UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [X] Post-Effective
Amendment No. Amendment No. 1
EVERGREEN MONEY MARKET TRUST
(Exact name of registrant as specified in charter)
Area Code and Telephone Number: (914) 694-2020
2500 Westchester Avenue
Purchase, New York 10577
(Address of principal executive offices)
James P. Wallin, Esq.
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
(Name and address of agent for service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursunt to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act
of 1940 (File No. 33-16706); accordingly, no fee is payable herewith.
Pursuant to Rule 429 under the Securities Act of 1933, this Registration
Statement relates to the aforementioned registration on Form N-1A. A Rule 24f-2
Notice for the Registrant's most recent fiscal year ended August 31, 1996 was
filed with the Commission on or about October 31, 1996.
<PAGE>
EVERGREEN MONEY MARKET TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Statement Cross Reference Sheet; Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis Information and Comparison of Fees and Expenses;
Risk Factors Risks
4. Information About the Transaction Summary; Reasons for the
Reorganization; Comparative
Information on Shareholders' Rights;
Exhibit A (Agreement and Plan of
Reorganization)
5. Information about the Registrant Cover Page; Summary; Comparison of
Investment Objectives and Policies;
Comparative Information on
Shareholders' Rights; Additional
Information
6. Information about the Company Cover Page; Summary; Comparison of
Being Acquired Investment Objectives and Policies;
Comparative Information on
Shareholders' Rights; Additional
Information
7. Voting Information Cover Page; Summary; Voting
Information Concerning the Meeting
8. Interest of Certain Persons Financial Statements and Experts;
and Experts Legal Matters
9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of the Evergreen Money Market Fund
dated October 31, 1996, as Amended
May 20, 1997
<PAGE>
13. Additional Information about Statement of Additional Information
the Company Being Acquired of Keystone Liquid Trust dated
October 31, 1996, as Supplemented
January 1, 1997
14. Financial Statements Financial Statements dated
August 31, 1996 and February 28, 1997
of Evergreen Money Market Fund
Financial Statements dated
June 30, 1996 and December 31, 1996
of Keystone Liquid Trust
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part A
Caption - "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
(EVERGREEN KEYSTONE
LOGO FUNDS LOGO)
May 20, 1997
Dear Shareholder:
We are pleased to announce that the combination of the Evergreen Keystone
organization is well underway, and with the combined power of Evergreen Keystone
we will be able to bring our investment and service capabilities to a new level.
One of the areas we are focusing on is merging funds with similar objectives to
maximize the potential for lower overall expenses and greater operating
efficiencies.
The enclosed Prospectus/Proxy Statement contains a proposal to combine the
Keystone Liquid Trust with the Evergreen Money Market Fund, a separate series of
the Evergreen Money Market Trust. This proposal is scheduled to be voted on at a
special meeting of shareholders of the Keystone Liquid Trust on July 14, 1997.
The reorganization has been structured as a tax-free transaction for
shareholders. We believe it will result in one combined fund with greater
efficiencies than two separate funds. This reorganization is not expected to
affect the total value of your investment.
SUMMARY OF BENEFITS
(Bullet) Potential for greater operating efficiencies
(Bullet) Eliminate redundancies in fund offerings
The Fund's Trustees have very carefully reviewed this proposed
reorganization and believe it is in the best interests of shareholders. They
recommend you vote FOR the proposal, which is described in detail in the
attached Prospectus/Proxy Statement.
VOTING INSTRUCTIONS
This package contains the materials you will need to vote. To vote, please
sign the attached proxy card and return it today in the postage-paid envelope.
It is extremely important that you vote, no matter how many shares you own. This
is an opportunity to voice your opinion on an important matter affecting your
investment.
If you have any questions regarding the proposed transaction or if you
would like additional information about the Evergreen Keystone family of mutual
funds, please telephone your financial adviser or Evergreen Keystone at
1-800-343-2898.
Sincerely,
<TABLE>
<S> <C>
/s/ Albert H. Elfner, III /s/ George S. Bissell
Albert H. Elfner, III George S. Bissell
CHAIRMAN CHAIRMAN OF THE BOARD
Keystone Investment Management Company Keystone Funds
</TABLE>
<PAGE>
KEYSTONE LIQUID TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Meeting") of
Shareholders of Keystone Liquid Trust will be held at the offices of the Fund,
200 Berkeley Street, Boston, Massachusetts on Friday, July 14, 1997 at 3:00
p.m., Eastern time, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization (the
"Plan"), providing for Evergreen Money Market Fund to acquire all of the
assets of the Keystone Liquid Trust in exchange for shares of the
Evergreen Money Market Fund, and for Evergreen Money Market Fund to
assume certain identified liabilities of Keystone Liquid Trust. The Plan
also provides for Evergreen Money Market Fund to distribute its shares
to shareholders of the Keystone Liquid Trust in liquidation and
subsequent termination of the Keystone Liquid Trust. A vote in favor of
the Plan is a vote in favor of the liquidation and dissolution of the
Keystone Liquid Trust.
2. To transact any other business which may properly come before the
Meeting or any adjournment thereof.
The Trustees of Keystone Liquid Trust have fixed the close of business on
May 16, 1997 as the record date for the determination of shareholders of the
Keystone Liquid Trust 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 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
GEORGE O. MARTINEZ
SECRETARY
May 20, 1997
<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:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
<S> <C>
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 John B. Smith, Jr., Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 20, 1997
ACQUISITION OF ASSETS OF
KEYSTONE LIQUID TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
BY AND IN EXCHANGE FOR SHARES OF
EVERGREEN MONEY MARKET FUND
A SERIES OF
EVERGREEN MONEY MARKET TRUST
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
This Prospectus/Proxy Statement is being furnished to shareholders of
Keystone Liquid Trust ("KLT") in connection with a proposed Agreement and Plan
of Reorganization (the "Plan") to be submitted to shareholders of KLT for
consideration at a special meeting of shareholders to be held on July 14, 1997,
at 3:00 p.m. at the offices of the Fund, 200 Berkeley Street, Boston,
Massachusetts, and any adjournments thereof (the "Meeting"). The Plan provides
for Evergreen Money Market Fund ("EMMF") to acquire all of the assets of KLT in
exchange for shares of EMMF and for EMMF to assume certain identified
liabilities of KLT (the "Reorganization"). (KLT and EMMF each may also be
referred to in this Prospectus/Proxy Statement as a "Fund" and together, as the
"Funds"). Following the Reorganization, EMMF will distribute its shares to
shareholders of KLT in liquidation of KLT and KLT will be terminated. KLT's
shareholders will receive shares of the class of EMMF (the "Corresponding
Shares") having the same letter designation and substantially the same
distribution-related fees, shareholder servicing-related fees and contingent
deferred sales charges ("CDSCs"), if any, as the shares of the class of KLT held
by them prior to the Reorganization. As a result of the proposed Reorganization,
shareholders of KLT will receive that number of full and fractional
Corresponding Shares having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares of KLT. The Reorganization is being
structured as a tax-free reorganization for federal income tax purposes.
EMMF is a separate series of Evergreen Money Market Trust, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). EMMF seeks to achieve as high a current level
of current income as is consistent with preserving capital and providing
liquidity.
This Prospectus/Proxy Statement, which shareholders should retain for
future reference, sets forth concisely the information about EMMF that
shareholders of KLT should know before voting on the Reorganization. This
Prospectus/Proxy Statement incorporates by reference a Statement of Additional
Information dated May 20, 1997, which has been filed with the Securities and
Exchange Commission ("SEC"), that also relates to the Reorganization. The
Statement of Additional Information is comprised of certain documents, including
the financial statements of EMMF dated August 31, 1996, and February 28, 1997,
and the financial statements of KLT dated June 30, 1996, and December 31, 1996.
Shareholders may obtain, without charge, a copy of the Statement of Additional
Information relating to this Prospectus/Proxy Statement by writing to EMMF at
2500 Westchester Avenue, Purchase, New York 10577 or by calling toll-free
1-800-343-2898.
The Prospectus of EMMF relating to Class A, Class B and Class C shares
dated October 31, 1996, as amended May 20, 1997, is incorporated herein by
reference, insofar as it relates to EMMF only, and not to any other fund
described therein. Shareholders of KLT will receive a copy of EMMF's Prospectus
elating to the class of shares they will receive in the Reorganization with this
Prospectus/Proxy Statement. Shareholders can find additional information about
EMMF in its Statement of Additional Information of the same date, which is
available upon request and without charge by writing or calling to EMMF at the
address or telephone number listed in the preceding paragraph. EMMF has filed a
copy of its Statement of Additional Information with the SEC.
The Prospectus of KLT dated October 31, 1996, as supplemented January 1,
1997, is incorporated herein by reference. Shareholders may obtain copies of the
Prospectus and a Statement of Additional Information dated the same date,
without charge, by writing to KLT at 200 Berkeley Street, Boston, Massachusetts
02116 or by calling toll-free 1-800-343-2898.
Included as Exhibit A of this Prospectus/Proxy Statement is a copy of the
Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF FIRST UNION CORPORATION OR ANY OF ITS SUBSIDIARIES, ARE NOT
ENDORSED OR GUARANTEED BY FIRST UNION CORPORATION, OR ANY OF ITS SUBSIDIARIES,
AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
COMPARISON OF FEES AND EXPENSES......................................... 4
SUMMARY................................................................. 5
Proposed Plan of Reorganization....................................... 5
Tax Consequences...................................................... 6
Investment Objectives and Policies of EMMF and KLT.................... 6
Comparative Performance Information of Each Fund...................... 6
Management of the Funds............................................... 7
Investment Advisers and Sub-Adviser................................... 7
Distribution of Shares................................................ 7
Purchase and Redemption Procedures.................................... 8
Exchange Privileges................................................... 8
Dividend Policy....................................................... 9
RISKS................................................................... 9
REASONS FOR THE REORGANIZATION.......................................... 9
Agreement and Plan of Reorganization.................................. 10
Federal Income Tax Consequences....................................... 11
Pro forma Capitalization.............................................. 12
Shareholder Information............................................... 12
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................ 14
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS......................... 15
Form of Organization.................................................. 15
Capitalization........................................................ 15
Shareholder Liability................................................. 15
Shareholder Meetings and Voting Rights................................ 15
Liquidation or Dissolution............................................ 15
Liability and Indemnification of Trustees............................. 16
Rights of Inspection.................................................. 16
ADDITIONAL INFORMATION.................................................. 16
VOTING INFORMATION CONCERNING THE MEETING............................... 16
FINANCIAL STATEMENTS AND EXPERTS........................................ 18
LEGAL MATTERS........................................................... 18
OTHER BUSINESS.......................................................... 18
</TABLE>
3
<PAGE>
COMPARISON OF FEES AND EXPENSES
SHAREHOLDER TRANSACTION AND ANNUAL FUND OPERATING EXPENSES. The following
table shows the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B, and Class C
shares of EMMF and KLT. The amounts for Class A and Class B shares of EMMF are
based on its expenses for the fiscal year ended August 31, 1996. The amounts for
Class C shares of EMMF are based on estimated expenses for the fiscal year ended
August 31, 1997. The amounts for KLT are based on its fiscal year ended June 30,
1996. All amounts are adjusted for voluntary expense waivers. The amounts for
the EMMF pro forma are based on what the combined expenses would have been for
the twelve months ended August 31, 1996.
COMPARISON OF CLASS A, CLASS B, AND CLASS C SHARES OF
EMMF WITH CORRESPONDING SHARES OF KLT
<TABLE>
<CAPTION>
EMMF KLT EMMF PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)..................... None None None None None None None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................. None 5.00%(1) 1.00% None 5.00%(1) 1.00% None 5.00%(1) 1.00%
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS)
Advisory Fees......................... 0.34% 0.34% 0.34% 0.50% 0.50% 0.50% 0.34% 0.34% 0.34%
12b-1 Fees (2)........................ 0.30% 1.00% 1.00% 0.06% 1.00% 1.00% 0.30% 1.00% 1.00%
Other Expenses........................ 0.11% 0.11% 0.11% 0.42% 0.41% 0.44% 0.11% 0.11% 0.11%
Total Fund Operating Expenses (after
reimbursement)(3)................... 0.75% 1.45% 1.45% 0.98% 1.91% 1.94% 0.75% 1.45% 1.45%
</TABLE>
(1) The deferred sales charge declines from 5.00% to 1.00% if redeemed during
the month of purchase and the 72-month period following the month of
purchase.
(2) Class A shares of EMMF can pay up to 0.75% of average net assets as a 12b-1
Fee. For the foreseeable future, the Class A 12b-1 fees will be limited to
0.30% of average net assets. Class A shares of KLT pay up to 0.25% of
average net assets as a 12b-1 fee. For Class B and Class C shares of EMMF
and KLT, a portion of the 12b-1 fees equivalent to 0.25% of average net
assets will be shareholder servicing-related. Distribution-related 12b-1
fees will be limited to 0.75% of average net assets as permitted under the
rules of the National Association of Securities Dealers, Inc.
(3) Evergreen Asset Management Company ("EAMC") has agreed to reimburse EMMF to
the extent that the Fund's aggregate annual operating expenses (including
the investment adviser's fee, but excluding taxes, interest, brokerage
commissions, Rule 12b-1 distribution fees and shareholder services fees and
extraordinary expenses) exceed 1% of the average net assets for any fiscal
year. The annual operating expenses and examples reflect the voluntary fee
waivers of 0.14% of average net assets for EMMF for the fiscal year ended
August 31, 1996. Absent such fee waivers, the expenses for EMMF would have
been 0.89%, and 1.59% of average net assets for Class A and Class B shares
respectively. Absent such fee waiver, it is expected that estimated expenses
for Class C shares would total 1.59%.
4
<PAGE>
EXAMPLES. The purpose of the following example is to assist a KLT
shareholder in understanding the various costs and expenses that an investor in
EMMF, 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 KLT. The example shows for each Fund, and for EMMF, pro forma,
assuming consummation of the Reorganization, the cumulative effect of
shareholder transaction expenses and annual fund operating expenses indicated
above on a $1,000 investment in each Class of shares for the periods specified,
assuming (i) a 5% annual return, and (ii) redemption at the end of such period
and (iii) additionally for Class B and Class C shares, no redemption at the end
of each period. 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. Moreover, while the examples assume a 5% annual return, a Fund's
actual performance will vary and may result in actual returns that are greater
or less than 5%.
<TABLE>
<CAPTION>
EMMF KLT EMMF PRO FORMA
ONE THREE FIVE TEN ONE THREE FIVE TEN ONE THREE FIVE
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A........................... $ 8 $24 $42 $ 93 $10 $31 $ 54 $ 120 $ 8 $24 $42
Class B (assuming redemption at
end of period).................. $65 $76 $99 $ 146 $69 $90 $ 123 $ 188 $65 $76 $99
Class B (assuming no redemption at
end of period).................. $15 $46 $79 $ 146 $19 $60 $ 103 $ 188 $15 $46 $79
Class C (assuming redemption at
end of period).................. $25 $46 -- -- $30 $61 $ 105 $ 226 $25 $46 --
Class C (assuming no redemption at
end of period).................. $15 $46 -- -- $20 $61 $ 105 $ 226 $15 $46 --
<CAPTION>
TEN
YEARS
<S> <C>
Class A........................... $ 93
Class B (assuming redemption at
end of period).................. $ 146
Class B (assuming no redemption at
end of period).................. $ 146
Class C (assuming redemption at
end of period).................. --
Class C (assuming no redemption at
end of period).................. --
</TABLE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, THE
PROSPECTUS OF EMMF DATED OCTOBER 31, 1996, AS AMENDED MAY 20, 1997, AND THE
PROSPECTUS OF KLT DATED OCTOBER 31, 1996, AS SUPPLEMENTED JANUARY 1, 1997,
(WHICH ARE INCORPORATED HEREIN BY REFERENCE) AND THE PLAN, A FORM OF WHICH IS
ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS EXHIBIT A.
