanchard Funds, the respective
Trustees or officers, to the other party or its Trustees or officers.
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 Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
<PAGE>
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
and the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of Blanchard Funds or the
Evergreen Municipal Trust personally, but shall bind only the trust property of
the Selling Fund and the Acquiring Fund, as provided in the Declarations of
Trust of Blanchard Funds and the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of Blanchard Funds on behalf of
the Selling Fund and the Trust on behalf of the Acquiring Fund and signed by
authorized officers of Blanchard Funds and the Trust, acting as such, and
neither such authorization by such Trustees nor such execution and delivery by
such officers shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the trust
property of the Selling Fund and the Acquiring Fund as provided in the
Declarations of Trust of Blanchard Funds and the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN MUNICIPAL TRUST
ON BEHALF OF EVERGREEN HIGH GRADE
TAX FREE FUND
By:
Name:
Title:
BLANCHARD FUNDS
ON BEHALF OF BLANCHARD FLEXIBLE
TAX-FREE BOND FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
BLANCHARD FUNDS
INTERIM MANAGEMENT CONTRACT
This Contract is made this 28th day of November, 1997 between Virtus
Capital Management, Inc., a Maryland corporation having its principal place of
business in Richmond, Virginia (the "Manager"), and Blanchard Funds, a
Massachusetts business trust having its principal place of business in
Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940, as amended, and
is registered as such with the Securities and Exchange Commission; and
WHEREAS Manager is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The Trust hereby appoints Manager as manager for each of the
portfolios ("Funds") of the Trust which executes an exhibit to this Contract,
and Manager accepts the appointments. Subject to the direction of the Trustees
of the Trust, Manager shall provide or procure on behalf of each of the Funds
all management and administrative services. In carrying out its obligations
under this paragraph, the Manager shall; (i) provide or arrange for investment
research and supervision of the investments of the Funds; (ii) select and
evaluate the performance of each Fund's Portfolio Sub-Adviser; (iii) select and
evaluate the performance of the Administrator; and (iv) conduct or arrange for a
continuous program of appropriate sale or other disposition and reinvestment of
each Fund's assets.
2. Manager, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statements and exhibits as may be
on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and
its allocable share of Trust expenses, including, without limitation, the
expenses of organizing the Trust and continuing its existence; fees and expenses
of Trustees and officers of the Trust; fees for management services and
<PAGE>
administrative personnel and services; expenses incurred in the distribution of
its shares ("Shares"), including expenses of administrative support services;
fees and expenses of preparing and printing its Registration Statements under
the Securities Act of 1933 and the Investment Company Act of 1940, as amended,
and any amendments thereto; expenses of registering and qualifying the Trust,
the Funds, and Shares of the Funds under federal and state laws and regulations;
expenses of preparing, printing, and distributing prospectuses (and any
amendments thereto) to shareholders; interest expense, taxes, fees, and
commissions of every kind; expenses of issue (including cost of Share
certificates), purchase, repurchase, and redemption of Shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing and mailing costs, auditing, accounting, and
legal expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Trustees and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise, including all losses and liabilities incurred
in administering the Trust and the Funds. Each Fund will also pay its allocable
share of such extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, and claims and the legal obligations of
the Trust to indemnify its officers and Trustees and agents with respect
thereto.
4. Each of the Funds shall pay to Manager, for all services rendered to
each Fund by Manager hereunder, the fees set forth in the exhibits attached
hereto.
5. If, for any fiscal year, the total of all ordinary business expenses
of the Fund, including all investment advisory fees but excluding distribution
fees, taxes, interest and extraordinary expenses and certain other excludable
expenses, would exceed the most restrictive expense limits imposed by any
statute or regulatory authority of any jurisdiction in which Shares of the Fund
are offered for sale Manager shall reduce its management fee in order to reduce
such excess expenses, but will not be required to reimburse the Fund for any
ordinary business expenses which exceed the amount of its management fee for
such fiscal year. The amount of any such reduction is to be borne by the Manager
and shall be deducted from the monthly management fee otherwise payable to the
Manager during such fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.
<PAGE>
6. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
7. The Manager may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Manger may, by notice to the Fund, voluntarily declare
to be effective.
8. This Contract shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit during the initial term of this Contract) until the earlier of the
Closing Date defined in the Agreement and Plan of Reorganization dated as of
November 26, 1997 with respect to each Fund or for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject to the provisions for termination and all of the other terms and
conditions hereof if: (a) such continuation shall be specifically approved at
least annually by the vote of a majority of the Trustees of the Trust, including
a majority of the Trustees who are not parties to this Contract or interested
persons of any such party cast in person at a meeting called for that purpose;
and (b) Manager shall not have notified a Fund in writing at least sixty (60)
days prior to the anniversary date of this Contract in any year thereafter that
it does not desire such continuation with respect to that Fund. If a Fund is
added after the first approval by the Trustees as described above, this Contract
will be effective as to that Fund upon execution of the applicable exhibit and
will continue in effect until the next annual approval of the Contract by the
Trustees and thereafter for successive periods of one year, subject to approval
as described above.
9. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by the
Trustees of the Trust or by a vote of the shareholders of that Fund on sixty
(60) days' written notice to Manager.
10. This Contract may not be assigned by Manager and shall
automatically terminate in the event of any assignment. Manager may employ or
contract with such other person, persons, corporation, or corporations at its
own cost and expense as it shall determine in order to assist it in carrying out
this Contract.
<PAGE>
11. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the obligations or duties under this Contract on the
part of Manager, Manager shall not be liable to the Trust or to any of the Funds
or to any shareholder for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security.
12. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees who
are not parties to this Contract or interested persons of any such party to this
Contract (other than as Trustees of the Trust) cast in person at a meeting
called for that purpose, and where required by Section 15(a)(2) of the Act, on
behalf of a Fund by a majority of the outstanding voting securities of such Fund
as defined in Section 2(a)(42) of the Act.
13. The Manager acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Manager agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature, provided,
however, that nothing herein shall be construed so as to create any obligation
or duty on the part of the Manager to produce sales literature for the Trust (or
any Fund). The Trust agrees to cause its distributor to promptly review all such
sales literature to ensure compliance with relevant requirements, to promptly
advise Manager of any deficiencies contained in such sales literature, to
promptly file complying sales literature with the relevant authorities, and to
cause such sales literature to be distributed to prospective investors in the
Trust.
14. A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, or any of the officers,
employees, agents or shareholders of the Trust individually but are binding only
upon the assets and property of the Trust. Notice is also hereby given that the
obligations pursuant to this instrument of a particular Fund and of the Trust
with respect to that particular Fund shall be limited solely to the assets of
that particular Fund.
<PAGE>
15. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
16. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
<PAGE>
EXHIBIT A
to the
Management Contract
Blanchard Global Growth Fund
Blanchard Flexible Income Fund
Blanchard Short-Term Bond Fund
Blanchard Flexible Tax-Free Bond Fund
Blanchard Growth & Income Fund
For all services rendered by Manager hereunder, the above-named Funds
of the Trust shall pay to Manager and Manager agrees to accept as full
compensation for all services rendered hereunder, an annual management fee equal
to the following percentage ("the applicable percentage") of the average daily
net assets of each Fund
Name of Fund Percentage of Net Assets
Blanchard Global Growth Fund 1% of the first $150 million
of average daily net
assets, .875% of the
Fund's average daily
net assets in excess
of $150 million but
not exceeding $300
million and .75% of
the Fund's average
daily net assets in
excess of $300
million.
Blanchard Flexible Income Fund .75%
Blanchard Growth & Income Fund 1.10% of the Fund's average
daily net assets, .40% of
which, which would otherwise
be received by Manager and
paid to the Chase Manhattan
Bank, N.A. ("Chase") for
portfolio advisory services,
shall be paid to Chase
directly by the Fund under a
separate investment advisory
agreement between Chase and
the Fund.