PROPOSED PLAN OF REORGANIZATION
The Plan provides for KLT to exchange all of its assets for shares of EMMF
and for EMMF to assume certain identified liabilities of KLT. The Plan also
calls for EMMF to distribute its shares to KLT shareholders in liquidation of
KLT. As a result of the Reorganization, the shareholders of KLT will become the
owners of that number of full and fractional Corresponding Shares of EMMF having
an aggregate net asset value equal to the aggregate net asset value of the
shareholder's shares of KLT as of the close of business immediately prior to the
date that KLT's assets are exchanged for shares of EMMF.
The Trustees of KLT, 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 KLT and will not dilute the interests of the shareholders of
KLT. Accordingly, the Trustees have submitted the Plan to KLT's shareholders for
their approval.
THE BOARD OF TRUSTEES OF KLT RECOMMENDS APPROVAL BY SHAREHOLDERS OF KLT OF
THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Money Market Trust, on behalf of EMMF, have also
approved the Plan, and accordingly, EMMF's participation in the Reorganization.
Approval of the Reorganization on the part of KLT will require the
affirmative vote of a majority of the shares present and entitled to vote, with
all classes voting together as a single class, at a meeting at which a quorum is
present. One fourth of the total number of shares of KLT outstanding and
entitled to vote constitutes a quorum at the Meeting. See "Voting Information
Concerning the Meeting." The Reorganization is scheduled to take place on or
about July 31, 1997.
If the shareholders of KLT do not vote to approve the Reorganization, the
Trustees of KLT will consider other possible courses of action in the best
interests of shareholders.
5
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, KLT will have received
an opinion of counsel that the Reorganization has been structured so that no
gain or loss will be recognized by KLT or its shareholders for federal income
tax purposes as a result of the receipt of shares of EMMF in the Reorganization.
The holding period and aggregate tax basis of the Corresponding Shares of EMMF
that are received by KLT shareholders will be the same as the holding period and
aggregate tax basis of shares of KLT previously held by such shareholders,
provided that shares of KLT are held as capital assets. In addition, the holding
period and tax basis of the assets of KLT in the hands of EMMF as a result of
the Reorganization will be the same as in the hands of KLT immediately prior to
the Reorganization and no gain or loss will be recognized by EMMF upon the
receipt of the assets of the KLT in exchange for shares of EMMF and the
assumption by the EMMF of certain identified liabilities of KLT.
INVESTMENT OBJECTIVES AND POLICIES OF EMMF AND KLT
The investment objectives of EMMF and KLT are substantially identical in
that each seeks to achieve as high a level of current income as is consistent
with preserving capital and providing liquidity. Also, each Fund invests in high
quality money market instruments that are determined to present minimal credit
risk and to be of eligible quality under SEC Rule 2a-7 promulgated under the
1940 Act ("Rule 2a-7"). See "Comparison of Investment Objectives and Policies"
below.
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND
The Prospectuses and Statements of Additional Information of the Funds
discuss the manner of calculation of total return, yield and effective yield.
The average annual total return of Class A and Class B of each Fund and Class C
shares for KLT for the one-, five- and ten-year periods ended March 31, 1997,
and for the periods from inception through March 31, 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 RETURNS
<TABLE>
<CAPTION>
EMMF (1) KLT
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
One Year....................................................... 4.89% (0.84%) N/A 4.50% (0.47%) 3.54%
Five Years..................................................... 5.10%(2) 3.05%(2) N/A 3.63% 2.42%(2) 2.86%(2)
Ten Years...................................................... N/A N/A N/A 5.13% N/A N/A
Inception Date................................................. 1/4/95 1/26/95 N/A 9/1/75 2/1/93 2/1/93
</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 period would have been lower.
(2) Since inception.
The net yield and effective yield of Class A and Class B of each Fund and
of Class C for KLT for the seven-day period ended March 31, 1997, are set forth
in the table below:
<TABLE>
<CAPTION>
EMMF KLT
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
7 Day Net Yield................................................ 4.91% 4.20% N/A 5.35% 3.46% 3.46%
7 Day Effective Yield.......................................... 5.03% 4.29% N/A 5.49% 3.52% 3.52%
</TABLE>
Important information about EMMF is also contained in management's
discussion of EMMF's performance, attached hereto as Exhibit B. This information
also appears in EMMF's most recent performance, attached hereto as Exhibit B.
This information also appears in EMMF's most recent Annual Report.
6
MANAGEMENT OF THE FUNDS
The overall management of EMMF and of KLT is the responsibility of, and is
supervised by, their respective Board of Trustees.
INVESTMENT ADVISERS AND SUB-ADVISER
EMMF. EAMC serves as investment adviser to EMMF. EAMC and its predecessors
have served as investment adviser to the Evergreen family of mutual funds since
1971. EAMC is a wholly-owned subsidiary of First Union National Bank of North
Carolina ("FUNB"). FUNB is a subsidiary of First Union, the sixth largest bank
holding company in the United States. The Capital Management Group of FUNB, EAMC
and Keystone Investment Management Company ("Keystone") manage the Evergreen
Keystone family of mutual funds with assets of approximately $29 billion as of
February 28, 1997. For further information regarding EAMC, FUNB and First Union,
see "Management of the Funds -- Investment Advisers" in the Prospectus of EMMF.
EAMC manages investments, provides various administrative services and
supervises the daily business affairs of EMMF subject to the authority of the
Trustees. For its services, EAMC is entitled to receive from EMMF an annual fee
equal to 0.50% of the first $1 billion in average daily net assets of EMMF, plus
0.45% of average daily net assets in excess of $1 billion. From time to time
EAMC may, at its discretion, also reduce or waive its fee or reimburse EMMF for
certain of its other expenses in order to reduce its expense ratio. EAMC may
reduce or cease these voluntary waivers and reimbursements at any time.
EAMC has entered into a sub-advisory agreement with Lieber & Company that
provides for Lieber & Company's research department and staff to furnish EAMC
with information, investment recommendations, advice, and research and general
consulting services. EAMC reimburses Lieber & Company for the direct and
indirect costs of performing such services. There is no additional charge to the
Fund for the services provided by Lieber & Company. Lieber & Company is a
subsidiary of First Union and is located at 2500 Westchester Avenue, Purchase,
New York 10577.
KLT. Keystone serves as the investment adviser to KLT. Keystone manages the
investment and reinvestment of the Fund's assets, supervises the operation of
the Fund and provides all necessary office space, facilities and equipment.
The Fund pays Keystone a fee for its services at the annual rate of 0.50%
of the average daily value of the first $500 million of the net assets of the
Fund, plus 0.45% of the average daily of the net assets of the Fund that exceed
$500 million and are less than $1 billion; plus 0.40% of the average daily of
the net assets of the Fund that are $1 billion or more.
DISTRIBUTION OF SHARES
Evergreen Keystone Distributor, Inc. ("EKD"), an indirect, wholly-owned
subsidiary of BISYS Fund Services, acts as underwriter of both EMMF's and KLT's
shares. EKD distributes each Fund's shares directly or through broker-dealers,
banks (including FUNB), or other financial intermediaries. EMMF offers Class A,
Class B, Class C and Class Y shares. KLT offers three classes of shares: Class
A, Class B and Class C. 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 KLT will receive shares of
EMMF that correspond to that class of shares of KLT they currently hold. The
Class A, Class B and Class C shares of EMMF have substantially identical
arrangements with respect to the imposition of initial sales charges, CDSCs and
distribution and service fees as the comparable Class of shares of KLT. EMMF
shares acquired by shareholders of KLT pursuant to the proposed Reorganization
are not subject to initial sales charges or CDSC as a result of the
Reorganization. However, holders of EMMF shares acquired as a result of the
Reorganization are subject to a CDSC upon subsequent redemptions to the same
extent as if they had continued to hold their shares of KLT.
The following is a summary of charges and fees applicable to each Class of
shares of both EMMF and KLT. More detailed descriptions of the distribution
arrangements applicable to the Classes of shares are contained in the Prospectus
and Statement of Additional Information of each Fund.
CLASS A SHARES. Class A shares are sold at net asset value, without an
initial sales charge, and, as indicated below, are subject to
distribution-related fees.
CLASS B SHARES. Class B shares are sold at net asset value, without an
initial sales charges, but are subject to a CDSC that ranges from 5.00% to
1.00%, if redeemed during the first six years after the month of purchase. Class
B shares are subject to
7
distribution-related fees and shareholder servicing-related fees as described
below. Class B shares issued in the Reorganization automatically convert to
Class A in accordance with the conversion schedule in effect at the time the
shares of KLT were originally purchased. Since Class B shares are subject to
higher distribution-related fees than the corresponding Class A shares of each
Fund they pay correspondingly lower dividends and may have a lower net asset
value than Class A shares of the Fund.
CLASS C SHARES. Class C shares are sold without an initial sales charge,
but are subject to a 1.00% CDSC, if redeemed during the month of purchase and
the 12-month period following the month of purchase. No CDSC is imposed on
amounts redeemed thereafter. Class C shares are also subject to
distribution-related fees and shareholder servicing-related fees as described
below. Class C shares incur higher distribution and/or shareholder service fees
than Class A shares but, unlike Class B shares, do not convert to any other
Class of shares.
The amount of the CDSCs applicable to redemptions of Class B and Class C
shares are equal to a percentage of the lesser of the then current net asset
value or original cost. The CDSC is deducted from the shareholder's redemption
proceeds and paid to the respective Fund's distributor or its predecessor, as
the case may be. Shares of each Fund acquired through dividend or distribution
reinvestment are not subject to CDSCs. For purposes of determining the schedule
of CDSCs and the time of conversion to Class A share applicable to shares of
EMMF received by KLT shareholders in the Reorganization, EMMF will treat such
shares as having been sold on the date the shares of KLT were originally
purchased by KLT shareholder and as subject to the CDSC then applicable to KLT
shares. Additional information regarding the Classes of shares of each Fund is
included in its respective Prospectus and Statement of Additional Information.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES. Each Fund
has adopted a Rule 12b-1 plan that allows Class A shares to pay for
distribution-related expenses. Presently, the annual distribution-related
expenses of EMMF are higher than those of KLT. Although permitted by EMMF's Rule
12b-1 plan to expend up to 0.75% annually of average daily net assets
attributable to the Class A shares for distribution-related expenses, such
payments are currently limited to 0.30% of average net assets. On the other
hand, Class A shares of KLT pay up to 0.25% annually of average daily net assets
attributable to the Class for distribution-related expenses.
Each Fund has also adopted a Rule 12b-1 plan with respect to its Class B
and Class C shares that permits each Class to pay up to 1.00% annually of
average daily net assets attributable to the Class for distribution-related and
shareholder servicing-related expenses. Of that amount, each Class may pay up to
0.25% annually for "shareholder services," consistent with the requirements of
Rule 12b-1 and the applicable rules of the National Association of Securities
Dealers, Inc. Following the Reorganization, EMMF may make distribution-related
and shareholder servicing-related payments with respect to KLT shares sold prior
to the Reorganization, including payments to KLT's former underwriter.
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, distribution-related fees
and shareholder servicing-related fees are described above. Investments in the
Funds are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of either Fund.
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value, less any CDSC, as next determined after receipt of a redemption request
on each day the New York Stock Exchange ("NYSE") is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in each Fund's Prospectus.
Each Fund may involuntarily redeem shareholders' accounts that fall below $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
Each Fund currently has identical exchange privileges, with the exception
that after July 31, 1997, shareholders in any of the Keystone Classic Funds who
exchange their shares for EMMF shares will receive Class K shares of EMMF. EMMF
Class K shareholders will have identical rights with respect to
distribution-related fees, shareholder servicing-related fees and CDSCs (if any)
that currently apply to shareholders of the Keystone Classic Funds. No sales
charge is imposed on an exchange. An exchange that represents an initial
investment in another 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 Prospectus and Statement of Additional Information.
8
DIVIDEND POLICY
Each Fund declares its investment company taxable income daily and pays
such dividends monthly. Each Fund distributes its net capital gains, if any, at
least annually. Dividends and distributions are reinvested in additional shares
of the same Class of the respective Fund, or paid in cash, as a shareholder has
elected. See each Fund's Prospectus for further information concerning dividends
and distributions.
After the Reorganization, shareholders of KLT that have elected to have
their dividends and/or distributions reinvested will have dividends and/or
distributions received from EMMF reinvested in shares of EMMF. Shareholders of
KLT that have elected to receive dividends and/or distributions in cash will
receive dividends and/or distributions from EMMF in cash after the
Reorganization, although they may, after the Reorganization, elect to have such
dividends and/or distributions reinvested in additional shares of EMMF.
Each Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). While so qualified, so long as each Fund distributes all of its
investment company taxable income and any net realized gains to shareholders, it
is expected that a Fund will not be required to pay any federal income taxes on
the amounts so distributed. A 4% nondeductible excise tax will be imposed on
amounts not distributed if a Fund does not meet certain distribution
requirements by the end of each calendar year. Each Fund anticipates meeting
such distribution requirements.
RISKS
In general, an investment in either Fund entails substantially the same
risks. The Funds invest only in securities that have remaining maturities of 397
days (thirteen months) or less at the date of purchase. For this purpose,
floating rate or variable rate obligations (described below), which are payable
on demand, but which may otherwise have a stated maturity in excess of this
period, will be deemed to have remaining maturities of less than 397 days
pursuant to conditions established by the SEC. The Funds maintain a
dollar-weighted average portfolio maturity of ninety days or less. The Funds
follow these policies to maintain a stable net asset value of $1.00 per share,
although there is no assurance they can do so on a continuing basis. The market
value of the obligations in a Fund's portfolio can be expected to vary inversely
to changes in prevailing interest rates.
REASONS FOR THE REORGANIZATION
At a regular meeting held on March 12, 1997, the Board of Trustees of KLT
considered and approved the Reorganization as in the best interests of
shareholders. The Board of Trustees also determined that the transactions
contemplated by the Reorganization would not dilute the interests of existing
shareholders of KLT.
In approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between EMMF and KLT. Specifically, EMMF and KLT have substantially similar
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 reorganization with another Evergreen Keystone mutual fund with a greater
level of assets. As of February 28, 1997, EMMF's assets were approximately
$2,714 million and KLT's assets were approximately $201 million.
In addition, assuming that an alternative to the Reorganization would be to
propose that KLT continue its existence, KLT would offer it shares through
common distribution channels with the substantially identical EMMF. KLT would
also have to bear the cost of maintaining its separate existence. Keystone and
EAMC believe that the prospect of dividing the resources of the Evergreen
Keystone mutual fund organization between two substantially identical funds
could result in KLT 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, both
Keystone and EAMC believe that the proposed Reorganization would be in the best
interest of each Fund and its shareholders.
The Board of Trustees of KLT met and considered the recommendation of
Keystone and EAMC, 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 shareholder interests; (iii) the expense ratios,
fees and expenses of KLT and EMMF; (iv) the comparative performance records of
each Fund; (v) the compatibility of their investment objectives and policies;
(vi) the service
9
features available to shareholders in the respective Funds; (vii) the investment
experience, expertise and resources of EAMC; (xiii) the fact that FUNB will bear
the expenses incurred by KLT in connection with the Reorganization; (ix) the
fact that EMMF will assume certain identified liabilities of KLT; and (x) the
expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits the shareholders of KLT would
derive from the sale of the Fund's assets to EMMF, including the potential
benefits of being associated with a larger entity and the economies of scale
that KLT's shareholders could realize by participating in the combined fund. In
addition, the Trustees considered that there are alternatives available to
shareholders of KLT, 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 Money Market Trust also concluded at a
regular meeting on March 11, 1997, that the proposed Reorganization would be in
the best interests of shareholders of EMMF and that the interests of the
shareholders of EMMF will not be diluted as a result of the transactions
contemplated by the Reorganization.
THE TRUSTEES OF KLT RECOMMEND THAT THE SHAREHOLDERS OF KLT 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).
The Plan provides that EMMF will acquire all of the assets of KLT in
exchange for shares of EMMF and that EMMF will assume certain identified
liabilities of KLT on or about July 31, 1997, or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date, KLT
will endeavor to discharge all of its known liabilities and obligations. EMMF
will not assume any liabilities or obligations of KLT other than those reflected
in an unaudited statement of assets and liabilities of KLT 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. EMMF will provide the
Trustees of KLT with certain indemnifications as set forth in the Plan. The
number of full and fractional shares of each class of EMMF to be received by the
shareholders of KLT will be determined by dividing the value of the assets of
KLT to be acquired by the ratio of the net asset value per share of each
respective class of EMMF and each class of KLT, computed 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 both Funds, will
compute the value of the Funds' respective portfolio securities in a manner that
is consistent with the procedures set forth in the Prospectus and Statement of
Additional Information of EMMF, 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, KLT shall have declared a dividend or
dividends and distribution or distributions which, together with all previous
dividends and distributions, shall have the effect of distributing to KLT's
shareholders (in shares of KLT, or in cash, as the shareholder has previously
elected) all of KLT's investment company taxable income for the taxable year
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and all of its net capital gains realized in all taxable
years ending on or prior to the Closing Date (after reductions for any capital
loss carry forward).
As soon after the Closing Date as conveniently practicable, KLT will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional Corresponding Shares of
EMMF received by KLT. Such liquidation and distribution will be accomplished by
establishing accounts in the names of KLT's shareholders on the share records of
EMMF's transfer agent. Each account will represent the respective pro rata
number of full and fractional Corresponding Shares of EMMF due to KLT's
shareholders. All issued and outstanding shares of KLT, including those
represented by certificates, will be canceled. EMMF does not issue share
certificates to shareholders. The shares of EMMF to be issued will have no
preemptive or conversion rights. After such distribution and the winding up of
its affairs, KLT will be terminated and will file an application with the SEC
for deregistration as a registered investment management company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by KLT's shareholders, accuracy of various
representations and warranties and receipt of opinions of counsel, including
opinions with
10
respect to those matters referred to in "Federal Income Tax Consequences" below.
Notwithstanding approval of KLT's shareholders, the Plan may be terminated (a)
by the mutual agreement of KLT and EMMF; 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 KLT in connection with the Reorganization (including the
cost of any proxy soliciting agents) and the expenses of EMMF will be borne by
FUNB, whether or not the Reorganization is consummated.
If the Reorganization is not approved by shareholders of KLT, the Board of
Trustees of KLT 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, KLT will receive an opinion of counsel to the
effect that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for federal income tax purposes, upon consummation of the
Reorganization:
(1) The transfer of all of the assets of KLT solely in exchange for shares
of EMMF and the assumption by EMMF of certain identified liabilities, followed
by the distribution of EMMF's shares by KLT in dissolution and liquidation of
KLT, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and EMMF and KLT will each be a "party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) KLT will not recognize a gain or loss on the transfer of all of its
assets to EMMF solely in exchange for EMMF's shares and the assumption by EMMF
of certain identified liabilities of KLT or upon the distribution of EMMF's
shares to KLT's shareholders in exchange for their shares of KLT;
(3) The tax basis of the assets transferred will be the same to EMMF as the
tax basis of such assets to KLT immediately prior to the Reorganization, and the
holding period of such assets in the hands of EMMF will include the period
during which the assets were held by KLT;
(4) EMMF will not recognize a gain or loss upon the receipt of the assets
from KLT solely in exchange for the shares of EMMF and the assumption by EMMF of
certain identified liabilities of KLT;
(5) KLT's shareholders will not recognize a gain or loss upon the issuance
of the shares of EMMF to them, provided they receive solely such shares
(including fractional shares) in exchange for their shares of KLT; and
(6) The aggregate tax basis of the shares of EMMF, including any fractional
shares, received by each of the shareholders of KLT pursuant to the
Reorganization will be the same as the aggregate tax basis of the shares of KLT
held by such shareholder immediately prior to the Reorganization, and the
holding period of the shares of EMMF, including fractional shares, received by
each such shareholder will include the period during which the shares of KLT
exchanged therefor were held by such shareholder (provided that the shares of
KLT were held as a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, each KLT shareholder would recognize a
taxable gain or loss equal to the difference between his or her tax basis in his
or her KLT shares and the fair market value of EMMF shares he or she received.
Shareholders of KLT shares should consult their tax advisers regarding the
effect, if any, of the proposed reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the Reorganization, shareholders of KLT should also consult
their tax advisers as to state and local tax consequences, if any, of the
Reorganization.
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 EMMF.
11
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of EMMF and the KLT as of
February 28, 1997, and 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 1.00, 1.00, and 1.00 for Class A, Class B and
Class C shares, respectively, of EMMF issued for each Class A, Class B and Class
C share, respectively, of KLT.
CAPITALIZATION OF EMMF AND KLT
<TABLE>
<CAPTION>
COMBINED AFTER
EMMF KLT REORGANIZATION
<S> <C> <C> <C>
NET ASSETS (IN 000'S)
Class A.................................................. $1,914,833 $189,414 $2,104,247
Class B.................................................. $ 11,129 $ 7,838 $ 18,967
Class C.................................................. -- $ 3,767 $ 3,767
Class Y.................................................. $ 788,016 -- $ 788,016
NET ASSET VALUE PER SHARE
Class A.................................................. $ 1.00 $ 1.00 $ 1.00
Class B.................................................. $ 1.00 $ 1.00 $ 1.00
Class C.................................................. -- $ 1.00 $ 1.00
Class Y.................................................. $ 1.00 -- $ 1.00
SHARES OUTSTANDING (IN 000'S)
Class A.................................................. 1,914,833 189,414 2,104,247
Class B.................................................. 11,129 7,838 18,967
Class C.................................................. -- 3,767 3,767
Class Y.................................................. 788,016 -- 788,016
Total...................................................... 2,713,978 201,019 2,914,997
</TABLE>
Shareholders of KLT should not rely on the table set forth above to reflect
the number of shares they will receive in the Reorganization. The actual number
of shares that a KLT shareholder receives 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 May 16, 1997 (the "Record Date"), there were the following number of
each Class of shares of beneficial interest of KLT and EMMF outstanding:
<TABLE>
<CAPTION>
CLASS OF SHARES EMMF KLT
<S> <C> <C>
Class A................................................... 2,281,535,391.765 250,771,171.512
Class B................................................... 12,388,248.854 838,552.270
Class C................................................... -- 3,564,530.206
Class Y................................................... 617,903,930.516 --
All Classes............................................... 2,911,827,571.135 255,174,253.988
</TABLE>
12
As of May 14, 1997, the officers and Trustees of KLT beneficially owned as
a group less than 1% of the outstanding shares of KLT. To KLT's knowledge, the
following persons owned beneficially or of record more than 5% of KLT's total
outstanding shares as of May 14, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF TOTAL SHARES
CLASS (BEFORE OUTSTANDING (AFTER
NAME AND ADDRESS CLASS NUMBER OF SHARES REORGANIZATION) REORGANIZATION)
<S> <C> <C> <C> <C>
Philip S. Merkatz Ttee C 797,469.190 21.08% *
Dorothy Johnson Life Ins Trust
U/A DTD 11-18-91
10104 W. Coggins Dr. #D
Sun City, AZ 85351-2405
Michael J. Grimaldi C 328,803.810 8.69% *
7 Edgeworth Pl.
New Brunswick, NJ 08901-3021
State Street Bk & Tr Co Cust C 284,176.450 7.51% *
Rollover IRA FBO
Mark S. Matloc MD
2817 McClelland Blvd. #125
Joplin, MO 64804-1630
</TABLE>
As of May 14, 1997, the officers and Trustees of the Evergreen Money Market
Trust beneficially owned as a group less than 1% of the outstanding shares of
EMMF. To EMMF's knowledge, the following persons owned beneficially or of record
more than 5% of EMMF's total outstanding shares as of May 14, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF TOTAL SHARES
CLASS (BEFORE OUTSTANDING (AFTER
NAME AND ADDRESS CLASS NUMBER OF SHARES REORGANIZATION) REORGANIZATION)
<S> <C> <C> <C> <C>
FUNB A 585,812,475.800 26.30% 23.63%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
FUNB A 274,156,227.440 12.31% 11.06%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
FUNB A 251,356,550.880 11.28% 10.14%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank A 154,690,776.430 6.94% 6.24%
Trust Accounts
Attn: Ginney Batten CMG-115102
401 S. Tryon St., 3rd Floor
Charlotte, NC 28202-1911
FUNB A 113,621,347.550 5.10% 4.58%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
FUNB A 112,950,718.400 5.07% 4.56%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Y 285,878,894.860 41.41% *
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St., 3rd Floor
Charlotte, NC 28202-1911
Pitcairn Trust Company Y 60,194,093.910 8.72% *
One Pitcairn Place
Jenkintown, PA 19046
</TABLE>
13
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectus and Statement of Additional Information
of each Fund. The investment objectives, policies and restrictions of EMMF can
be found in the Prospectus of EMMF under the caption "Investment Objectives and
Policies." EMMF's Prospectus also offers additional funds advised by EAMC or the
Capital Management Group of FUNB. These additional funds are not involved in the
Reorganization, their investment objectives, policies and restrictions are not
discussed in this Prospectus/Proxy Statement and their shares are not offered
hereby. The investment objectives, policies and restrictions of KLT can be found
in the Prospectus of KLT under the caption "Investment Objective and Policies."
Both EMMF and KLT seek to achieve a level of current income consistent with
preserving capital and providing liquidity. While the investment objectives and
policies of each Fund are similar, as described below, certain differences exist
that could affect the performance of, and risks associated with, an investment
in each Fund.
Both Funds are subject to the provisions of Rule 2a-7. As a result, the
Funds may only purchase U.S. dollar-denominated instruments that each Fund's
Board of Trustees determines presents minimal credit risks and are "Eligible
Securities" at the time of purchase. Eligible Securities include (1) securities
rated in one of the two highest short-term rating categories by any two of
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service ("Moody's")
or any other nationally recognized statistical rating organization ("SRO") (or
by a single rating agency, if only one of these agencies has assigned a rating);
(2) securities of issuers receiving such a rating with respect to other
short-term debt securities; and (3) comparable unrated securities. In addition,
Rule 2a-7 prohibits either Fund from holding more than 5% of its value in Second
Tier Securities. (A First Tier Security is a security that is rated in the
highest short-term rating category. A Second Tier Security is one that is
eligible for purchase under Rule 2a-7, but is not in the First Tier.)
Rule 2a-7 also has certain portfolio maturity restrictions. The Funds may
only invest only in securities that have remaining maturities of 397 days
(thirteen months) or less at the date of purchase. For this purpose, the Funds
deem floating rate or variable rate obligations that are payable on demand, but
may otherwise have a stated maturity greater than this period, to have remaining
maturities of less than 397 days pursuant to conditions established by the SEC.
The Funds also must maintain a dollar-weighted average portfolio maturity of
ninety days or less.
The Funds follow these policies to maintain a stable net asset value of
$1.00 per share, although there is no assurance they can do so regularly.
Shareholders should expect the market value of the obligations in each Fund's
portfolio to vary inversely to changes in prevailing interest rates.
Subject to the parameters of Rule 2a-7, EMMF invests in the following types
of securities:
1. marketable obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities;
2. commercial paper, including variable amount master demand notes;
3. corporate debt securities;
4. repurchase agreements with respect to each of securities listed in
paragraphs 1 through 3 above; and
5. up to 30% of its total assets in certificates of deposit and bankers'
acceptances payable in U.S. dollars and issued by foreign banks
(including U.S. branches of foreign banks) or by foreign branches of
U.S. banks ("Bank Obligations").
While EMMF may only invest up to 30% of its total assets Bank Obligations,
KLT may invest up to 100% of its assets in domestic branches of U.S. banks.
Also, KLT's investments in Bank Obligations are limited to those banks or
savings and loan associations that have at least $1 billion in assets as of the
date of their most recently published financial statements and that are members
of the Federal Deposit Insurance Corporation.
EMMF may borrow funds, issue senior securities and enter into reverse
repurchase agreements for temporary or emergency purposes in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing. KLT may borrow up to one-third of the Fund's assets from banks on a
temporary basis or enter into reverse repurchase agreements.
The characteristics of each investment policy and the associated risks are
described in the Prospectus and Statement of Additional Information of each
Fund. Both EMMF and KLT have other investment policies and restrictions which
are also set forth in the Prospectus and Statement of Additional Information of
each Fund.
14
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
KLT and Evergreen Money Market Trust are open-end management investment
companies registered with the SEC under the 1940 Act, which continuously offer
shares to the public. Each is organized as a Massachusetts business trust and is
governed by a Declaration of Trust, By-Laws and Board of Trustees. Both are also
governed by applicable Massachusetts and federal law. EMMF is a series of
Evergreen Money Market Trust.
CAPITALIZATION
The beneficial interests in EMMF are represented by an unlimited number of
transferable shares of beneficial interest with a $.001 par value per share. The
beneficial interests in KLT are represented by an unlimited number of
transferable shares of beneficial interest with no par value. The respective
Declaration of Trust under which each Fund has been established permits the
respective 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 have equal voting
rights with respect to matters affecting shareholders of all classes of each
Fund, and in the case of EMMF, each series of the Evergreen Money Market Trust,
and 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 KLT's Trustees or Evergreen Money Market Trust's
Trustees. Shareholders of each Fund vote separately, by class, as to matters,
such as approval or amendments of Rule 12b-1 distribution plans that affect only
their particular class and, in the case of EMMF, which is a series of the
Evergreen Money Market Trust, by series as to matters, such as approval or
amendments of 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 respective Declaration of Trust under which the
Funds were 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 Funds or the
Trustees. The Declarations of Trust provide 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. A
substantial number of mutual funds in the United States are organized as
Massachusetts business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither KLT nor Evergreen Money Market Trust, on behalf of EMMF or any of
its other series, 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. 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. If
Trustees of the Evergreen Money Market Trust fail or refuse to call a meeting as
required by its By-laws after a request in writing by shareholders holding an
aggregate of at least 10% of the shares outstanding, then shareholders holding
said 10% may call and give notice of such meeting. Evergreen Money Market Trust
and KLT currently do not intend to hold regular shareholder meetings. Neither
permits cumulative voting. One fourth of the total number of the shares of KLT
outstanding and entitled to vote on a matter constitutes a quorum for
consideration of such matter. In either case, a majority of the shares voting is
sufficient to act on a matter (unless otherwise specifically required by the
applicable governing documents or other law, including the 1940 Act).