Blanchard Short-Term Bond Fund .75%
Blanchard Flexible Tax-Free .75%
Bond Fund
<PAGE>
The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of the applicable percentage
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Manager daily except for
the Blanchard Growth & Income Fund which shall be paid to Manager monthly.
Witness the execution hereof this 28th day of November, 1997.
Attest: Virtus Capital Management, Inc.
________________________ By: ___________________________
Secretary Executive Vice President
Attest: Blanchard Funds
________________________ By: ____________________________
Assistant Secretary Vice President
<PAGE>
EXHIBIT B
to the
Management Contract
BLANCHARD GROWTH & INCOME FUND
The Trust shall pay to Manager, on behalf of the Fund, monthly
compensation at the annual rate of 1.10% of the Fund's average daily net assets,
.40% of which, which would otherwise be received by Manager and paid to The
Chase Manhattan Bank, N.A.("Chase") for portfolio advisory services, shall be
paid to Chase directly by the Growth & Income Portfolio, under a separate
investment advisory agreement between Chase and the Growth & Income Portfolio.
The portion of the fee based upon the average daily net assets of the
Funds shall be accrued daily at the rate of 1/365th of the applicable percentage
applied to the daily net assets of each Fund.
Witness the due execution hereof this 28th day of November, 1997.
Attest: Virtus Capital Management, Inc.
_____________________________ By:___________________________
Assistant Secretary Senior Vice President
Attest: Blanchard Funds
_____________________________ By:___________________________
Assistant Secretary Vice President
<PAGE>
EXHIBIT C
to the
Management Contract
Blanchard Asset Allocation Fund
For all services rendered by manager hereunder, the above-named Fund of
the Trust shall pay to Manager and Manager agrees to accept as full compensation
for all services rendered hereunder, an annual management fee equal to 1% of the
average daily net assets of the Fund.
The portion of the fee based upon the average net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1% applied to the daily net
assets of the Fund.
The management fee so accrued shall be paid to Manager monthly.
Witness the due execution hereof this November 28, 1997.
Attest: Virtus Capital Management, Inc.
________________________ By: ____________________________
Secretary Senior Vice President
Attest: Blanchard Fund
________________________ By: ____________________________
Assistant Secretary Vice President
<PAGE>
EXHIBIT C
INTERIM SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 28th day of November, 1997 by and between
VIRTUS CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"), and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and
trust company (the "Sub-Adviser" or "U.S. Trust") with respect to the following
recital of fact:
R E C I T A L
WHEREAS, Blanchard Funds (the "Trust") is registered as an open-end,
non-diversified, management investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations promulgated
thereunder; and
WHEREAS, the Sub-Adviser is a New York State chartered bank and trust
company and engages in the business of acting as an investment adviser; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
in separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust offers shares in one series called the Blanchard
Flexible Tax-Free Bond Fund (such series, being referred to as the "Fund"); and
WHEREAS, the Trust and the Manager have entered into an agreement of
even date herewith to provide for management services for the Fund on the terms
and conditions set forth therein (the "Interim Management Agreement"); and
WHEREAS, U.S. Trust proposes to render investment advisory services to
the Manager in connection with the Manager's responsibilities to the Fund's
portfolio on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Investment Management. U.S. Trust shall act as a Sub- Adviser for the
Fund and shall, in such capacity, supervise the investment and reinvestment of
the cash, securities or other properties comprising the Fund's portfolio,
subject at all times
<PAGE>
to the direction of the Manager and the policies and control of the Trust's
Board of Trustees. U.S. Trust shall give the Fund the benefit of its best
judgment, efforts and facilities in rendering its services as Sub-Adviser.
2. Investment Analysis and Implementation. In carrying out its obligation
under paragraph 1 hereof, the Sub-Adviser shall:
a. use the same skill and care in providing such service as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
b. obtain and evaluate pertinent information about significant
developments and economics, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund's portfolio and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which the issuers engage, or with respect to securities which the
Sub-Adviser considers desirable for inclusion in the Fund's portfolio;
c. determine which issuers and securities shall be represented in
the Fund's portfolio and regularly report thereon to the Trust's Board
of Trustees;
d. formulate and implement continuing programs for the purchases
and sales of the securities of such issuers and regularly report
thereon to the Trust's Board of Trustees;
e. be authorized to give instructions to the custodian and/or
sub-custodian of the Fund appointed by the Trust's Board of Trustees,
as to deliveries of securities, transfers of currencies and payments of
cash for the account of the Fund, in relation to the matters
contemplated by this Agreement; and
f. take, on behalf of the Fund, all actions which appear to
the Trust and the Manager necessary to carry into effect such purchase
and sale programs and supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of securities for the Fund
and the prompt reporting to the Manager of such purchases and sales.
3. Broker-Dealer Relationships. The Sub-Adviser is responsible for
decisions to buy and sell securities for the Fund's portfolio, broker-dealer
selection, and negotiation of brokerage commission rates. The Sub-Adviser's
primary
<PAGE>
consideration in effecting a security transaction will be execution at the most
favorable price. In selecting a broker-dealer to execute each particular
transaction, the Sub-Adviser will take the following into consideration: the
best net price available, the reliability, integrity and financial condition of
the broker-dealer; the size of and difficulty in executing the order; and the
value of the expected contribution of the broker-dealer to the investment
performance of the Fund on a continuing basis. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Trustees may determine, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's overall responsibilities with
respect to the Fund and to its other clients as to which it exercises investment
discretion. Subject to such policies as the Board of Trustees may determine, the
Sub-Adviser will purchase and sell foreign currency contracts and other
securities for the Fund. The Sub-Adviser is further authorized to allocate the
orders placed by it on behalf of the Fund to any affiliated broker-dealer of the
Fund or to such brokers and dealers who also provide research or statistical
material, or other services to the Fund, the Manager or the Sub-Adviser. Such
allocation shall be in such amounts and proportions as the Sub-Adviser shall
determine and the Sub-Adviser will report on said allocations regularly to the
Board of Trustees of the Trust indicating the brokers to whom such allocations
have been made and the basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by
the Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser on behalf of the Fund pursuant thereto, shall at
all times be subject to any directives of the Board of Trustees of the Trust.
The Manager shall provide the Sub-Adviser with written notice of all such
directives, so long as this Agreement remains in effect.
5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Sub-Adviser shall at all times conform to:
<PAGE>
a. all applicable provisions of the 1940 Act;
b. the provisions of the Registration Statement of
the Trust under the Securities Act of 1933 and the 1940 Act;
and
c. any other applicable provisions of state and
federal law.
6. Expenses. The Sub-Adviser shall maintain, at its expense and without
cost to the Manager or the Fund, a trading function in order to carry out its
obligations under subparagraph (f) of paragraph 2 hereof to place orders for the
purchase and sale of portfolio securities for the Fund.
7. Delegation of Responsibilities. Upon request of the Manager and with
the approval of the Trust's Board of Trustees, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement. Such
services will be performed on behalf of the Fund and the Sub-Adviser's cost in
rendering such services may be billed monthly to the Manager, subject to
examination by the Manager's independent accountants. Payment or assumption by
the Sub-Adviser of any Fund expense that the Sub-Adviser is not required to pay
or assume under this Agreement shall not relieve the Manager or the Sub-Adviser
of any of their obligations to the Fund or obligate the Sub-Adviser to pay or
assume any similar Fund expense on any subsequent occasions.
8. Compensation. For the services to be rendered and the facilities
furnished hereunder, the Manager shall pay the Sub- Adviser a monthly fee at the
annual rate of .20% of the Fund's average daily net assets. Compensation under
this Agreement shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly. The compensation paid to the Sub-Adviser
will not be reduced by the amount of brokerage commissions received by the
Sub-Adviser or its affiliated broker-dealer pursuant to Section 17(e)(2) of the
1940 Act. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Payment of the
Sub- Adviser's compensation for the preceding month shall be made as promptly as
possible after the end of each month.