LIQUIDATION OR DISSOLUTION
In the event of the liquidation of a Fund the shareholders are entitled to
receive, when, and as declared by the Trustees, the excess of the assets
belonging to such Fund or attributable to the Class over the liabilities
belonging to the Fund or attributable to the Class. In either case, the assets
so distributable to shareholders of the Fund will be distributed among the
shareholders in proportion to the number of shares of the Fund held by them and
recorded on the books of the Fund.
15
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The Declaration of Trust of the Evergreen Money Market Trust provides that
no Trustee or officer shall be liable to the Fund or to any shareholder,
Trustee, officer, employee or agent of the Fund for any action or failure to act
except for his or her own bad faith, willful misfeasance, gross negligence or
reckless disregard of his or her duties. The By-laws of Evergreen Money Market
Trust provide that present and former Trustees or officers are generally
entitled to indemnification against liabilities and expenses with respect to
claims related to their position with the Fund unless, in the case of any
liability to the Fund or its shareholders, it shall have been determined that
such Trustee or officer is liable by reason of his or her willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties involved
in the conduct of his or her office.
The Declaration of Trust of KLT provides that a Trustee will not be liable
for errors of judgment or mistake or fact or law, but nothing in the Declaration
of Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office. The
Declaration of Trust provides that a Trustee or officer is entitled to
indemnification against liabilities and expenses with respect to claims related
to his or her position with KLT, unless such Trustee or officer shall have been
adjudicated to have acted with bad faith, willful misfeasance, or gross
negligence, or in reckless disregard of his or her duties, or not to have acted
in good faith in the reasonable belief that his or her action was in the best
interest of KLT, or, in the event of settlement, unless there has been a
determination that such Trustee or officer has not engaged in willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties.
RIGHTS OF INSPECTION
Shareholders of the respective Funds have the same right to inspect in
Massachusetts the governing documents, records of meetings of shareholders,
shareholder lists, share transfer records, accounts and books of the Fund as are
permitted shareholders of a corporation under the Massachusetts corporation law.
The purpose of inspection must be for interests of shareholders relative to the
affairs of the Fund.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws and Massachusetts law and is
not a complete description of those documents or law. Shareholders should refer
to the provisions of such respective Declarations of Trust, By-Laws, and
Massachusetts law directly for more complete information.
ADDITIONAL INFORMATION
EMMF. Information concerning the operation and management of EMMF is
incorporated herein by reference from the Fund's Prospectus dated October 31,
1996, as amended May 20, 1997, a copy of which is enclosed, and Statement of
Additional Information dated October 31, 1996, as amended May 20, 1997. A copy
of the Fund's Statement of Additional Information is available upon request and
without charge by writing to EMMF, at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
KLT. Information about the Fund is included in its current Prospectus dated
October 31, 1996, as supplemented
January 1, 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, Statement of Additional Information, Annual
Report dated June 30, 1996, and Semiannual Report dated December 31, 1996, are
available upon request and without charge by writing to the address listed on
the cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-343-2898.
EMMF and KLT 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, NW,
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 Board of Trustees of KLT to be used at the
Special Meeting of Shareholders to be held at 3:00 p.m., July 14, 1997, at the
offices of KLT, 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 on or about
May 22, 1997. 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
16
adjournment thereof. The holders of one fourth of the total number of shares
outstanding and 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 and FOR any other
matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will have no effect on the outcome of the vote to approve the Plan. A proxy may
be revoked at any time on or before the Meeting by written notice to the
Secretary of KLT, 200 Berkeley Street, Boston, Massachusetts 02116. Unless
revoked, all valid proxies will be voted in accordance with the specifications
thereon or, in the absence of such specifications, FOR approval of the Plan and
the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority of the
shares present and entitled to vote, with all classes voting together as a
single class. 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 Keystone, their affiliates or other
representatives of KLT (who will not be paid for their solicitation activities).
Corporate Investors Communications, Inc. ("CIC") has been engaged by KLT to
assist in soliciting proxies, and may contact certain shareholders of KLT over
the telephone. Shareholders that are contacted by CIC may be asked to cast their
vote by telephonic proxy. Such proxies will be recorded in accordance with the
procedures set forth below. KLT believes these procedures are reasonably
designed to ensure that the identity of the shareholder casting the vote is
accurately determined and that the voting instructions of the shareholder are
accurately reflected. KLT has received an opinion of Sullivan & Worcester LLP
that addresses the validity, under the applicable law of the Commonwealth of
Massachusetts, of a proxy given orally. The opinion concludes that a
Massachusetts court would find that there is no Massachusetts law or
Massachusetts public policy against the acceptance of proxies signed by an
orally-authorized agent.
In all cases where a telephonic proxy is solicited, the CIC representative
will ask you for your full name, address, social security or employer
identification number, title (if you are authorized to act on behalf of an
entity, such as a corporation), and number of shares owned. If the information
solicited agrees with the information provided to CIC by the transfer agent to
KLT, then the CIC representative will explain the process, read the proposals
listed on the proxy card and ask for your instructions on each proposal. The CIC
representative, although he or she will answer questions about the process, will
not recommend to the shareholder how he or she should vote, other than to read
any recommendations set forth in the proxy statement. Within 72 hours, CIC will
send you a letter or mailgram to confirm your vote and ask you to call
immediately if your instructions are not correctly reflected in the
confirmation.
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card included with this
Prospectus/Proxy Statement or attend in person. Any proxy given by you, whether
in writing or by telephone, is revocable.
In the event that sufficient votes to approve the Reorganization are not
received by July 14, 1997, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy 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 KLT 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 EMMF that they receive in the transaction at their then-current
net asset value subject to any applicable CDSC. Shares of KLT may be redeemed at
any time prior to the consummation of the Reorganization. KLT shareholders may
wish to consult their tax advisers as to any differing consequences of redeeming
KLT shares prior to the Reorganization or exchanging such shares in the
Reorganization.
17
KLT 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 KLT at the address set forth on the
cover of this Prospectus/Proxy Statement such that they will be received by KLT
in a reasonable period of time prior to any such meeting.
The votes of the shareholders of EMMF 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 KLT 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 KLT as of June 30, 1996 (audited), and December
31, 1996 (unaudited), and the financial highlights for the periods indicated
therein, have been incorporated by reference into this Prospectus/Proxy
Statement. The financial statements as of June 30, 1996, and the financial
highlights for the periods indicated therein, have been incorporated by
reference into this Prospectus/Proxy Statement in reliance upon the report with
KPMG Peat Marwick 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 of EMMF as of August 31, 1996 (audited), and
February 28, 1997 (unaudited), and the financial highlights for the periods
indicated therein, have been incorporated by reference or included into this
Prospectus/Proxy Statement. The financial statements as of August 31, 1996 and
the financial highlights for the periods indicated therein have been
incorporated by reference in reliance on the report of Price Waterhouse LLP,
independent public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of EMMF will be
passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of KLT 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 BOARD OF TRUSTEES OF KLT, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS APPROVAL OF THE PLAN AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO
THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
May 20, 1997
18
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 28th day of April, 1997, by and between Evergreen Money Market Trust, a
Massachusetts business trust, with its principal place of business at 2500
Westchester Avenue, Purchase, New York 10577, with respect to its Evergreen
Money Market Fund series (the "Acquiring Fund"), and Keystone Liquid Trust, a
Massachusetts business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Selling Fund").
This Agreement is intended to be, and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368 (a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B and Class
C shares of beneficial interest, $.001 par value per share, of the Acquiring
Fund (the "Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of
certain identified liabilities of the Selling Fund; (iii) and the distribution,
after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to
the shareholders of the Selling Fund in liquidation of the Selling Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are a registered
investment company and a separate investment series of an open-end, registered
investment company of the management type, respectively, 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 Evergreen Money Market 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 and that the interests
of the existing shareholders of the Acquiring Fund will not be diluted as a
result of the transactions contemplated herein;
WHEREAS, the Trustees of the Selling Fund have determined that the Selling
Fund should exchange all of its assets and certain identified liabilities for
Acquiring Fund Shares and that the interests of the existing shareholders of the
Selling Fund will not be diluted as a result of the transactions contemplated
herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume 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 futures interests 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
A-1
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. Except
as specifically provided in this paragraph 1.3, 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, except as specifically provided in this paragraph
1.3, 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. The Acquiring Fund hereby agrees with the Selling Fund and each
Trustee of the Selling Fund: (i) to indemnify each Trustee of the Selling Fund
against all liabilities and expenses referred to in the indemnification
provisions of the Selling Fund's Declaration of Trust and By-Laws, to the extent
provided therein, incurred by any Trustee of the Selling Fund; and (ii) in
addition to the indemnification provided in (i) above, to indemnify each Trustee
of the Selling Fund against all liabilities and expenses and pay the same as
they arise and become due, without any exception, limitation or requirement of
approval by any person, and without any right to require repayment thereof by
any such Trustee (unless such Trustee has had the same repaid to him or her)
based upon any subsequent or final disposition or findings made in connection
therewith or otherwise, if such action, suit or other proceeding involves such
Trustee's participation in authorizing or permitting or acquiescing in, directly
or indirectly, by action or inaction, the making of any distribution in any
manner of all or any assets of the Selling Fund without making provision for the
payment of any liabilities of any kind, fixed or contingent, of the Selling
Fund, which liabilities were not actually and consciously personally known to
such Trustee to exist at the time of such Trustee's participation in so
authorizing or permitting or acquiescing in the making of any such distribution.
In addition, upon completion of the Reorganization for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap existing immediately prior to the
Reorganization the Aggregate NASD Cap of the Selling Fund immediately prior to
the Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or 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 cancelled 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.
A-2
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Evergreen Money Market Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional information
or such other valuation procedures as shall be mutually agreed upon by the
parties.
2.2 VALUATION OF SHARES. The net asset value 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 Evergreen Money Market Trust's Declaration
of Trust and the Acquiring Fund's then current prospectus and statement of
additional information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by 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.
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 July 31,
1997, 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 Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116, or at such other time and/or place as the parties may
agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable Federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Keystone Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("EKSC"), 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
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owned by each such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver or cause EKSC, 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 the Selling Fund, or
provide evidence satisfactory to the Selling Fund that such Acquiring Fund
Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a 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 registered investment company classified as
a management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectus and statement of additional information of
the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not,
result in a violation of any provision of its 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.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business, or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(g) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, the financial statements of the Selling Fund at December
31, 1996 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 December 31, 1996, 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.
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(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.
(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 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not, result in a violation of Evergreen
Money Market 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
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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 February 28,
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 February 28, 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
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 (except that, under Massachusetts law, shareholders of
the Acquiring Fund could, under certain circumstances, be held personally
liable for obligations of the Acquiring Fund). The Acquiring Fund does not
have outstanding any options, warrants, or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable
(except that, under Massachusetts law, shareholders of the Acquiring Fund
could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund).
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with Federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates to
the Acquiring Fund ) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
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ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date. It being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. The Selling Fund will call a meeting of its
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
Federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be certified by the Selling
Fund's President, its Treasurer, and its independent auditors.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, 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.
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 Evergreen Money Market 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
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.
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(b) The Acquiring Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the
1940 Act, and, to such counsel's 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 that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder and,
assuming due authorization, execution and delivery of this Agreement by the
Selling Fund, is a valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights
generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and non-assessable (except
that, under Massachusetts law, shareholders of the Acquiring Fund could,
under certain circumstances, be held personally liable for obligations of
the Acquiring Fund), and no shareholder of the Acquiring Fund has any
preemptive rights in respect thereof.
(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 Commonwealth of Massachusetts 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.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Selling
Fund's President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Selling Fund.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a 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 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 that the Prospectus and Proxy Statement,
and Registration Statement comply with the 1933 Act, the 1934 Act, and the
1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by
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the Acquiring Fund, is a valid and binding obligation of the Selling Fund
enforceable against the Selling Fund in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and to
general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The 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.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Selling Fund's Declaration
of Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such Federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable years ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gain realized in all taxable years ending on or prior to the Closing
Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester 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
identified liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and
the Selling Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund.
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(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by Selling Fund Shareholders
upon the exchange of their Selling Fund shares for the Acquiring Fund
Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period
of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the Reorganization).
(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 KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement
has been obtained from and is consistent with the accounting records of the
Selling Fund; and
(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 data utilized in the
calculations of the projected expense ratio appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying
accounting records of the Selling Fund or to written estimates by Selling
Fund's management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat Marwick
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 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 underlying accounting records of the Acquiring Fund or
to written estimates by each Fund's management and were found to be
mathematically correct.
A-10
8.9 The Acquiring Fund and the Selling Fund shall also have received from
KPMG Peat Marwick LLP a letter addressed to the Acquiring Fund and the Selling
Fund, dated on the Closing Date in form and substance satisfactory to the Funds,
setting forth the Federal income tax implications relating to capital loss
carryforwards (if any) of the Selling Fund and the related impact, if any, of
the proposed transfer of substantially all of the assets of the Selling Fund to
the Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE IX
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 of North Carolina.
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 cost of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own Federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall 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, Evergreen Money Market Trust, or their
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.
A-11
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of The 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 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 the Evergreen Money
Market Trust or the Selling Fund, personally, but bind only the trust property
of the Selling Fund and the Acquiring Fund, as provided in the Declarations of
Trust of the Evergreen Money Market Trust and the Selling Fund. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Selling Fund, and the Evergreen Money Market Trust on behalf of the Acquiring
Fund and signed by authorized officers of the Selling Fund and the Evergreen
Money Market 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 Evergreen Money Market Trust as provided in their respective Declarations of
Trust.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN MONEY MARKET TRUST
on behalf of Evergreen Money Market
Fund
By: /s/ John J. Pileggi
Name: John J. Pileggi
Title: President and Treasurer
KEYSTONE LIQUID TRUST
By: /s/ John J. Pileggi
Name: John J. Pileggi
Title: President and Treasurer
A-12
<PAGE>
EXHIBIT B
EVERGREEN MONEY MARKET FUNDS
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER
The continued expansion of the United States
economy and the persistence of inflation at 3% or
less, has evidently sent mixed signals to the
investment markets. The (Photo Goes Here)
equity market this year has gone from new high to new high. The willingness of
American savers to put money into the hands of equity mutual funds to buy stocks
in the United States and abroad is unprecedented. Even foreign investors, who
have long been skeptical of the rising prices of U.S. equities and the recent
relatively higher valuations than in many other industrial countries, have begun
to move heavily into U.S. equities. Only the bond market has suffered negative
trends this year. But, it showed no further losses when measured from the end of
the second calendar quarter to the end of the third.
In contrast, it yielded modest gains early in the third quarter. Evidence of
slowed final demand in many sectors of the economy has begun to reduce the fears
of many investors over inflationary pressures. While confidence increases that
both producer and consumer price indexes will remain in a narrow range, around
3%, apprehensions of possibly renewed inflation are now focused on the trend of
hourly wages. Hourly wages have moved up slightly in the last two months.
The apparent consensus among business economists currently is to expect a 2%
growth rate for the U.S. economy in the second half of 1996, with a similar
level to continue into 1997. These views are, in part, based on historical
trends, in which the late cycle characteristics of the U.S. economy typically
show economic deceleration. Such a deceleration is not widely feared, in view of
the fact that real income growth is likely to be sustained by a 2% to 2 1/2%
employment growth, plus a 3% to 3 1/2% earnings growth, before a 3% inflation.