9. Term. This Agreement shall become effective at the close of business
on the date hereof and shall remain in force and effect until the earlier of the
Closing Date defined in the Agreement and Plan of Reorganization dated November
26, 1997 with
<PAGE>
respect to the Fund or for an initial term of two years, and shall remain in
effect thereafter if approved in the manner set forth in Section 10 hereof.
10. Renewal. Following the expiration of its initial two year term,
this Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:
a. (i) by the Trust's Board of Trustees or (ii) by the vote of a
majority of the Fund's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
b. by the affirmative vote of a majority of the Trustees who
are not parties to this agreement or interested persons of a party to
this Agreement (other than as a Trustee of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Trust's Board of Trustees or by vote
of a majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Manager or the Sub-Adviser, on sixty (60)
days' written notice to the other party. This Agreement shall automatically
terminate: (a) in the event of its assignment, the term "assignment" having the
meaning defined in Section 2(a)(4) of the 1940 Act, or (b) in the event that the
Interim Management Agreement between the Fund and the Manager shall terminate.
12. Liability of the Sub-Adviser. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or its
officers, directors or employees, or reckless disregard by the Sub-Adviser of
its duties under this Agreement, the Sub-Adviser shall not be liable to the
Manager, the Trust or to any shareholder of the Trust for any act or omission in
the course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
13. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Manager
for this purpose shall be 707 East Main Street, Suite 1300, Richmond, Virginia
23219, that of the Trust for this purpose shall be Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779,
<PAGE>
and the address of the Sub-Adviser for this purpose shall be 114 West 47th
Street, New York, New York 10036.
14. Questions of Interpretation. Any questions of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
courts, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in a provision of this Agreement is
revised by rule, regulation or order of the Securities and Exchange Commission,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: UNITED STATES TRUST COMPANY
OF NEW YORK
By
Title: Title:
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
By
Title: Title: Senior Vice President
(logo) EVERGREEN
HIGH GRADE TAX FREE FUND
FUND-AT-A-GLANCE
As of May 31, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
One year with sales charge 1.90% 1.19% 7.25%
One year w/o sales charge 6.99% 6.19% 7.25%
One year dividends per share 50.2(cents) 42.1(cents) 52.0(cents)
30-day SEC Yield
(as of 5/31/97) 4.19% 3.63% 4.66%
<CAPTION>
AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Three years 5.11% 5.16% 7.10%
Five years 5.75% N/A N/A
Since Inception* 6.00% 5.13% 5.11%
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Nine months w/o sales charge 5.13% 4.55% 5.32%
Three years 16.13% 16.30% 22.83%
Five years 32.24% N/A N/A
Since Inception* 36.01% 24.55% 17.64%
</TABLE>
* CLASS A BEGAN 2/21/92; CLASS B BEGAN 1/11/93;
CLASS Y BEGAN 2/28/94
** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS MAY 31, 1997
<S> <C> <C> <C>
Total Net Assets (all classes) $102.1 million
Average Credit Quality AAA
Average Maturity 12.3 years
Average Duration 8.2 years
</TABLE>
PORTFOLIO COMPOSITION MAY 31, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(Pie chart appears here with the following plot points.)
Hospital 14.8%
Ports 9.4%
Industrial Development
(pollution control) 8.5%
Electric 8.0%
General Obligation
(schools) 8.8%
Water/Sewer 6.5%
Airport 6.2%
Industrial Development 5.3%
Housing 4.9%
Pre-refunded 4.6%
General Obligation
(municipalities) 3.8%
General Obligation 3.8%
Toll Roads 3.3%
Other 12.1%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen High Grade Tax Free Fund seeks income exempt from federal income taxes
while conserving capital. Income may be subject to local taxes and the Federal
Alternative Minimum Tax for certain investors.
STRATEGY
The Fund seeks its objective by investing in insured municipal securities and
municipal securities rated high grade by independent bond rating services. The
portfolio management team will, in seeking the Fund's objectives, buy and sell
securities to effect changes in portfolio maturities and to change allocations
among different sectors. Insured bonds are bonds insured as to timely payment of
principal and interest. The Fund itself is not insured, nor is the value of its
shares guaranteed. Insured bonds must be insured by a municipal bond insurance
company which is rated AAA by Standard & Poors Ratings Group (S&P) and/or Aaa by
Moody's Investors Service, Inc., (Moody's). Bonds that are considered high grade
are rated A or better by S&P or Moody's or, if unrated, are considered of
comparable quality as determined by the Fund's investment advisor.
PORTFOLIO MANAGEMENT TEAM
(Photo of James T. Colby, III, the Senior Portfolio Manager, is a Vice
James T. Colby, President and Senior Portfolio Manager of Evergreen Asset
III) Management. He also is Senior Portfolio Manager for Evergreen
U.S. Government Securities Fund and is co-manager of the
Evergreen Tax Strategic Foundation Fund. Prior to joining
Evergreen in 1992, Mr. Colby was Vice President and Senior
Portfolio Manager for $5 billion in tax-exempt holdings at
American Express. Mr. Colby also has served in portfolio
management capacities at Marinvest, a subsidiary of Marine
Midland Bank. He is a graduate of Brown University, and holds
an MBA from Hofstra University. In 1996, Mr. Colby was
Chairman of the Municipal Bond Buyers Conference.
2
<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
MANAGEMENT REPORT
July 1997
Dear Fellow Shareholders:
We are pleased to report on Evergreen High Grade Tax Free Fund for the fiscal
period that ended on May 31, 1997. You may recall that you recently received a
semiannual report for the six-month period that ended on February 28, 1997. We
have changed your Fund's fiscal year so it now will end each May 31. This is
part of an effort by Evergreen Keystone Funds to streamline, and increase the
efficiency of, fund administration. Funds with similar investment objectives, in
this case national tax free funds, are placed on the same fiscal year cycle.
Information about these funds will be presented in common annual and semi-annual
reports. The next report you will receive will be a semiannual report for the
period ending November 30, 1997. You should expect to receive it in January
1998.
PERFORMANCE
We believe your Fund performed well as a high quality municipal bond fund during
a period marked by short-term interest rate volatility. The charts and tables on
page 2 provide a comprehensive view of the performance for the fiscal period, as
well as since each class of shares began.
STRATEGY
Evergreen High Grade Tax Free Fund is managed with a long-term view, with the
goal of providing federally tax-free income from insured and high quality
municipal bonds while protecting principal. We do not structure the portfolio in
anticipation of short-term movements in interest rates, but try to employ
strategies that build value over time based on longer-term trends in the
municipal bond market. The nine-month period that ended on May 31 was a
generally favorable period for municipal bond investing. During this period, we
kept the maturities of bonds in the portfolio relatively consistent, with
average maturities remaining in the 12-to-16 year range, and average duration in
the 7-to-9-year range. This policy proved successful during a time when
long-term interest rates, despite some short-term volatility, remained in a
consistent trading range of 6 1/2% to 7%.
Your Fund is required to invest at least 65% of net assets in high grade
municipal bonds. In fact, the Fund held 87% of net assets in insured municipal
bonds, with 95% of net assets AAA-rated at the end of the period. The bonds are
insured for the timely payment of principal and interest. The value of insured
bonds can fluctuate. The Fund itself is not insured. The Fund does not search
for opportunities among bonds that are below investment grade.
Evergreen High Grade Tax Free Fund invests in different sectors of the market
based upon evolving trends. For example, two sectors-- the hospital/health care
and the electric utility sectors-- have experienced changes which affected
portfolio strategy recently. In the hospital sector, the process of
consolidation has left behind the weaker institutions which we have pointedly
avoided. We hold only the dominant regional facilities or those aligned with
strong national systems, which we believe have the strongest potential to
survive the new era of competition. Accordingly, we have increased the Fund's
allocation to 14.8% of the net assets. Conversely, the impact of deregulation
and competition upon municipal utilities is less clear and we have decreased the
Fund's allocation to this sector to 7.9%, though we will closely monitor
important legislation pending in states on the east and west coasts which may
soon set new strategic parameters for this sector. For comparison, three years
ago this Fund's relative weightings of these two sectors would have been
reversed.
OUTLOOK
Looking ahead, we continue to see a favorable investment environment for
municipal bonds. We anticipate long-term interest rates, as represented by the
benchmark 30-year U.S. Treasury Bond, to trade in the 6-to-7% range, with
relatively firm economic growth and stable inflation.
Within this environment, we will continue our strategy of seeking to provide as
reasonable a yield as is possible, without assuming significant market risks by
extending maturities. At the same time, we will continue to monitor changes in
the municipal bond industry and put in place further strategies that have the
potential to benefit from evolving trends.
Thank you for your support of the Evergreen High Grade Tax Free Fund.
Sincerely,
/s/ James T. Colby, III
JAMES T. COLBY, III
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
Evergreen Asset Management Corp.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
a Series of
BLANCHARD FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(800) 829-3863
By and In Exchange For Shares of
EVERGREEN HIGH GRADE TAX FREE FUND
a Series of
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Blanchard Flexible Tax-Free
Fund ("Tax-Free"), a series of Blanchard Funds, to Evergreen High Grade Tax Free
Fund ("Evergreen Tax Free"), in exchange for Class A shares of beneficial
interest, $.001 par value per share, of Evergreen Tax Free, consists of this
cover page and the following described documents, each of which is attached
hereto and incorporated by reference herein:
(1) The Statement of Additional Information of Evergreen Tax Free
dated September 3, 1997; (To be filed by amendment)
(2) The Statement of Additional Information of Tax-Free dated
August 31, 1997; (To be filed by amendment)
(3) Annual Report of Tax-Free for the year ended September 30,
1997; (To be filed by amendment)
(4) Annual Report of Evergreen Tax Free for the period ended May
31, 1997; (To be filed by amendment) and
(5) Pro-Forma Combining Financial Statements (unaudited) dated May
31, 1997.
This Statement of Additional Information, which is not a
prospectus, supplements, and should be read in conjunction with,
<PAGE>
the Prospectus/Proxy Statement of Evergreen Tax Free and Tax- Free dated January
5, 1998. A copy of the Prospectus/Proxy Statement may be obtained without charge
by calling or writing to Evergreen Tax Free or Tax-Free at the telephone numbers
or addresses set forth above.
The date of this Statement of Additional Information is January 5,
1998.
<PAGE>
<TABLE>
<CAPTION>
Evergreen High Grade Tax Free Fund
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
SCHEDULE OF INVESTMENTS (000's omitted)
May 31, 1997 Evergreen High Grade
Tax Free Bond Fund
------------------
Maturity Market
Long-Term Investments - 96.5% Coupon Date Principal Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Alaska - 0.8%
Valdez AK, Marine Terminal Revenue, Pipline Inc. Project, Series B 5.50% 10/1/28
Arizona - 1.7%
Maricopa Cnty. AZ, Creighton Elem. Sch. Dist. No. 14 Series C 1991 (FGIC) 6.50% 7/1/07 1,000 1,125
Salt River Project AZ, Agricultural Improvement, Series C 5.00% 1/1/13
California - 3.7%
California State Department Water Resources Central Valley Project 5.38% 12/1/27
East Bay California Municipal Utility Water Systems 5.00% 6/1/26
Redevelopment Agcy. of the City of San Jose, Tax Allocation Bonds,
Series 1993 (MBIA) 6.00% 8/1/15 2,000 2,145
San Mateo Cnty. Joint Powers Fin. Auth. Lease RB, 1993 Refunding
Series A, (MBIA) 6.50% 7/1/16 500 561
Colorado - 3.0%
Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Hwy RB
(E-470 Proj.) (MBIA) 6.15% 8/31/26 1,000 1,054
Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Sr. Current
Interest Bonds 7.00% 8/31/26 2,000 2,145
City & Cnty. of Denver GO Refunding Bonds, #1 School District,
Series 1994 A, (MBIA) 6.50% 6/1/10 500 560
Florida - 1.7%
Orange Cnty. FL, Hlth. Facs. Auth. Hosp. RB, Orlando Regional Healthcare
Sys., Series 1996C, (MBIA) 6.25% 10/1/16 1,000 1,090
St. Petersburg FL, Excise Tax Refunding 5.15% 10/1/13
Georgia - 4.3%
Atlanta GA, Metropolitan Rapid Transit Auth. Series A, (MBIA) 5.50% 7/1/17 1,000 999
City of Atlanta Airport Facs. RRB, Series 1994 A, (AMBAC) 6.50% 1/1/10 500 558
Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover
Series, Project 1, (AMBAC) 6.40% 1/1/13 1,000 1,102
Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover
Series, Project 1, (MBIA) 6.50% 1/1/17 2,400 2,695
Hawaii - 3.0%
Hawaii Arpt. Sys. RB, Second Series 1990, (FGIC) 7.50% 7/1/20 1,000 1,089
Hawaii State, GO Series CM, (FGIC) 6.00% 12/1/10 2,500 2,680
Idaho - 0.7%
Idaho Hsg. Agcy. Single Family Mortgage Bonds, 1994 Series C-1 Senior
Bonds & Mezzanine Bonds 6.30% 7/1/11 845 870
Illinois - 16.1%
City of Chicago GO, Current Interest Bonds, (Project Series 1995), (AMBAC) 6.13% 1/1/16 2,150 2,229
City of Chicago Water RRB, Series 1993, (FGIC) 6.50% 11/1/15 4,725 5,308
Cook Cnty. GO, Series B 5.38% 11/15/18
Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co.