The appearance of such decelerating trends and their continuation would likely
bring bond yields down, as the inflation premium would be removed from bond
market expectations. Many who dissent from the consensus view that the economy
will slow, argue that the European economies and Japan's economy are likely to
revive in 1997, which will create more export demand for U.S. products and,
therefore, increase our growth rate. More pessimistic observers of the American
economy believe that the American consumer has overspent, as evidenced by the
rising rate of credit card delinquencies, and by the "wealth effect" of a stock
market achieving record highs.
For the bond market, we expect that fairly stable, rather than rising,
inflation, and a somewhat declining overall business rate of growth, together
with a narrow range currency market, should enable a gradual decline in interest
rates.
Tax-exempt fixed income investment in 1996 has had comparatively better
returns than taxable bond investment. Much of this difference is due to the fact
that the flat tax, or sharply
B-1 49316
<PAGE>
EVERGREEN MONEY MARKET FUNDS
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
reduced income tax, advocacies of presidential candidates earlier in the year,
were eliminated as concerns for tax-exempt investors. Therefore, tax-exempt
bonds have risen to a normal level of relationship to taxable bonds. Further
improving valuations has been the lack of major concerns over credit quality
issues. Orange County California's default has fallen into memory and its credit
is in the process of restoration. Other credit problems regarding certain public
power facilities and the rental of municipal buildings have also been overcome.
Correspondingly, the supply of new tax-exempt issues declined, especially as
interest rate increases cut down the number of new issues replacing refunded
bonds. The credit quality overall has been enhanced by further record gains for
the use of bond insurance, while the insurers themselves have had their credit
quality improved by record accumulations of earnings. In summary, the tax-exempt
securities market toward the end of 1996 appears to be in a healthy condition.
B-2 49316
<PAGE>
EVERGREEN MONEY MARKET FUND
(A symbol appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
ETHEL SUTTON
With the unemployment rate down to 5.1% in August, its lowest
level in seven years, economists are asking whether unemployment
can decline further without sparking inflation in the broad
wholesale and retail price indexes. While the Federal Reserve
adopted a monetary policy directive with a bias toward higher
interest rates at its July meeting, reflecting concern over the
economy's robust rate of growth during the second quarter, it
held rates steady at both its August and September meetings.
The two key questions that the Federal Reserve will need to
address this fall are how quickly the economy slows and whether
the good news on the inflation front will (Photo of
Ethel Sutton)
continue. If the Federal Reserve does decide to implement its
tightening bias and raise the overnight funds rate by 25 basis points, we think
it unlikely that the Fed would do so before the November elections to avoid the
appearance of politicizing the nation's monetary policy.
After dropping sharply in the wake of the Federal Reserve's interest rate cut
in January, which was viewed as anti-recession insurance, money market yields
started trending upward again in April in response to evidence of unexpectedly
higher second quarter growth. While the quarter ended on a softer note, there
was spotty evidence over the summer that the economy might be continuing to pick
up, and this perception pushed rates higher over the period.
The ambiguity of the economic data suggested to us, however, that the Fed
would be willing to hold rates steady until third quarter Gross Domestic Product
(GDP) figures were released the last week in October. Consequently, we have been
comfortable with maturities that are appreciably longer than the average for
first tier money market funds reported by IBC's Money Fund Report. The Fund's
weighted average maturity at its fiscal year-end on August 31, 1996, was 71
days, as compared with 55 days for the 268 first tier money market funds in the
IBC Average at that time. We shall continue to monitor economic data,
particularly as it relates to inflation, and lengthen or shorten maturities
accordingly.
The total net assets for Evergreen Money Market Fund at its fiscal year-end
on August 31, 1996, were $2.4 billion. The Fund's seven-day current and
effective yields at that time are illustrated in the table below.
<TABLE>
<CAPTION>
7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD
<S> <C> <C>
Class Y Shares 5.12% 5.25%
Class A Shares 4.83% 4.95%
Class B Shares 4.12% 4.20%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
*SOURCE; IBC FINANCIAL DATA, INC., AN INDEPENDENT MONEY MARKET MUTUAL FUNDS
PERFORMANCE MONITOR.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORSEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUNDS
DAILY NET ASSETS OF ITS CLASS A SHARES.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
B-3
<PAGE>
EVERGREEN MONEY MARKET FUND -- CLASS A AND B SHARES
(A Symbol Goes Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 4, JANUARY 26,
1995* 1995*
YEAR ENDED THROUGH YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................ $1.00 $1.00 $1.00 $1.00
Net investment income........................................... .05 .03 .04 .03
Less distributions to shareholders from net investment income... (.05) (.03) (.04) (.03)
Net asset value, end of period.................................. $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+................................................... 5.0% 3.5% 4.3% 2.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................... $1,755,267 $685,155 $10,218 $7,927
Ratios to average net assets:
Expenses**................................................... .75% .81%++ 1.45% 1.51%++
Net investment income**...................................... 4.86% 5.26%++ 4.18% 4.54%++
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value for the periods indicated and
is not annualized. Contingent deferred sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 4, JANUARY 26,
1995* 1995*
YEAR ENDED THROUGH YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Expenses........................................................ .89% 1.02%++ 1.59% 2.39%++
Net investment income........................................... 4.72% 5.05%++ 4.04% 3.66%++
</TABLE>
See accompanying notes to financial statements.
B-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
KEYSTONE LIQUID TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN MONEY MARKET FUND
A Series of
EVERGREEN MONEY MARKET TRUST
2500 Westchester Avenue
Purchase, New York 10577
(800) 807-2940
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Keystone Liquid Trust ("KLT")
to Evergreen Money Market Fund ("EMMF"), a series of Evergreen Money Market
Trust, in exchange for Class A, Class B and Class C Shares of beneficial
interest, $.001 par value per Share, of the EMMF, consists of this cover page
and the following described documents, each of which is attached hereto and
incorporated by reference herein:
(1) Statement of Additional Information of EMMF dated October 31, 1996,
as Amended May 20, 1997;
(2) Statement of Additional Information of KLT dated October 31, 1996, as
Supplemented January 1, 1997;
(3) Annual Report of EMMF for the year ended August 31, 1996;
(4) Semiannual Report of EMMF for the period ended February 28, 1997;
(5) Annual Report of KLT for the year ended June 30, 1996; and
(6) Semiannual Report of KLT for the period ended December 31, 1996.
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Proxy
Statement/Prospectus of EMMF and KLT dated May 20, 1997. A copy of the Proxy
Statement/Prospectus may by obtained without charge by calling or writing to
EMMF or KLT at the telephone numbers or addresses set forth above.
The date of this Statement of Additional Information is May 20, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1996
As Amended May 20, 1997
THE EVERGREEN MONEY MARKET FUNDS
2500 Westchester Avenue, Purchase, New York 10577
800-343-2898
Evergreen Money Market Fund ("Money Market")
Evergreen Tax Exempt Money Market Fund ("Tax Exempt")
Evergreen Pennsylvania Tax-Free Money Market Fund (formerly FFB Pennsylvania
Tax-Free Money Market Fund) ("Pennsylvania")
Evergreen Treasury Money Market Fund
(formerly First Union Treasury Money Market Portfolio) ("Treasury")
Evergreen Institutional Money Market Fund ("Institutional Money Market")
Evergreen Institutional Tax Exempt Money Market Fund ("Institutional Tax
Exempt")
Evergreen Institutional Treasury Money Market Fund ("Institutional Treasury")
This Statement of Additional Information pertains to all classes of shares of
the Funds listed above. It is not a prospectus and should be read in conjunction
with the Prospectus dated May 16, 1997, as supplemented from time to time, for
the Fund in which you are making or contemplating an investment. The Evergreen
Money Market Funds are offered through six separate prospectuses: one offering
Class A, Class B and Class C shares of Money Market and Class A shares of Tax
Exempt and Treasury, one offering Class A shares of Pennsylvania, one offering
Class Y shares of Money Market, Tax Exempt and Treasury, one offering Class Y
shares of Pennsylvania, one offering Institutional Service shares of
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
and one offering Institutional shares of Institutional Money Market,
Institutional Tax Exempt and Institutional Treasury. Copies of each Prospectus
may be obtained without charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies................................ 2
Investment Restrictions........................................... 4
Certain Risk Considerations....................................... 8
Management........................................................ 8
Investment Advisers............................................... 12
Distribution Plans................................................ 16
Allocation of Brokerage........................................... 18
Additional Tax Information........................................ 19
Net Asset Value................................................... 21
Purchase of Shares................................................ 21
General Information About the Funds............................... 25
Performance Information........................................... 27
Financial Statements.............................................. 29
Appendix A - Description of Bond, Municipal Note and Commercial Paper Ratings
Appendix B - Special Considerations Relating to Investment In Pennsylvania
Municipal Issuers
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds -Investment Objectives and Policies" in each
Fund's Prospectus)
The investment objective of each Fund and a description of the securities in
which each Fund may invest is set forth under "Description of the Funds -
Investment Objectives and Policies" in the relevant Prospectus. The following
expands upon the discussion in the Prospectuses regarding certain investments of
the following Funds:
Tax Exempt, Pennsylvania and Institutional Tax Exempt
To attain its objectives, each Fund invests primarily in high quality Municipal
Obligations which have remaining maturities not exceeding thirteen months. Each
Fund maintains a dollar-weighted average portfolio maturity of 90 days or less.
For information concerning the investment quality of Municipal Obligations that
may be purchased by the Fund, see "Investment Objective and Policies" in the
Prospectus. The tax-exempt status of a Municipal Obligation is determined by the
issuer's bond counsel at the time of the issuance of the security.
For the purpose of certain requirements under the Investment Company Act of 1940
(the "1940 Act") and each Fund's various investment restrictions, identification
of the "issuer" of a municipal security depends on the terms and conditions of
the security. When the assets and revenues of a political subdivision are
separate from those of the government which created the subdivision and the
security is backed only by the assets and revenues of the subdivision, the
subdivision would be deemed to be the sole issuer. Similarly, in the case of an
industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then the non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees the security, the guarantee would be
considered a separate security and would be treated as an issue of the
government or other agency.
Municipal bonds may be categorized as "general obligation" or "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
secured by the net revenue derived from a particular facility or group of
facilities or, in some cases, the proceeds of a special excise or other specific
revenue source, but not by the general taxing power. Industrial development
bonds are, in most cases, revenue bonds and do not generally carry the pledge of
the credit of the issuing municipality or public authority.
Municipal Notes. Municipal notes include, but are not limited to, tax
anticipation notes (TANs), bond anticipation notes (BANs), revenue anticipation
notes (RANs), construction loan notes and project notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenue are usually general obligations of the issuer. Project notes are
issued by local housing authorities to finance urban renewal and public housing
projects and are secured by the full faith and credit of the U.S. Government.
Municipal Commercial Paper. Municipal commercial paper is issued to finance
seasonal working capital needs or as short-term financing in anticipation of
longer-term debt. It is paid from the general revenues of the issuer or
refinanced with additional issuances of commercial paper or long-term debt.
Municipal Leases. Municipal leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchases or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. These types of municipal leases may be
considered illiquid and subject to the 10% limitation of investment in illiquid
securities set forth under "Investment Restrictions" contained herein. The Board
of Trustees of each Trust under which each Fund operates may adopt guidelines
and delegate to the Adviser (as defined below) the daily function of determining
and monitoring the liquidity of municipal leases. In making such determination,
the Board and the Adviser may consider such factors as the frequency of trades
for the obligations, the number of dealers willing to purchase or sell the
obligations and the number of other potential buyers and the nature of the
marketplace for the obligations, including the time needed to dispose of the
obligations and the method of soliciting offers. If the Board determines that
any municipal leases are illiquid, such leases will be subject to the 10%
limitation on investments in illiquid securities.
For purposes of diversification under the 1940 Act, the identification of the
issuer of Municipal Obligations depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision and the obligation is backed only by the assets and
revenues of the subdivision, such subdivision would be regarded as the sole
issuer. Similarly, in the case of an industrial development bond, if the bond is
backed only by the assets and revenues of the non-governmental user, the
non-governmental user would be deemed to be the sole issuer. If in either case
the creating government or another entity guarantees an obligation, the
guarantee would be considered a separate security and be treated as an issue of
such government or entity.
As described in each Fund's Prospectus, the Fund may, under limited
circumstances, elect to invest in certain taxable securities and repurchase
agreements with respect to those securities. A Fund will enter into repurchase
agreements only with broker-dealers, domestic banks or recognized financial
institutions which, in the opinion of the Fund's Adviser, present minimal credit
risks. In the event of default by the seller under a repurchase agreement, a
Fund may have problems in exercising its rights to the underlying securities and
may incur costs and experience time delays in connection with the disposition of
such securities. The Fund's Adviser will monitor the value of the underlying
security at the time the transaction is entered into and at all times during the
term of the repurchase agreement to ensure that the value of the security always
equals or exceeds the agreed upon repurchase price. Repurchase agreements may be
considered to be loans under the 1940 Act, collateralized by the underlying
securities.
Each Fund may engage in the following investment activities:
Securities With Put Rights (or "stand-by commitments"). When a Fund
purchases Municipal Obligations it may obtain the right to resell them,
or "put" them, to the seller (a broker-dealer or bank) at an agreed
upon price within a specific period prior to their maturity date. The
Fund does not limit the percentage of its assets that may be invested
in securities with put rights.
The amount payable to a Fund by the seller upon its exercise of a put
will normally be (i) the Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the
last interest payment date during the period the securities were owned
by the Fund. Absent unusual circumstances, each Fund values the
underlying securities at their amortized cost. Accordingly, the amount
payable by a broker-dealer or bank during the time a put is exercisable
will be substantially the same as the value of the underlying
securities.
A Fund's right to exercise a put is unconditional and unqualified. A
put is not transferable by the Fund, although the Fund may sell the
underlying securities to a third party at any time. Each Fund expects
that puts will generally be available without any additional direct or
indirect cost. However, if necessary and advisable, the Fund may pay
for certain puts either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to such a put (thus
reducing the yield to maturity otherwise available to the same
securities). Thus, the aggregate price paid for securities with put
rights may be higher than the price that would otherwise be paid.
The acquisition of a put will not affect the valuation of the
underlying security, which will continue to be valued in accordance
with the amortized cost method. The actual put will be valued at zero
in determining net asset value. Where a Fund pays directly or
indirectly for a put, its cost will be reflected as an unrealized loss
for the period during which the put is held by that Fund and will be
reflected in realized gain or loss when the put is exercised or
expires. If the value of the underlying security increases, the
potential for unrealized or realized gain is reduced by the cost of the
put.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
.........Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
Adviser without shareholder approval, subject to review and approval by the
Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1........Concentration of Assets in Any One Issuer
.........Tax Exempt, Pennsylvania, Money Market, Institutional Tax Exempt and
Institutional Money Market may not invest more than 5% of their total assets, at
the time of the investment in question, in the securities of any one issuer
other than the U.S. government and its agencies or instrumentalities, except
that up to 25% of the value of Tax Exempt's, Institutional Tax Exempt's and
Pennsylvania's total assets may be invested without regard to such 5%
limitation. For this purpose each political subdivision, agency, or
instrumentality and each multi-state agency of which a state is a member, and
each public authority which issues industrial development bonds on behalf of a
private entity, will be regarded as a separate issuer for determining the
diversification of each Fund's portfolio.