Project Series 1991, (MBIA) 7.25% 6/1/11 2,000 2,182
Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project
Series 1994D, (AMBAC) 6.75% 3/1/15 3,000 3,293
Illinois Hlth. Facs. Auth. Hlth. Facs. RRB SSM Hlth. Care, Series
1992 AA, (MBIA) 6.50% 6/1/12 1,750 1,954
Illinois State Sales Tax Revenue 5.50% 6/15/20
Metropolitan Pier + Expo Auth. IL, McCormick Place Expn
Project Series A (AMBAC) 5.25% 6/15/27
Metropolitan Pier + Expo Auth. IL, McCormick Place Expn
Project,Series B, (MBIA) 0.00% 6/15/13 5,625 2,259
Indiana - 2.9%
Indiana Muni. Pwr. Agcy., Pwr. Supply Sys. RRB, 1993 Series B, (MBIA) 6.00% 1/1/13 1,000 1,064
Indiana Trans. Fin. Auth. Hwy. RB, Series 1992A, (MBIA) 6.80% 12/1/16 700 808
Marion Cnty. IN, Middle School First Mortgage Bonds, (MBIA) 6.88% 7/5/11 1,500 1,729
Louisiana - 1.1%
Orleans Parish LA, School Board RB, (MBIA) 9.05% 2/1/10 1,000 1,339
Massachusetts - 2.0%
Massachusetts GO, Series A, (AMBAC) 6.50% 11/1/14 1,000 1,120
Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RB, 1993 Series A, (AMBAC) 6.15% 10/1/15 500 508
Massachusetts State Water Resources Authority, Series B 5.00% 12/1/25
Maryland - 2.0%
Maryland State & Local Facs. GO, First Series 5.00% 3/1/10 2,500 2,456
Maine - 0.9%
Maine Turnpike Authority RB, Series 1994, (MBIA) 7.13% 7/1/08 1,000 1,171
Michigan - 1.5%
Michigan State Hospital Finance Authority Revenue, Henry Ford
Health, Series A 5.25% 11/15/25
Michigan State Trunk Line, Series A 5.50% 10/1/21
Minnesota - 0.4%
Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, 1994 Series H 6.70% 1/1/18 490 514
Nevada- 0.8%
Clark County, School District Building and Renovation Series B 5.25% 6/15/17
New Jersey - 0.8%
New Jersey State Transportation Trust Fund Authority,
Transportation Systems, Series B 5.25% 6/15/16
New Mexico - 0.8%
City of Albuquerque, Arpt. RB, Series 1995 A, (AMBAC) 6.35% 7/1/07 500 540
City of Albuquerque, Arpt. RB, Series 1995 B, (AMBAC) 7.00% 7/1/16 500 501
<CAPTION>
Blanchard Flexible Pro Forma
Tax Free Bond Fund Combined
------------------ ---------
Market Market
Long-Term Investments - 96.5 Principal Value Principal Value
-----------------------------------------------
<S> <C> <C> <C> <C>
Alaska - 0.8%
Valdez AZ, Marine Terminal Revenue, Pipline Inc. Project, Series B 1,000 944 1,000 944
-------------
Arizona - 1.7%
Maricopa Cnty. AZ, Creighton Elem. Sch. Dist. No. 14 Series C 1991 (FGIC) 1,000 1,125
Salt River Project AZ, Agricultural Improvement, Series C 1,000 961 1,000 961
-------------
2,086
-------------
California - 3.7%
California State Department Water Resources Central Valley Project 1,000 964 1,000 964
East Bay California Municipal Utility Water Systems 1,000 912 1,000 912
Redevelopment Agcy. of the City of San Jose, Tax Allocation Bonds,
Series 1993 (MBIA) 2,000 2,145
San Mateo Cnty. Joint Powers Fin. Auth. Lease RB, 1993 Refunding
Series A, (MBIA) 500 561
-------------
4,582
-------------
Colorado - 3.0%
Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Hwy RB
(E-470 Proj.) (MBIA) 1,000 1,054
Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Sr. Current
Interest Bonds 2,000 2,145
City & Cnty. of Denver GO Refunding Bonds, #1 School District,
Series 1994 A, (MBIA) 500 560
-------------
3,759
-------------
Florida - 1.7%
Orange Cnty. FL, Hlth. Facs. Auth. Hosp. RB, Orlando Regional Healthcare
Sys., Series 1996C, (MBIA) 1,000 1,090
St. Petersburg FL, Excise Tax Refunding 1,000 970 1,000 970
-------------
2,060
-------------
Georgia - 4.3%
Atlanta GA, Metropolitan Rapid Transit Auth. Series A, (MBIA) 1,000 999
City of Atlanta Airport Facs. RRB, Series 1994 A, (AMBAC) 500 558
Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover
Series, Project 1, (AMBAC) 1,000 1,102
Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover
Series, Project 1, (MBIA) 2,400 2,695
-------------
5,354
-------------
Hawaii - 3.0%
Hawaii Arpt. Sys. RB, Second Series 1990, (FGIC) 1,000 1,089
Hawaii State, GO Series CM, (FGIC) 2,500 2,680
-------------
3,769
-------------
Idaho - 0.7%
Idaho Hsg. Agcy. Single Family Mortgage Bonds, 1994 Series C-1 Senior
Bonds & Mezzanine Bonds 845 870
-------------
Illinois - 16.1%
City of Chicago GO, Current Interest Bonds, (Project Series 1995), (AMBAC) 2,150 2,229
City of Chicago Water RRB, Series 1993, (FGIC) 4,725 5,308
Cook Cnty. GO, Series B 1,000 961 1,000 961
Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co.
Project Series 1991, (MBIA) 2,000 2,182
Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project
Series 1994D, (AMBAC) 3,000 3,293
Illinois Hlth. Facs. Auth. Hlth. Facs. RRB SSM Hlth. Care, Series
1992 AA, (MBIA) 1,750 1,954
Illinois State Sales Tax Revenue 1,000 963 1,000 963
Metropolitan Pier + Expo IL, McCormick Place Expn Project Series A 1,000 938 1,000 938
Metropolitan Pier + Expo IL, McCormick Place Expn Project,Series B, (MBIA) 5,625 2,259
-------------
20,087
-------------
Indiana - 2.9%
Indiana Muni. Pwr. Agcy., Pwr. Supply Sys. RRB, 1993 Series B, (MBIA) 1,000 1,064
Indiana Trans. Fin. Auth. Hwy. RB, Series 1992A, (MBIA) 700 808
Marion Cnty. IN, Middle School First Mortgage Bonds, (MBIA) 1,500 1,729
-------------
3,601
-------------
Louisiana - 1.1%
Orleans Parish LA, School Board RB, (MBIA) 1,000 1,339
-------------
Massachusetts - 2.0%
Massachusetts GO, Series A, (AMBAC) 1,000 1,120
Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RB, 1993 Series A, (AMBAC) 500 508
Massachusetts State Water Resources Authority, Series B 1,000 905 1,000 905
-------------
2,533
-------------
Maryland - 2.0%
Maryland State & Local Facs. GO, First Series 2,500 2,456
-------------
Maine - 0.9%
Maine Turnpike Authority RB, Series 1994, (MBIA) 1,000 1,171
-------------
Michigan - 1.5%
Michigan State Hospital Finance Authority Revenue, Henry Ford
Health, Series A 1,000 938 1,000 938
Michigan State Trunk Line, Series A 1,000 965 1,000 965
-------------
1,903
-------------
Minnesota - 0.4%
Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, 1994 Series H 490 514
-------------
Nevada- 0.8%
Clark County, School District Building and Renovation Series B 1,000 957 1,000 957
-------------
New Jersey - 0.8%
New Jersey State Transportation Trust Fund Authority,
Transportation Systems, Series B 1,000 966 1,000 966
-------------
New Mexico - 0.8%
City of Albuquerque, Arpt. RB, Series 1995 A, (AMBAC) 500 540
City of Albuquerque, Arpt. RB, Series 1995 B, (AMBAC) 500 501
-------------
1,041
-------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
New York - 12.9%
Albany Cnty. Airport Auth. RB, (FSA) 5.25% 12/15/10 1,000 981
New York City Mun. Water Fin. Auth., Series B 5.50% 6/15/27
New York State Dormitory Authority Revenues,
Montefiore Medical Center 5.25% 2/1/15
New York State Medical Care Facilities, Hospital Insured
Mortgage, Series A 5.38% 2/15/25
New York State Hsg. Fin. Agcy. RB, Insured Multifamily Mortgage,
Series 1994 B, (AMBAC) 6.35% 8/15/23 1,500 1,539
New York State Local Government Assistance Corporation RB,
Series B (Prerefuned @ $102) 7.38% 4/1/01 2,590 2,895
New York State Local Government Assistance Corporation 5.50% 4/1/21
Port Auth. of NY & NJ, Consolidated 97th Series, (FGIC) 6.50% 7/15/19 500 530
Port Auth. of NY & NJ, Consolidated 104th Series 5.20% 7/15/21
Port Auth. of NY & NJ, Special Obligation, JFK International
Airport Terminal 6, (MBIA) 6.25% 12/1/10 5,000 5,454
North Dakota - 2.5%
Mercer Cnty. ND, Poll. Ctrl. RRB, Basin Elec. Pwr.
Cooperative-Antelope Valley Unit 1 & Common Facs.,
Second 1995 Series (AMBAC) 6.05% 1/1/19 3,000 3,108
Ohio - 2.7%
City of Toledo Hsg. Imp. Bonds, Macy's Proj., Series 1995A, (MBIA) 6.35% 12/1/25 1,500 1,581
Kings Cnty. OH Board of Education Sch. Imp. Bonds, Unltd.
Tax GO, Series 1995, (FGIC) 7.50% 12/1/16 1,000 1,254
Ohio Hsg. Fin. Agcy. Residential Mtge. RB 1995 Series A-2, 6.63% 3/1/26 475 490
South Carolina - 2.8%
South Carolina Port Auth. RB, Series 1991, (AMBAC) 6.63% 7/1/11 3,250 3,468
South Dakota - 3.5%
South Dakota Hlth. & Edl. Facs. Auth. RRB, St. Lukes
Midland Regional Medical Center, Series 1991, (MBIA) 6.63% 7/1/11 4,000 4,304
Tennessee - 2.6%
City of Bristol, Hlth & Edl. Facs. Hosp. RRB (Bristol Mem. Hosp.)
Series 1993, (FGIC) 6.75% 9/1/07 1,200 1,367
Cnty. of Knox TN, Hlth., Edl. & Hsg. Hosp. RRB, Fort Sanders
Alliance Obligated Group, Series 1993, (MBIA) 6.25% 1/1/13 1,700 1,843
Texas - 4.3%
City of Austin TX, Airport Sys. Prior Lien RB, Series 1995 A, (MBIA) 6.13% 11/15/25 1,500 1,533
City of Houston Water Conveyance Sys. Contract COP, Series 1993H, (AMBAC) 7.50% 12/15/14 1,000 1,221
Harris Cnty. TX, Toll Road RB, (Prefunded @ $53.836), (AMBAC) 0.00% 8/15/09 6,000 1,700
San Antonio TX, Electric & Gas Revenue, Series A 5.00% 2/1/14
Utah - 3.7%
Intermountain Power Agency Utah Power Supply Revenue 5.50% 7/1/20
Iron Cnty. UT, Board of Ed. Sch. Bldg. Bonds, Series 1994, (MBIA) 6.40% 1/15/12 2,500 2,675
Salt Lake City, Salt Lake Cnty. Arpt, RB Series 1993A, (FGIC) 6.00% 12/1/12 1,000 1,031
Virginia - 1.8%
Hanover VA, IDA Hosp. RB, Mem. Regional Med. Center Proj.
Series 1995, (MBIA) 6.38% 8/15/18 2,000 2,196
Washington - 2.9%
Port of Seattle WA Revenue, Series A 5.50% 10/1/22
Tacoma WA, Electric Sys. RRB, Series 1994, (FGIC) 6.25% 1/1/15 2,500 2,620
West Virginia - 0.4%
West Virginia Hsg. Dev. Fund Hsg. Fin. Series A 6.05% 5/1/27 500 502
Wisconsin - 6.7%
Superior WI, RRB, Midwest Energy Res. Co. Project,
Series E-1991, (FGIC) 6.90% 8/1/21 4,500 5,276
Wisconsin Hlth. & Edl. Facs. Auth. RB, Wausau Hosps., Inc.
Project Series 1991B, (AMBAC) 6.63% 8/15/11 2,000 2,143
Wisconsin State Transportation Revenue, Series B 5.50% 7/1/22
Puetro Rico - 1.7%
Commonwealth of Puerto Rico, Elec. Pwr. Auth. RB Series B, (MBIA) 6.25% 7/1/10 1,000 1,101
Commonwealth of Puerto Rico, Elec. Pwr. Auth. RRB Series Y, (MBIA) 6.50% 7/1/06 500 558
Commonwealth of Puerto Rico, Hsg. Bank & Fin. Agcy. RB,
(Collateralized by GNMA, FNMA & FHLMC Certificates) 6.10% 10/1/15 500 506
--------------
Total Long Term Investments - (cost $115,526) 99,524
--------------
Short Term Investments - 0.7%
Phenix Cnty. AL, RB, Mead Coated Board, Project B, VRDN 4.15% 10/1/25 100 100
Kansas City Kansas Industrial Revenue, PQ Corportation Project, VRDN 4.10% 8/15/01 800 800
--------------
Total Short Term Investments - (cost $900) 900
--------------
Mutual Fund Shares - 0.7% Shares
------
Federated Tax Free Obligations Fund 167 167
Dreyfus Tax Exempt Cash Management
--------------
Total Mutual Fund Shares - (cost $902) 167
--------------
Total Investments - (cost $117,328) 98.0% 100,591
Other Assets and Liabilities (net) 2.0 1,538
---------- --------------
Total Net Assets 100.0% $102,129
========== ==============
<CAPTION>
<S> <C> <C> <C> <C>
New York - 12.9%
Albany Cnty. Airport Auth. RB, (FSA) 1,000 981
New York City Mun. Water Fin. Auth., Series B 1,000 971 1,000 971
New York State Dormitory Authority Revenues,
Montefiore Medical Center 1,000 963 1,000 963
New York State Medical Care Facilities, Hospital Insured
Mortgage, Series A 1,000 956 1,000 956
New York State Hsg. Fin. Agcy. RB, Insured Multifamily Mortgage,
Series 1994 B, (AMBAC) 1,500 1,539
New York State Local Government Assistance Corporation RB,
Series B (Prerefuned @ $102) 2,590 2,895
New York State Local Government Assistance Corporation 1,000 965 1,000 965
Port Auth. of NY & NJ, Consolidated 97th Series, (FGIC) 500 530
Port Auth. of NY & NJ, Consolidated 104th Series 1,000 950 1,000 950
Port Auth. of NY & NJ, Special Obligation, JFK International
Airport Terminal 6, (MBIA) 5,000 5,454
------------
16,204
------------
North Dakota - 2.5%
Mercer Cnty. ND, Poll. Ctrl. RRB, Basin Elec. Pwr.
Cooperative-Antelope Valley Unit 1 & Common Facs.,
Second 1995 Ser, (AMBAC) 3,000 3,108
------------
Ohio - 2.7%
City of Toledo Hsg. Imp. Bonds, Macy's Proj., Series 1995A, (MBIA) 1,500 1,581
Kings Cnty. OH Board of Education Sch. Imp. Bonds, Unltd.
Tax GO, Series 1995, (FGIC) 1,000 1,254
Ohio Hsg. Fin. Agcy. Residential Mtge. RB 1995 Series A-2, 475 490
------------
3,325
------------
South Carolina - 2.8%
South Carolina Port Auth. RB, Series 1991, (AMBAC) 3,250 3,468
------------
South Dakota - 3.5%
South Dakota Hlth. & Edl. Facs. Auth. RRB, St. Lukes
Midland Regional Medical Center, Series 1991, (MBIA) 4,000 4,304
------------
Tennessee - 2.6%
City of Bristol, Hlth & Edl. Facs. Hosp. RRB (Bristol Mem. Hosp.)
Series 1993, (FGIC) 1,200 1,367
Cnty. of Knox TN, Hlth., Edl. & Hsg. Hosp. RRB, Fort Sanders
Alliance Obligated Group, Series 1993, (MBIA) 1,700 1,843
------------
3,210
------------
Texas - 4.3%
City of Austin TX, Airport Sys. Prior Lien RB, Series 1995 A, (MBIA) 1,500 1,533
City of Houston Water Conveyance Sys. Contract COP, Series 1993H, (AMBAC 1,000 1,221
Harris Cnty. TX, Toll Road RB, (Prefunded @ $53.836), (AMBAC) 6,000 1,700
San Antonio TX, Electric & Gas Revenue, Series A 1,000 944 1,000 944
------------
5,398
------------
Utah - 3.7%
Intermountain Power Agency Utah Power Supply Revenue 1,000 953 1,000 953
Iron Cnty. UT, Board of Ed. Sch. Bldg. Bonds, Series 1994, (MBIA) 2,500 2,675
Salt Lake City, Salt Lake Cnty. Arpt, RB Series 1993A, (FGIC) 1,000 1,031
------------
4,659
------------
Virginia - 1.8%
Hanover VA, IDA Hosp. RB, Mem. Regional Med. Center Proj.