2........Ten Percent Limitation on Securities of Any One Issuer
.........Neither Money Market, Pennsylvania, Tax Exempt, Institutional Money
Market nor Institutional Tax Exempt may purchase more than 10% of any class of
securities of any one issuer other than the U.S. government and its agencies or
instrumentalities.
3........Investment for Purposes of Control or Management
.........Neither Money Market, Pennsylvania, Tax Exempt, Institutional Money
Market* nor Institutional Tax Exempt* may invest in companies for the purpose of
exercising control or management.
4........Purchase of Securities on Margin
.........Neither Money Market, Pennsylvania, Tax Exempt, Treasury, Institutional
Money Market*, Institutional Tax Exempt* nor Institutional Treasury* may
purchase securities on margin, except that each Fund may obtain such short-term
credits as may be necessary for the clearance of transactions. A deposit or
payment by a Fund of initial or variation margin in connection with financial
futures contracts or related options transactions is not considered the purchase
of a security on margin.
5........Unseasoned Issuers
.........Money Market and Institutional Money Market* may not invest more than
5% of their total assets in securities of unseasoned issuers that have been in
continuous operation for less than three years, including operating periods of
their predecessors.
.........Tax Exempt and Institutional Tax Exempt* may not invest more than 5% of
their total assets in taxable securities of unseasoned issuers that have been in
continuous operation for less than three years, including operating periods of
their predecessors, except that (i) each Fund may invest in obligations issued
or guaranteed by the U.S. government and its agencies or instrumentalities, and
(ii) each Fund may invest in municipal securities.
6........Underwriting
.........Money Market, Pennsylvania, Tax Exempt, Institutional Money Market and
Institutional Tax Exempt may not engage in the business of underwriting the
securities of other issuers; provided that the purchase by Tax Exempt and
Institutional Tax Exempt of municipal securities or other permitted investments,
directly from the issuer thereof (or from an underwriter for an issuer) and the
later disposition of such securities in accordance with the Fund's investment
program shall not be deemed to be an underwriting.
7........Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
.........Neither Money Market, Pennsylvania, Tax Exempt, Institutional Money
Market* nor Institutional Tax Exempt* may purchase, sell or invest in interests
in oil, gas or other mineral exploration or development programs.
8........Concentration in Any One Industry
.........Neither Money Market, Pennsylvania, Tax Exempt, Institutional Money
Market nor Institutional Tax Exempt may invest 25% or more of its total assets
in the securities of issuers conducting their principal business activities in
any one industry; provided, that this limitation shall not apply to obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or with respect to Pennsylvania, Tax Exempt and Institutional
Tax Exempt, to municipal securities and certificates of deposit and bankers'
acceptances issued by domestic branches of U.S. banks.
9........Warrants
.........Tax Exempt and Institutional Tax Exempt* may not invest more than 5% of
their total net assets in warrants, and, of this amount, no more than 2% of the
Fund's total net assets may be invested in warrants that are listed on neither
the New York nor the American Stock Exchange.
10.......Ownership by Trustees/Officers
.........Neither Money Market, Tax Exempt, Treasury, Institutional Money
Market*, Institutional Tax Exempt* nor Institutional Treasury* may purchase or
retain the securities of any issuer if (i) one or more officers or Trustees of a
Fund or its investment adviser individually owns or would own, directly or
beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in
the aggregate, such persons own or would own, directly or beneficially, more
than 5% of such securities.
11.......Short Sales
.........Neither Money Market, Tax Exempt, Treasury, Institutional Money
Market*, Institutional Tax Exempt* nor Institutional Treasury* may make short
sales of securities or maintain a short position; except that, in the case of
Treasury, Institutional Treasury, Institutional Tax Exempt and Institutional
Money Market, at all times when a short position is open it owns an equal amount
of such securities or of securities which, without payment of any further
consideration are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short.
12.......Lending of Funds and Securities
.........Tax Exempt and Institutional Tax Exempt may not lend their funds to
other persons; however, they may purchase issues of debt securities, enter into
repurchase agreements and acquire privately negotiated loans made to municipal
borrowers.
.........Money Market and Institutional Money Market may not lend their funds to
other persons, provided that they may purchase money market securities or enter
into repurchase agreements.
.........Treasury and Institutional Treasury will not lend any of their assets,
except that they may purchase or hold U.S. Treasury obligations, including
repurchase agreements.
.........Neither Money Market, Pennsylvania, Tax Exempt, Institutional Money
Market nor Institutional Tax Exempt may lend its portfolio securities, unless
the borrower is a broker, dealer or financial institution that pledges and
maintains collateral with the Fund consisting of cash, letters of credit or
securities issued or guaranteed by the U.S. government having a value at all
times not less than 100% of the current market value of the loaned securities,
including accrued interest, provided that the aggregate amount of such loans
shall not exceed 30% of the Fund's total assets (5% in the case of
Pennsylvania).
13.......Commodities
......... Money Market, Tax Exempt, Treasury*, Institutional Treasury*,
Institutional Money Market* and Institutional Tax Exempt* may not purchase, sell
or invest in commodities, commodity contracts or financial futures contracts.
14.......Real Estate
.........The Funds may not purchase, sell or invest in real estate or interests
in real estate, except that Money Market and Institutional Money Market may
purchase, sell or invest in marketable securities of companies holding real
estate or interests in real estate, including real estate investment trusts, Tax
Exempt and Institutional Tax Exempt may purchase municipal securities and other
debt securities secured by real estate or interests therein and Pennsylvania may
purchase securities secured by real estate or interests therein, or securities
issued by companies which invest in real estate or interests therein.
15.......Borrowing, Senior Securities, Reverse Repurchase Agreements
......... Money Market, Tax Exempt, Institutional Money Market and Institutional
Tax Exempt may not borrow money, issue senior securities or enter into reverse
repurchase agreements, except for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the Fund's
total assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing, provided that the Fund will
not purchase any securities at times when any borrowings (including reverse
repurchase agreements) are outstanding. The Funds will not enter into reverse
repurchase agreements exceeding 5% of the value of their total assets.
.........Pennsylvania shall not borrow money, issue senior securities, or
pledge, mortgage or hypothecate its assets, except that the Fund may borrow from
banks if immediately after each borrowing there is asset coverage of at least
300%.
.........Treasury and Institutional Treasury will not issue senior securities
except that each Fund may borrow money directly, as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of 5%
of the value of its total assets, or in an amount up to one- third of the value
of its total assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments. Any such borrowings
need not be collateralized. Each Fund will not purchase any securities while
borrowings in excess of 5% of the total value of its total assets are
outstanding. Each Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage purposes. Treasury and Institutional Treasury
will not mortgage, pledge or hypothecate any assets except to secure permitted
borrowings. In these cases, Treasury and Institutional Treasury may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the pledge.
16.......Options
.........Money Market, Tax Exempt, Institutional Money Market* and Institutional
Tax Exempt* may not write, purchase or sell put or call options, or combinations
thereof, except Money Market and Institutional Money Market may do so as
permitted under "Description of the Funds - Investment Objective and Policies"
in each Fund's Prospectus and Tax Exempt and Institutional Tax Exempt may
purchase securities with rights to put securities to the seller in accordance
with its investment program.
.........Pennsylvania shall not write, purchase or sell puts, calls, warrants or
options or any combination thereof, except that the Fund may purchase securities
with put or demand rights.
17.......Investment in Municipal Securities
.........Pennsylvania, Tax Exempt and Institutional Tax Exempt may not invest
more than 20% of its total assets in securities other than municipal securities
(as described under "Description of Funds - Investment Objectives and Policies"
in each Fund's Prospectus), unless extraordinary circumstances dictate a more
defensive posture.
18.......Investment in Money Market Securities
.........Money Market may not purchase any securities other than money market
instruments(as described under "Description of Funds - Investment Objectives and
Policies" in the Fund's Prospectus).
19.......Investing in Securities of Other Investment Companies
.........Treasury*, Money Market*, Pennsylvania*, Tax Exempt*, Institutional
Treasury*, Institutional Money Market* and Institutional Tax Exempt* will
purchase securities of investment companies only in open-market transactions
involving customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees and therefore any investment by the
Funds in shares of another investment company would be subject to such duplicate
expenses.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment objective and
an investment in the Fund involves certain risks which are described under
"Description of the Funds - Investment Objectives and Policies" in each Fund's
Prospectus.
MANAGEMENT
The age, address and principal occupation of the Trustees and executive officers
of Evergreen Investment Trust (formerly First Union Funds), The Evergreen
Municipal Trust, Evergreen Tax Free Trust (formerly FFB Funds Trust) and
Evergreen Money Market Trust (each a "Trust" and collectively the "Trusts"),
during the past five years are set forth below:
Laurence B. Ashkin (68), 180 East Pearson Street, Chicago, IL-Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
Foster Bam (70), Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law firm
of Cummings and Lockwood since 1968.
James S. Howell (72), 4124 Crossgate Road, Charlotte, NC-Chairman of the
Evergreen Group of Mutual Funds and Trustee. Retired Vice President of Lance
Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the
Carolinas from 1989 to 1993.
Gerald M. McDonnell (57), 821 Regency Drive, Charlotte, NC-Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
Thomas L. McVerry (58), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990. Vice President-Finance and Resources, Rexham
Corporation from 1979 to 1990.
William Walt Pettit* (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since
1990.
Russell A. Salton, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC-
Trustee. Medical Director, U.S. Healthcare of Charlotte, North Carolina since
1996; President, Primary Physician Care from 1990 to 1996.
Michael S. Scofield (53), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Robert J. Jeffries (73), 2118 New Bedford Drive, Sun City Center, FL-Trustee
Emeritus. Corporate consultant since 1967.
John J. Pileggi (37), 230 Park Avenue, Suite 910, New York, NY-President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
George O. Martinez (37), 3435 Stelzer Road, Columbus, OH-Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel, Alliance
Capital Management from 1988 to 1995.
The officers listed above hold the same positions with thirteen investment
companies offering a total of forty-one investment funds within the Evergreen
mutual fund complex. Messrs. Howell, Salton and Scofield are Trustees of all
thirteen investment companies. Messrs. McDonnell, McVerry and Pettit are
Trustees of twelve of the investment companies (excluded is Evergreen Variable
Trust). Messrs. Ashkin, Bam and Jeffries are Trustees of eleven of the
investment companies (excluded are Evergreen Variable Trust and Evergreen
Investment Trust.) ----------
* Mr. Pettit may be deemed to be an "interested person" within the meaning of
the 1940 Act.
The officers of the Trusts are all officers and/or employees of or consultants
to BISYS Fund Services ("BISYS"). BISYS is an affiliate of Evergreen Keystone
Distributor, Inc.
("EKD"), the distributor of each Class of shares of each Fund.
The Funds do not pay any direct remuneration to any officer or Trustee who is an
"affiliated person" of either First Union National Bank of North Carolina or
Evergreen Asset Management Corp. or their affiliates. See "Investment Adviser."
Currently, none of the Trustees is an "affiliated person" as defined in the 1940
Act. Evergreen Investment Trust, Evergreen Money Market Trust and The Evergreen
Municipal Trust pay each Trustee who is not an "affiliated person" an annual
retainer and a fee per meeting attended, plus expenses. The Evergreen Tax Free
Trust pays each Trustee who is not an "affiliated person" a fee per meeting
attended, plus expenses, as follows:
Name of Fund Annual Retainer Meeting Fee
Evergreen Investment Trust - $15,000* $2,000*
Treasury
Evergreen Money Market Trust - **
Money Market $100
Institutional Money Market $100
Institutional Treasury $100
The Evergreen Municipal Trust - **
Tax Exempt $100
Institutional Tax Exempt $100
Evergreen Tax Free Trust - -0-
Pennsylvania $100
- ---------------------------
* The annual retainer and the per meeting fee paid by Evergreen Investment Trust
to each Trustee are allocated among its fourteen series.
** $4,000, allocated between the Evergreen Money Market Trust (which offers
three investment series) and The Evergreen Municipal Trust (which offers five
investment series).
In addition:
(1) Each non-affiliated Trustee is paid a fee of $500 for each special
telephonic meeting in which he participates, regardless of the number of Funds
for which the meeting is called.
(2) The Chairman of the Board of the Evergreen group of mutual funds is
paid an annual retainer of $5,000, and the Chairman of the Audit
Committee is paid an annual retainer of $2,000. These retainers are
allocated among all the funds in the Evergreen group of mutual funds,
based upon assets.
(3) Each member of the Audit Committee is paid an annual retainer of $500.
(4) Any individual who has been appointed as a Trustee Emeritus of one or
more funds in the Evergreen group of mutual funds is paid one-half of
the fees that are payable to regular Trustees.
Set forth below for each of the Trustees is the aggregate compensation paid
to such Trustees by each of Evergreen Investment Trust, The Evergreen Municipal
Trust, Evergreen Money Market Trust and by Evergreen Tax Free Trust for the
one-year period ended February 28, 1997.
Aggregate Compensation from Trust
Total
Compensation
Evergreen The From Trusts
Money Evergreen Evergreen Evergreen & Fund
Name of Market Municipal Investment Tax Free Complex Paid
Trustee Trust Trust Trust Trust to Trustees
Laurence Ashkin $4,853 $4,119 $ 0 $1,017 $33,621
Foster Bam 4,553 3,719 0 817 30,921
James S. Howell 4,690 4,196 27,817 1,009 66,000
Gerald M.
McDonnell 3,845 3,417 23,927 806 53,300
Thomas L.
McVerry 4,377 3,941 26,637 1,006 59,500
William Walt
Pettit 3,993 3,724 25,459 1,009 57,000
Russell A.
Salton, III, M.D. 3,993 3,724 25,458 1,009 61,000
Michael S.
Scofield 4,070 3,750 25,458 1,009 61,102
Robert Jeffries* 1,867 1,523 0 411 13,305
- --------------------
*Robert J. Jeffries has been serving as a Trustee Emeritus since January 1,
1996.
As of the date of this Statement of Additional Information, the officers
and Trustees of each of the Trusts as a group owned less than 1% of the
outstanding shares of any of the Funds.
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of April 30, 1998.