Series 1995, (MBIA) 2,000 2,196
------------
Washington - 2.9%
Port of Seattle WA Revenue, Series A 1,000 975 1,000 975
Tacoma WA, Electric Sys. RRB, Series 1994, (FGIC) 2,500 2,620
------------
3,595
------------
West Virginia - 0.4%
West Virginia Hsg. Dev. Fund Hsg. Fin. Series A 500 502
------------
Wisconsin - 6.7%
Superior WI, RRB, Midwest Energy Res. Co. Project,
Series E-1991, (FGIC) 4,500 5,276
Wisconsin Hlth. & Edl. Facs. Auth. RB, Wausau Hosps., Inc.
Project Series 1991B, (AMBAC) 2,000 2,143
Wisconsin State Transportation Revenue, Series B 1,000 973 1,000 973
------------
8,392
------------
Puetro Rico - 1.7%
Commonwealth of Puerto Rico, Elec. Pwr. Auth. RB Series B, (MBIA) 1,000 1,101
Commonwealth of Puerto Rico, Elec. Pwr. Auth. RRB Series Y, (MBIA) 500 558
Commonwealth of Puerto Rico, Hsg. Bank & Fin. Agcy. RB,
(Collateralized by GNMA, FNMA & FHLMC Certificates) 500 506
------------
2,165
------------ ------------
Total Long Term Investments - (cost $115,526) 20,994 120,518
------------ ------------
Short Term Investments - 0.7%
Phenix Cnty. AL, RB, Mead Coated Board, Project B, VRDN 100 100
Kansas City Kansas Industrial Revenue, PQ Corportation Project, VRDN 800 800
------------
Total Short Term Investments - (cost $900) 900
------------
Mutual Fund Shares - 0.7% Shares Shares
------ -----------
Federated Tax Free Obligations Fund 167 167
Dreyfus Tax Exempt Cash Management 735 735 735 735
------------ ------------
Total Mutual Fund Shares - (cost $902) 735 902
------------ ------------
Total Investments - (cost $117,328) 21,729 122,320
Other Assets and Liabilities (net) 260 1,798
------------ ------------
Total Net Assets $21,989 $124,118
============ ============
</TABLE>
Summary of Abbreviations
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Corp.
FHLMC- Federal Home Mortgage Corp.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Corp.
GNMA - Government National Mortgage Association
GO - General Obligation Bonds
IDA - Industrial Development Authority
MBIA - Municipal Bond Investors Assurance Corp.
RB - Revenue Bond
RRB - Revenue Refunding Bond
VRDN - Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar day's 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 depending on the terms of the security. The interest
rates presented for these securities are those in effect at May 31, 1997.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen High Grade Tax Free Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities (000's)
May 31, 1997
<TABLE>
<CAPTION>
Evergreen Blanchard
High Grade Tax Flexible Tax-Free Pro Forma
Free Fund Bond Fund Adjustments Combined
------------------------------------------------------ --------------
Assets
<S> <C> <C> <C> <C>
Investments at value (cost $117,327) $100,591 $21,729 $122,320
Cash 0 3 3
Interest receivable 1,898 370 2,268
Receivable for Fund shares sold 107 30 137
Prepaid expenses and other assets 27 24 51
----------------------------------------------------------------------
Total Assets 102,623 22,156 124,779
Liabilities
Dividends payable 141 109 250
Payable for Fund shares redeemed 228 14 242
Due to related parties 19 18 37
Distribution fee payable 53 0 53
Due to custodian 18 0 18
Accrued expenses and other liabilities 34 26 60
----------------------------------------------------------------------
Total Liabilities 493 167 660
Net Assets $102,130 $21,989 $124,119
======================================================================
Net assets are comprised of:
Paid-in capital $99,067 $21,732 $120,799
Undistributed net investment income (accumulated
distributions in excess of investment income) 125 (21) 104
Accumulated net realized loss on investments (1,265) (512) (1,777)
Net unrealized appreciation on investments 4,203 790 4,993
----------------------------------------------------------------------
Net Assets $102,130 $21,989 $124,119
======================================================================
Class A Shares
Net Assets $45,815 $21,989 $67,804
Shares of Beneficial Interest Outstanding 4,207 4,075 (2,054) 6,228
Net Asset Value $10.89 $5.40 $10.89
Maximum Offering Price (4.75%) $11.43 $11.43
Class B Shares
Net Assets $31,874 $31,874
Shares of Beneficial Interest Outstanding 2,927 2,927
Net Asset Value $10.89 $10.89
Class Y Shares
Net Assets $24,441 $24,441
Shares of Beneficial Interest Outstanding 2,245 2,245
Net Asset Value $10.89 $10.89
</TABLE>
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen High Grade Tax Free Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations (000's)
Year ended May 31, 1997
<TABLE>
<CAPTION>
Evergreen Blanchard
High Grade Tax Flexible Tax-Free Pro Forma
Free Fund Bond Fund Adjustments Combined
------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
Investment Income
Interest income $6,010 $1,250 $7,260
Expenses
Advisory fee 533 168 (57)a 644
Distribution fee 445 56 501
Administrative services fees 47 43 (33)b 57
Transfer agent fee 79 36 (16)c 99
Custodian fee 86 68 (50)b 104
Reports and notices to shareholders 46 25 (16)c 55
Registration and filing fees 67 14 (14)c 67
Professional fees 28 28 (28)c 28
Trustees' fees and expenses 5 3 (2)b 6
Other 26 24 (18)b 32
---------------------------------------------------------------------
Total Expenses 1,362 465 (234) 1,593
Less: Fee waivers and/or reimbursements (116) (240) 236 (120)
---------------------------------------------------------------------
Net expenses 1,246 225 2 1,473
---------------------------------------------------------------------
Net investment income 4,764 1,025 (2) 5,787
Net realized and unrealized gain on investments:
Net realized gain on investments 1,145 198 1,343
Net change in unrealized appreciation
(depreciation) on investments 438 700 1,138
---------------------------------------------------------------------
Net realized and unrealized gain on investments 1,583 898 2,481
Net increase in net assets resulting from operations $6,347 $1,923 (2) $8,268
=====================================================================
</TABLE>
a Reflects a decrease based on the surviving fund's fee schedule.
b Reflects an increase (decrease) based on the combined assets of the funds.
c Reflects expected cost saving from combining the two funds.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen High Grade Tax Free Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
May 31, 1997
1. Basis of Combination - The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Schedule of Investments, and the related
Pro Forma Combining Statement of Operations ("Pro Forma Statements") reflect the
accounts of Evergreen High Grade Tax Free Fund ("Evergreen") and Blanchard
Flexible Tax-Free Bond Fund ("Blanchard") at May 31, 1997 and for the year then
ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of
Blanchard. The Reorganization provides for the acquisition of all assets and
liabilities of Blanchard by Evergreen, in exchange for Class A shares of
Evergreen. Thereafter, there will be a distribution of Class A shares of
Evergreen to shareholders of Blanchard in liquidation and subsequent termination
thereof. As a result of the Reorganization, the shareholders of Blanchard will
become the owners of that number of full and fractional Class A shares of
Evergreen having an aggregate net asset value equal to the aggregate net asset
value of their shares of Blanchard as of the close of business immediately prior
to the date that Blanchard assets are exchanged for Class A shares of Evergreen.
The Pro Forma Statements reflect the expenses of each Fund in carrying out its
obligations under the Reorganization as though the merger occurred at the
beginning of the period presented.
The information contained herein is based on the experience of each Fund for the
year ended May 31, 1997 and is designed to permit shareholders of the
combining mutual funds to evaluate the financial effect of the proposed
Reorganization. The expenses of Blanchard in connection with the Reorganization
(including the cost of any proxy soliciting agents) will be borne by First Union
National Bank of North Carolina.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statement of
Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of Class A shares of Evergreen which would have been issued
at May 31, 1997 in connection with the proposed Reorganization. Shareholders of
Blanchard would receive Class A shares of Evergreen based on a conversion ratio
determined on May 31, 1997. The conversion ratio is calculated by dividing the
net asset value of Blanchard by the net asset value per share of the Class A
shares of Evergreen.
3. Pro Forma Operations - The Pro Forma Combining Statement of Operations
assumes similar rates of gross investment income for the investments of each
Fund. Accordingly, the combined gross investment income is equal to the sum of
the Funds' gross investment income. Pro Forma operating expenses include the
actual expenses of the Funds adjusted to reflect the expected expenses of the
combined entity. The investment advisory and distribution fees have been
charged to the combined Fund based on the fee schedule in effect for Evergreen
at the combined level of average net assets for the year ended May 31 , 1997.
<PAGE>
EVERGREEN INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Pre- Effective Amendment
No. 1 to Evergreen Municipal Trust's Registration Statement on Form N-1A filed
on October 8, 1997 - Registration No. 333-36033 ("Form N-1A Registration
Statement").
2. Bylaws. Incorporated by reference to Pre-Effective Amendment No. 1 to the
Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Trust of Evergreen Municipal Trust Articles II., III.(6)(c),
IV.(3), IV.(8), V., VI., VII. and VIII.
and By-Laws Articles II., III and VIII.
6(a). Form of Investment Advisory Agreement between the Capital Management Group
of First Union National Bank and Evergreen Municipal Trust. Incorporated by
reference to Pre- Effective Amendment No. 2 to the Form N-1A Registration
Statement.
6(b). Form of Interim Management Contract. Exhibit B to Prospectus contained in
Part A of this Registration Statement.
6(c). Form of Interim Sub-Advisory Agreement. Exhibit C to Prospectus contained
in Part A of this Registration Statement.
7(a). Principal Underwriting Agreement between Evergreen Distributor, Inc. and
Evergreen Municipal Trust. Incorporated by reference to Pre-Effective Amendment
No. 2 to the Form N-1A Registration Statement.
<PAGE>
7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used by
Evergreen Distributor, Inc. Incorporated by reference to Pre-Effective Amendment
No. 2 to the Form N-1A Registration Statement.
8. Deferred Compensation Plan. Incorporated by reference to Pre-Effective
Amendment No. 2 to the Form N-1A Registration Statement.
9. Custody Agreement between State Street Bank and Trust Company and Evergreen
Municipal Trust. Incorporated by reference to Pre-Effective Amendment No. 2 to
the Form N-1A Registration Statement.
10(a). Rule 12b-1 Distribution Plan. Incorporated by reference to Pre-Effective
Amendment No. 2 to the Form N-1A Registration Statement.
10(b). Multiple Class Plan. Incorporated by reference to Pre- Effective
Amendment No. 2 to the Form N-1A Registration Statement.
11. Opinion and consent of Sullivan & Worcester LLP. To be filed by amendment.
12. Tax opinion and consent of Sullivan & Worcester LLP. To be filed by
amendment.
13. Not applicable.
14(a). Consent of Price Waterhouse LLP. Filed herewith.
14(b). Consent of Deloitte & Touche LLP. To be filed by amendment.
15. Not applicable.
16. Powers of Attorney. Filed herewith.
17(a). Form of Proxy Card. Filed herewith.
17(b). Registrant's Rule 24f-2 Declaration. Incorporated by reference to
Registrant's Form N-1A Registration Statement filed on November 13, 1984 -
Registration No. 2-94560.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of
<PAGE>
a prospectus that is a part of this Registration Statement by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, an opinion of counsel or copy of an Internal Revenue Service ruling
supporting the tax consequences of the proposed Reorganization within a
reasonable time after receipt of such opinion or ruling.
<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 2nd day of December, 1997.
EVERGREEN INVESTMENT TRUST
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities indicated on the 2nd day of
December, 1997.
Signatures Title
- ---------- -----
/s/John J. Pileggi President and
- ------------------ Treasurer
John J. Pileggi
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
/s/Thomas L. McVerry* Trustee
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
* By: /s/Martin J. Wolin
------------------
Martin J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and included as Exhibit 16 to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
14(a) Consent of Price Waterhouse LLP
16 Powers of Attorney
17(a) Form of Proxy
- --------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus/Proxy
Statement (the "Prospectus/Proxy") constituting part of this Registration
Statement on Form N-14 (the "Registration Statement") of Evergreen Investment
Trust of our report dated July 8, 1997, related to the financial statements and
financial highlights appearing in the May 31, 1997 Annual Report to Shareholders
of Evergreen High Grade Tax Free Fund which is also incorporated by reference
into the Registration Statement.
We also consent to the reference to our firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy and to the reference to our Firm
under the headings "Financial Highlights" in the prospectus and "Independent
Auditors" and "Financial Statements", in the Statement of Additional
Information, both dated September 3, 1997, for Evergreen High Grade Tax Free
Fund, which are also incorporated by reference into the Prospectus/Proxy.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
December 4, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Laurence B. Ashkin Director/Trustee
- ---------------------
Laurence B. Ashkin
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Charles A. Austin, III Director/Trustee
- -------------------------
Charles A. Austin, III
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/K. Dun Gifford Director/Trustee
- -----------------
K. Dun Gifford
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/James S. Howell Director/Trustee
- ------------------
James S. Howell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Leroy Keith, Jr. Director/Trustee
- -------------------
Leroy Keith, Jr.
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Gerald M. McDonnell Director/Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Thomas L. McVerry Director/Trustee
- --------------------
Thomas L. McVerry
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/William Walt Pettit Director/Trustee
- ----------------------
William Walt Pettit
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/David M. Richardson Director/Trustee
- ----------------------
David M. Richardson
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Russell A. Salton, III MD Director/Trustee
- ----------------------------
Russell A. Salton, III MD
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Michael S. Scofield Director/Trustee
- ----------------------
Michael S. Scofield
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Richard J. Shima Director/Trustee
- -------------------
Richard J. Shima
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
The undersigned, revoking all Proxies heretofore given, hereby appoints
, and or any of them as Proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all shares of Blanchard
Flexible Tax-Free Bond Fund ("Tax-Free") that the undersigned is entitled to
vote at the special meeting of shareholders of Tax-Free to be held at 2:00 p.m.
on Friday, February 20, 1998 at the offices of the Evergreen Funds, 200 Berkeley
Street, Boston, Massachusetts 02116, and at any adjournments thereof, as fully
as the undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
THIS PROXY. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a
minor, please give your full title. When signing on
behalf of a corporation or as a partner for a
partnership, please give the full corporate or
partnership name and your title, if any.
Date , 199
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF BLANCHARD
FUNDS. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO
BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY WILL BE VOTED
AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE BOARD OF
TRUSTEES OF BLANCHARD FUNDS RECOMMENDS A VOTE FOR THE PROPOSALS. PLEASE MARK
YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
High Grade Tax Free Fund, a series of Evergreen Municipal Trust, will (i)
acquire all of the assets of Tax-Free in exchange for shares of Evergreen High
Grade Tax Free Fund; and (ii) assume certain identified liabilities of Tax-Free,
as substantially described in the accompanying Prospectus/Proxy Statement.
- ---- FOR ---- AGAINST ---- ABSTAIN
2. To approve the proposed Interim Management Contract with Virtus
Capital Management, Inc.
- ---- FOR ---- AGAINST ---- ABSTAIN
3. To approve the proposed Interim Sub-Advisory Agreement between Virtus
Capital Management, Inc. and United States Trust Company of New York.
- ---- FOR ---- AGAINST ---- ABSTAIN
4. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
<PAGE>