Name of % of
Name and Address* Fund/Class No. of Shares Class/Fund
- ------------------ ---------- ---------- ---
First Union National Bank of NC Money Market/A 7,812 26.49%/20.04%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Money Market/A 136,412,042 6.36%/4.81%
Trust Accounts
Attn: Ginny Batten CMG 1151-2
401 Tryon Street 3rd Fl.
Charlotte, NC 28288
FUNB Money Market/A 110,393,159 5.15%/3.90%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
FUNB Money Market/A 243,603,023 11.37%/8.60%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
FUNB Money Market/A 264,978,416 12.36%/9.35%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Money Market/Y 285,500,261 42.18%/10.08%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon Street
Charlotte, NC 28202-1911
Pitcairn Trust Co. Money Market/Y 65,103,166 9.62%/3.00%
One Pitcairn Place
Jenkintown, PA 19046
First Union National Bank Tax-Exempt/A 41,099,739 5.98%/3.59%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Tax-Exempt/A 202,776,147 29.49%/17.73%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-1164
First Union National Bank Tax-Exempt/A 157,777,336 22.95%/13.80%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-1164
First Union National Bank Tax-Exempt/A 88,280,121 12.84%/7.72%
Trust Accounts
Attn: Ginny Batten CMG 1151-2
301 S. Tryon Street
Charlotte, NC 28202-1911
First Union National Bank Tax-Exempt/Y 109,670,322 24.05%/19.59%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-151
301 S. Tryon Street
Charlotte, NC 28288
First Union National Bank Treasury/A 257,130,556 11.44%/8.49%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Treasury/A 450,657,782 20.05%/15.40%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Treasury/A 144,294,896 6.42%/4.93%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Treasury/A 188,910,576 8.41%/6.46%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
First Union National Bank Treasury/A 519,991,159 23.14%/17.77%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1910
First Union National Bank Treasury/Y 546,702,320 88.41%/18.69%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Johnathan B. Detwiller Pennsylvania/Y 2,932,014 8.83%/4.65%
P.O. Box 69
Phoenixville, PA 19460-0069
First Union National Bank Pennsylvania/Y 10,379,554 31.27%/16.46%
Trust Accounts
Attn: Ginny Batten CMG 11512
301 S. Tryon Street
Charlotte, NC 28202-0001
Agnes C. Kim Pennsylvania/Y 2,335,497 7.04%/3.70%
760 Conshohocken State Rd.
Gladuyne, PA 19035-1416
FUNB Pennsylvania/A 21,890,603 73.32%/34.72%
Attn: Cap Finance GL
230 S. Tryon St.
Charlotte, NC 28202-3215
Hans P. Utsch Pennsylvania/A 3,648,793 12.22%/5.79%
Susan Utsch JT WROS
819 Church Road
Wayne, PA 19087-4714
First Union National Bank Inst MMkt/I 454,069,389 91.95%/29.21%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank Inst MMkt/IS 263,973,048 39.74%/22.79%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
Ivax Corporation Inst MMkt/IS 40,411,193 6.08%/3.49%
Attn: Jason White
4400 Biscayne Blvd. 7th Floor
Miami, FL 33137-3212
First Union National Bank Inst Tx-Ex MM/I 155,276,582 100.00%/91.72%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank Inst Tx-Ex MM/IS 13,616,585 97.12%/8.04%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank Inst Treas MM/I 527,222,486 99.33%/59.21%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank Inst Treas MM/I 277,915,322 77.27%/31.21%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S. Tryon St. 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank of North Carolina and its affiliates act in various
capacities for numerous accounts. As a result of its ownership on April 30,
1997, of 88.41% of Class Y shares and 46.32% Class A shares of Treasury Money
Market Fund, 31.27% and 73.32%, respectively, of Class Y and Class A shares of
Pennsylvania Money Market Fund, 42.18% of Class Y and 55.37% of Class A shares
of Money Market Fund and 58.42% of Tax Exempt Money Market Fund, First Union may
be deemed to "control" those Funds as that term is defined in the 1940 Act.
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus)
The investment adviser of Money Market and Tax Exempt is Evergreen Asset
Management Corp., a New York corporation, with offices at 2500 Westchester
Avenue, Purchase, New York ("Evergreen Asset" or the "Adviser"). Evergreen Asset
is owned by First Union National Bank of North Carolina ("FUNB" or the
"Adviser") which, in turn, is a subsidiary of First Union Corporation ("First
Union"), a bank holding company headquartered in Charlotte, North Carolina. The
investment adviser of Treasury, Institutional Treasury, Institutional Money
Market, Institutional Tax Exempt and Pennsylvania is FUNB which provides
investment advisory services through its Capital Management Group ("CMG"). The
Directors of Evergreen Asset are Richard K. Wagoner and Barbara I. Colvin. The
executive officers of Evergreen Asset are Stephen A. Lieber, Chairman and
Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief
Executive Officer, and Theodore J. Israel, Jr., Executive Vice President.
The partnership interests in Lieber, a New York general partnership, were owned
by Lieber I Corp. and Lieber II Corp., which are both wholly-owned subsidiaries
of FUNB.
Prior to January 1, 1996, First Fidelity Bank, N.A. acted as investment adviser
to Pennsylvania.
Under its Investment Advisory Agreement with each Fund, each Adviser has agreed
to furnish reports, statistical and research services and recommendations with
respect to each Fund's portfolio of investments. In addition, each Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, each Adviser will pay
the costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is described
in such Fund's Prospectus. The advisory fees paid by each Fund for the three
most recent fiscal periods reflected in its registration statement are set forth
below:
TAX EXEMPT Year Ended Year Ended Year Ended
8/31/96 8/31/95 8/31/94
Advisory Fee $5,540,924 $2,329,035 $2,126,246
Waiver (1,243,131) (558,942) (1,256,653)
----------- --------- -----------
Net Advisory Fee $4,297,793 $1,770,093 $ 869,593
=========== ========== ===========
MONEY MARKET Six Months Year Ended Year Ended Year Ended
Ended 2/28/97 8/31/96 8/31/95 8/31/94
Advisory Fee $6,061,353 $8,346,173 $1,831,518 $1,245,513
Waiver 1,255,415 (2,427,423) (732,723) (974,438)
----------- --------- -----------
Net Advisory Fee 4,805,938 $5,918,750 1,098,795 $ 271,075
========== ========== ===========
PENNSYLVANIA Six Months Year Ended Year Ended
Ended 8/31/96* 2/29/96 2/28/95
Advisory Fee $148,591 $312,440 $ 85,049
Waiver (59,186) (241,213) (85,049)
-------- --------- ---------
Net Advisory Fee $89,405 $ 71,227 0
======== ========= =========
TREASURY Year Ended Eight Months Year Ended
8/31/96 Ended 12/31/94
8/31/95**
Advisory Fee $8,857,503 $2,814,251 $2,549,955
Waiver (2,109,068) (1,258,611) (1,948,237)
---------- --------- ----------
Net Advisory Fee $6,748,435 $1,555,640 $ 601,718
========== ========== ==========
INSTITUTIONAL MONEY Period From 11/19/96
MARKET Through 2/28/97
Advisory Fee $337,302
Waiver (337,302)
---------
Net Advisory Fee 0
=========
INSTITUTIONAL TAX Period From 11/20/96
EXEMPT Through 2/28/97
Advisory Fee $ 77,430
Waiver (77,430)
---------
Net Advisory Fee 0
=========
INSTITUTIONAL TREASURY Period From 11/20/96
Through 2/28/97
Advisory Fee $199,136
Waiver (199,136)
---------
Net Advisory Fee 0
=========
--------------------
* The Fund changed its fiscal year from February 28 to August 31.
** The Fund changed its fiscal year from December 31 to August 31.
Expense Limitations
Evergreen Asset as Adviser to Money Market and Tax Exempt has, pursuant to each
Investment Advisory Agreement, agreed to reimburse each Fund to the extent that
any of these Funds' aggregate operating expenses (including the Adviser's fee,
but excluding interest, taxes, brokerage commissions, and extraordinary
expenses, and for such Funds Class A, Class B and Class C shares, as applicable,
Rule 12b-1 distribution fees and shareholder servicing fees payable) exceed
1.00% of their average net assets for any fiscal year. FUNB as Adviser to
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
has voluntarily agreed to reimburse each Fund to the extent that any of these
Funds' aggregate operating expenses (including the Adviser's fee, but excluding
interest, taxes, brokerage commissions, and extraordinary expenses, and for such
Funds Institutional Service shares Rule 12b-1 distribution fees and shareholder
servicing fees payable) exceed 0.20 of 1.00% of their average net assets for any
fiscal year for Institutional shares and .45 of 1.00% for Institutional Service
shares.
The Investment Advisory Agreements are terminable, without the payment of any
penalty, on sixty days' written notice, by a vote of the holders of a majority
of each Fund's outstanding shares, or by a vote of a majority of each Trust's
Trustees or by the respective Adviser. The Investment Advisory Agreements will
automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. The Investment
Advisory Agreements with respect to Money Market and Tax Exempt, dated June 30,
1994, were each last approved by the Trustees of each Trust on March 11, 1997,
and will continue from year to year provided that such continuance is approved
annually by a vote of a majority of the Trustees of each Trust including a
majority of those Trustees who are not parties thereto or "interested persons"
(as defined in the 1940 Act) of any such party, cast in person at a meeting duly
called for the purpose of voting on such approval or a majority of the
outstanding voting shares of each Fund. With respect to Treasury, the Investment
Advisory Agreement dated February 28, 1985 and amended from time to time
thereafter was last approved by the Trustees on March 11, 1997, and it will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of the Fund. With respect to Pennsylvania, the
Investment Advisory Agreement dated January 1, 1996 was first approved by the
shareholders of the Fund on December 12, 1995 and will continue until January 1,
1998 and from year to year with respect to the Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of the Fund. With respect to Institutional Money
Market, Institutional Tax Exempt and Institutional Treasury, the Investment
Advisory Agreements dated September 30, 1996 were approved by each Fund's
initial shareholder on September 30, 1996, and will continue in effect until
September 30, 1998, and thereafter from year to year provided that their
continuance is approved annually by a vote of a majority of the Trustees of each
Trust including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
Certain other clients of each Adviser may have investment objectives and
policies similar to those of the Funds. Each Adviser (including the sub-adviser)
may, from time to time, make recommendations which result in the purchase or
sale of a particular security by its other clients simultaneously with a Fund.
If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity. It is the
policy of each Adviser to allocate advisory recommendations and the placing of
orders in a manner which is deemed equitable by the Adviser to the accounts
involved, including the Funds. When two or more of the clients of the Adviser
(including one or more of the Funds) are purchasing or selling the same security
on a given day from the same broker-dealer, such transactions may be averaged as
to price.
Although the investment objectives of the Funds are not the same, and their
investment decisions are made independently of each other, they rely upon the
same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit
purchase and sales transactions to be effected between each Fund and the other
registered investment companies for which either Evergreen Asset or FUNB acts as
investment adviser or between the Fund and any advisory clients of Evergreen
Asset, FUNB or Lieber. Each Fund may from time to time engage in such
transactions but only in accordance with these procedures and if they are
equitable to each participant and consistent with each participant's investment
objectives.
Prior to July 1, 1995, Federated Administrative Services, a subsidiary of
Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. For the fiscal year ended August 31, 1996, the fiscal period ended August
31, 1995 and the fiscal year ended December 31, 1994, Treasury incurred
$1,255,724, $601,034 and $462,002, respectively, in administrative service
costs.
Prior to January 19, 1996, Furman Selz LLC acted as administrator for
Pennsylvania. For the fiscal period ended January 18, 1996 and the fiscal years
ended February 28, 1995 and 1994 Furman Selz LLC waived its entire
administrative fee.
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as administrator to
the Funds and is entitled to receive a fee based on the average daily net assets
of each Fund at a rate based on the total assets of the mutual funds for which
any affiliate of FUNB serves as investment adviser, calculated daily and payable
monthly at the following annual rates: .050% on the first $7 billion; .035% on
the next $3 billion; .030% on the next $5 billion; .020% on the next $10
billion; .015% on the next $5 billion; and .010% on assets in excess of $30
billion. BISYS, an affiliate of EKD, distributor for the Evergreen Keystone
group of mutual funds, serves as sub-administrator to the Funds and is entitled
to receive a fee from EKIS calculated on the average daily net assets of the
Funds at a rate based on the total assets of the mutual funds for which any
affiliate of FUNB serves as investment adviser, calculated in accordance with
the following schedule: .0100% of the first $7 billion; .0075% on the next $3
billion; .0050% on the next $15 billion; .0040% on assets in excess of $25
billion. The total assets of the mutual funds for which FUNB affiliates serve as
investment adviser were approximately $29 billion as of March 31, 1997.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A shares of Money Market, Tax Exempt, Treasury,
Pennsylvania, Institutional Service shares of Institutional Treasury,
Institutional Money Market and Institutional Tax Exempt, and for Money Market,
its Class B shares and Class C shares and are charged as class expenses, as
accrued. The distribution fees attributable to the Class B shares and Class C
shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares and the Class C shares, are the same as those of the front-end
sales charge and distribution fee with respect to the Class A shares in that in
each case the sales charge and/or distribution fee provide for the financing of
the distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with
respect to each of its Class A, Institutional Service, Class B and Class C
shares, as applicable, (to the extent that each Fund offers such classes) (each
a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended by the Fund under the Plan and the purposes for which such
expenditures were made to the Trustees of each Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
the Independent Trustees are committed to the discretion of such Independent
Trustees then in office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
make payments for distribution services to the Distributor; the latter may in
turn pay part or all of such compensation to brokers or other persons for their
distribution assistance.
Each Plan continues in effect from year to year only if approved at least
annually by each Trust's Board of Trustees or by a vote of a majority of each
Fund's outstanding shares (as defined in the 1940 Act). In either case, by the
vote of a majority of each Trust's Independent Trustees who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related. Each Distribution Agreement will continue in effect from year to year,
if the Board of Trustees approves such continuance annually in the same manner
as the Advisory Agreement.
On October 1, 1996 Institutional Money Market, Institutional Tax Exempt and
Institutional Treasury commenced the offering of each Fund's Institutional
Service shares. Each Plan with respect to such Funds became effective on August
1, 1996 and was initially approved by the sole shareholder of each Fund on
September 30, 1996 and by the unanimous vote of the Trustees of each Trust,
including the disinterested Trustees voting separately, at a meeting called for
that purpose and held on August 1, 1996. The Distribution Agreements between
each Fund and the Distributor, pursuant to which distribution fees are paid
under the Plans by each Fund with respect to its Institutional Service shares
were also approved at the August 1, 1996 meeting by the unanimous vote of the
disinterested Trustees voting separately. Each Plan and Distribution Agreement
will continue in effect for successive twelve-month periods provided, however,
that such continuance is specifically approved at least annually by the Trustees
of each Trust or by vote of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Class and, in either case, by a
majority of the Trustees of the Trust who are not parties to the Distribution
Agreement or interested persons, as defined in the 1940 Act, of any such party
(other than as Trustees of the Trust) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related
thereto.
The Plans permit the payment of fees to brokers and others for distribution and
shareholder-related administrative services and to broker-dealers, depository
institutions, financial intermediaries and administrators for administrative
services as to each Fund's Class A, Institutional Service, Class B and Class C
shares as applicable. The Plans are designed to (i) stimulate brokers to provide
distribution and administrative support services to the Funds and holders of
each Fund's Class A, Institutional Service, Class B and Class C shares as
applicable and (ii) stimulate administrators to render administrative support
services to the Funds and holders of such shares. The administrative services
are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding each Fund's Class A,
Institutional Service, Class B and Class C shares as applicable; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as the Fund reasonably requests for its Class A,
Institutional Service, Class B and Class C shares, as applicable.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of shares of a Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to that Class or Classes of
shares, and (ii) the Fund would not be obligated to pay the Distributor for any
amounts expended under the Distribution Agreement not previously recovered by
the Distributor from distribution services fees in respect of such Class or
Classes of shares through deferred sales charges. However, the Distributor will
ask the Trust's Independent Trustees to take whatever action they deem
appropriate under the circumstances with respect to payment of Advances.
Any change in the Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in the Distribution Plan requires
shareholder approval. Otherwise, the Distribution Plan may be amended by votes
of each Trust's (1) Board of Trustees and (2) Independent Trustees cast in
person at a meeting called for the purpose of voting on such amendment.
Any Plan or Distribution Agreement may be terminated (a) by a Fund without
penalty at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
Independent Trustees, or (b) by the Distributor. To terminate any Distribution
Agreement, any party must give the other parties 60 days' written notice; to
terminate a Plan only, the Fund need give no notice to the Distributor. Any
Distribution Agreement will terminate automatically in the event of its
assignment.
Fees Paid Pursuant to Distribution Plans. Treasury, Money Market, Tax Exempt and
Pennsylvania incurred the following distribution service fees:
Treasury. For the fiscal year ended August 31, 1996, $6,381,827 on behalf of
Class A shares.
Money Market. For the six months ended February 28, 1997, $2,698,374 on behalf
of Class A shares and $39,539 on behalf of Class B shares.
Tax Exempt. For the fiscal year ended August 31, 1996, $1,898,665 on behalf of
Class A shares.
Pennsylvania. For the six months ended August 31, 1996 (commencement of
operations), $24,476 on behalf of Class A shares.
For the period from November 19, 1996 through February 28, 1997, Institutional
Money Market, Institutional Tax Exempt and Institutional Treasury paid EKD, the
Distributor, fees of $297,918, $11,834 and $165,813, respectively pursuant to
the Distribution Plans.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser, subject to
the supervision and control of the Trustees. Orders for the purchase and sale of
securities and other investments are placed by employees of the Adviser, all of
whom, in the case of Evergreen Asset, are associated with Lieber and Company. In
general, the same individuals perform the same functions for the other funds
managed by the Adviser. A Fund will not effect any brokerage transactions with
any broker or dealer affiliated directly or indirectly with the Adviser unless
such transactions are fair and reasonable, under the circumstances, to the
Fund's shareholders. Circumstances that may indicate that such transactions are
fair or reasonable include the frequency of such transactions, the selection
process and the commissions payable in connection with such transactions.
It is anticipated that most purchase and sale transactions involving fixed
income securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary consideration
of each Fund shall be prompt execution at the most favorable price. A Fund will
also consider such factors as the price of the securities and the size and
difficulty of execution of the order. If these objectives may be met with more
than one firm, the Fund will also consider the availability of statistical and
investment data and economic facts and opinions helpful to the Fund. To the
extent that receipt of these services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses.
Under Section 11(a) of the Securities Exchange Act of 1934, as amended, and the
rules adopted thereunder by the Securities and Exchange Commission, Lieber may
be compensated for effecting transactions in portfolio securities for a Fund on
a national securities exchange provided the conditions of the rules are met.
Each Fund advised by Evergreen Asset has entered into an agreement with Lieber
authorizing Lieber to retain compensation for brokerage services. In accordance
with such agreement, it is contemplated that Lieber, a member of the New York
and American Stock Exchanges, will, to the extent practicable, provide brokerage
services to the Fund with respect to substantially all securities transactions
effected on the New York and American Stock Exchanges. In such transactions, a
Fund will seek the best execution at the most favorable price while paying a
commission rate no higher than that offered to other clients of Lieber or that
which can be reasonably expected to be offered by an unaffiliated broker-dealer
having comparable execution capability in a similar transaction. However, no
Fund will engage in transactions in which Lieber would be a principal. While no
Fund advised by Evergreen Asset contemplates any ongoing arrangements with other
brokerage firms, brokerage business may be given from time to time to other
firms. In addition, the Trustees have adopted procedures pursuant to Rule 17e-1
under the 1940 Act to ensure that all brokerage transactions with Lieber, as an
affiliated broker-dealer, are fair and reasonable.
Any profits from brokerage commissions accruing to Lieber as a result of
portfolio transactions for the Fund will accrue to FUNB and to its ultimate
parent, First Union. The Investment Advisory Agreements do not provide for a
reduction of the Adviser's fee with respect to any Fund by the amount of any
profits earned by Lieber from brokerage commissions generated by portfolio
transactions of the Fund.
ADDITIONAL TAX INFORMATION
(See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify, for and elect the
tax treatment applicable to regulated investment companies ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
(Such qualification does not involve supervision of management or investment
practices or policies by the Internal Revenue Service.) In order to qualify as a
regulated investment company, a Fund must, among other things, (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
proceeds from securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward foreign contracts) derived with respect to its business of
investing in such securities; (b) derive less than 30% of its gross income from
the sale or other disposition of securities, options, futures or forward
contracts (other than those on foreign currencies), or foreign currencies (or
options, futures or forward contracts thereon) that are not directly related to
the RIC's principal business of investing in securities (or options and futures
with respect thereto) held for less than three months; and (c) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, a Fund is not subject to Federal income tax if it
timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
Dividends paid by a Fund from investment company taxable income generally will
be taxed to the shareholders as ordinary income. Investment company taxable
income includes net investment income and net realized short-term gains (if
any). Any dividends received by a Fund from domestic corporations will
constitute a portion of the Fund's gross investment income.
Distributions of the excess of net long-term capital gain over net short-term
capital loss are taxable to shareholders (who are not exempt from tax) as
long-term capital gain, regardless of the length of time the shares of a Fund
have been held by such shareholders. Short-term capital gains distributions are
taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net short-term
capital gains will be taxable as ordinary income as described above to
shareholders (who are not exempt from tax), whether made in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the net asset value of a share of a Fund on the reinvestment date.
Distributions by each Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
what is in effect a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a taxable gain
or loss depending on its basis in the shares. Such gains or losses will be
treated as a capital gain or loss if the shares are capital assets in the
investor's hands and will be a long-term capital gain or loss if the shares have
been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported by each
shareholder on his or her Federal income tax return. Each shareholder should
consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers to a Fund
and to certify as to its correctness and certain other shareholders may be
subject to a 31% Federal income tax backup withholding requirement on dividends,
distributions of capital gains and redemption proceeds paid to them by the Fund.
If the withholding provisions are applicable, any such dividends or capital gain
distributions to these shareholders, whether taken in cash or reinvested in
additional shares, and any redemption proceeds will be reduced by the amounts
required to be withheld. Investors may wish to consult their own tax advisers
about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to Federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
Special Tax Considerations for Tax Exempt, Pennsylvania and Institutional Tax
Exempt
To the extent that a Fund distributes exempt interest dividends to a
shareholder, interest on indebtedness incurred or continued by such shareholder
to purchase or carry shares of the Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or related persons) of facilities
financed by "private activity" bonds (some of which were formerly referred to as
"industrial development" bonds) should consult their tax advisers before
purchasing shares of the Fund. "Substantial user" is defined generally as
including a "non-exempt person" who regularly uses in its trade or business a
part of a facility financed from the proceeds of industrial development bonds.
The percentage of the total dividends paid by a Fund with respect to any taxable
year that qualifies as exempt interest dividends will be the same for all
shareholders of the Fund receiving dividends with respect to such year. If a
shareholder receives an exempt interest dividend with respect to any share and
such share has been held for six months or less, any loss on the sale or
exchange of such share will be disallowed to the extent of the exempt interest
dividend amount.
NET ASSET VALUE
The following information supplements that set forth in each Fund's Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares."
The public offering price of shares of a Fund is its net asset value. On each
Fund business day on which a purchase or redemption order is received by a Fund
and trading in the types of securities in which a Fund invests might materially
affect the value of Fund shares, the per share net asset value of each such Fund
is computed in accordance with the Declaration of Trust and By-Laws governing
each Fund twice daily, at 12 noon Eastern time and as of the next close of
regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. Eastern time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding. A Fund business
day is any weekday, exclusive of national holidays on which the Exchange is
closed and Good Friday. Each Fund's securities are valued at amortized cost.
Under this method of valuation, a security is initially valued at its
acquisition cost and, thereafter, a constant straight line amortization of any
discount or premium is assumed each day regardless of the impact of fluctuating
interest rates on the market value of the security. If accurate quotations are
not available, securities will be valued at fair value determined in good faith
by the Board of Trustees.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's Prospectus
under the heading "Purchase and Redemption of Shares - How To Buy Shares."
General
Shares of each Fund will be offered on a continuous basis at a price equal to
their net asset value without any front-end or contingent deferred sales charges
or with a contingent deferred sales charge (the "deferred sales charge
alternative") as described below. Class Y and Institutional shares which, as
described below, are not offered to the general public or which, in the case of
Institutional shares, are only available to investors having certain
relationships with the Adviser of its affiliates, are offered without any
front-end or contingent deferred sales charges. Shares of each Fund are offered
on a continuous basis through (i) investment dealers that are members of the
National Association of Securities Dealers, Inc. and have entered into selected
dealer agreements with the Distributor ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Distributor ("selected agents"),
or (iii) the Distributor. For Money Market, Tax Exempt, Pennsylvania and
Treasury, the minimum for initial investments is $1,000; there is no minimum for
subsequent investments. For Institutional Money Market, Institutional Tax Exempt
and Institutional Treasury, the minimum amount for initial investments is
$1,000,000; there is no minimum for subsequent investments. The subscriber may
use the Share Purchase Application available from the Distributor for his or her
initial investment. Sales personnel of selected dealers and agents distributing
a Fund's shares may receive differing compensation for selling Class A,
Institutional Service, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either through
selected dealers or agents or directly through the Distributor. A Fund reserves
the right to suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be executed at the
public offering price equal to the net asset value next determined, as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day. In the case of orders for purchase of shares placed through selected
dealers or agents, the applicable public offering price will be the net asset
value as so determined, but only if the selected dealer or agent receives the
order prior to the close of regular trading on the Exchange and transmits it to
the Distributor prior to its close of business that same day (normally 5:00 p.m.
Eastern time). The selected dealer or agent is responsible for transmitting such
orders by 5:00 p.m. If the selected dealer or agent fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the selected dealer or agent. If the selected dealer or agent
receives the order after the close of regular trading on the Exchange, the price
will be based on the net asset value determined as of the close of regular
trading on the Exchange on the next day it is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may place
orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("ACH"). If a shareholder's
telephone purchase request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed the same Fund
business day for non-money market funds, and two days following the day the
order is received for money market funds, and the applicable public offering
price will be the public offering price determined as of the close of business
on such business day. Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to a Fund, stock certificates are
not issued for any class of shares of any Fund, although such shares remain in
the shareholder's account on the records of a Fund. This facilitates later
redemption and relieves the shareholder of the responsibility for and
inconvenience of lost or stolen certificates.
Alternative Purchase Arrangements
The Funds issue the following classes of shares:
Pennsylvania, Money Market, Tax Exempt, and Treasury: Class A shares; Money
Market: Class B and Class C shares; Pennsylvania, Money Market, Tax Exempt and
Treasury: Class Y shares, which are offered only to (a) persons who at or prior
to December 30, 1994, owned shares in a mutual fund advised by Evergreen Asset,
(b) certain investment advisory clients of the Advisers and their affiliates,
and (c) institutional investors; Institutional Money Market, Institutional Tax
Exempt and Institutional Treasury: Institutional Service shares; and
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury:
Institutional shares.
The classes of shares each represent an interest in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except that (1) only Class A, Class B, Class C and Institutional Service shares
are subject to a Rule 12b-1 distribution fee, (II) Class B and Class C shares
bear the expense of the deferred sales charge, (III) Class B and Class C shares
bear the expense of a higher Rule 12b-1 distribution services fee than Class A
shares and higher transfer agency costs, (IV) with the exception of Class Y
shares, each Class of each Fund has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid which relates to a specific Class and other matters for which
separate Class voting is appropriate under applicable law, provided that, if the
Fund submits to a simultaneous vote of Class A, Class B and Class C shareholders
an amendment to the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, the Class A shareholders,
the Class B shareholders and the Class C shareholders will vote separately by
Class, and (VI) only the Class B shares are subject to a conversion feature.
Each Class has different exchange privileges and certain different shareholder
service options available.
The alternative purchase arrangements permit an investor to choose the method of
purchasing shares that is most beneficial. The decision as to which Class of
shares of Money Market is more beneficial depends primarily on whether or not
the investor wishes to exchange all or part of any Class B or Class C shares
purchased for Class B or Class C shares of another Evergreen Keystone Fund at
some future date. If the investor does not contemplate such an exchange, it is
probably in such investor's best interest to purchase Class A shares. Class A
shares are subject to a lower distribution services fee and, accordingly, pay
correspondingly higher dividends per share than Class B or Class C shares.
The Trustees have determined that currently no conflict of interest exists
between or among the Class A, Class B, Class C and Class Y shares of Money
Market, Tax Exempt, Pennsylvania and Treasury, and the Institutional Service and
Institutional shares of Institutional Money Market, Institutional Tax Exempt and
Institutional Treasury. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B shares
at the public offering price equal to the net asset value per share of the Class
B shares on the date of purchase without the imposition of a sales charge at the
time of purchase. The Class B shares are sold without a front-end sales charge
so that the full amount of the investor's purchase payment is invested in the
Fund initially.
Proceeds from the contingent deferred sales charge are paid to the Distributor
and are used by the Distributor to defray the expenses of the Distributor
related to providing distribution-related services to the Fund in connection
with the sale of the Class B shares, such as the payment of compensation to
selected dealers and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services fee enables the
Fund to sell the Class B shares without a sales charge being deducted at the
time of purchase. The higher distribution services fee incurred by Class B
shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years after the month of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a redemption,
it will be assumed, that the redemption is first of any Class A shares in the
shareholder's Fund account, second of Class B shares held for over six years or
Class B shares acquired pursuant to reinvestment of dividends or distributions
and third of Class B shares held longest during the six-year period.
To illustrate, assume that an investor purchased 1,000 Class B shares at $1 per
share (at a cost of $1,000) and, during such time, the investor has acquired 100
additional Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 500 Class B shares, 100 Class B
shares will not be subject to charge because of dividend reinvestment.
Therefore, of the $500 of the shares redeemed $400 of the redemption proceeds
(400 shares x $1 original purchase price) will be charged at a rate of 4.0% (the
applicable rate in the second year after purchase for a contingent deferred
sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares (i)
following the death or disability, as defined in the Code, of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2. Conversion Feature. At the end
of the period ending seven years after the end of the calendar month in which
the shareholder's purchase order was accepted, Class B shares will automatically
convert to Class A shares and will no longer be subject to a higher distribution
services fee imposed on Class B shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales load, fee or other charge. The purpose of the conversion feature is to
reduce the distribution services fee paid by holders of Class B shares that have
been outstanding long enough for the Distributor to have been compensated for
the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares in
a shareholder's account will be considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of the Class B
shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution services fee and transfer agency costs with respect to
Class B shares does not result in the dividends or distributions payable with
respect to other Classes of a Fund's shares being deemed "preferential
dividends" under the Code, and (ii) the conversion of Class B shares to Class A
shares does not constitute a taxable event under Federal income tax law. The
conversion of Class B shares to Class A shares may be suspended if such an
opinion is no longer available at the time such conversion is to occur. In that
event, no further conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending seven years after the end of
the calendar month in which the shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase Class C
shares at the public offering price equal to the net asset value per share of
the Class C shares on the date of purchase without the imposition of a front-end
sales charge. However, you will pay a 1.0% contingent deferred sales charge if
you redeem shares during the first year after the month of purchase. No charge
is imposed in connection with redemptions made more than one year from the month
of purchase. Class C shares are sold without a front-end sales charge so that
the Fund will receive the full amount of the investor's purchase payment and
after the first year without a contingent deferred sales charge so that the
investor will receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. Class C shares do not convert to any other Class
shares of the Fund. Class C shares incur higher distribution services fees than
Class A shares, and will thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
Evergreen Money Market Fund, Evergreen Institutional Money Market Fund and
Evergreen Institutional Treasury Money Market Fund are each separate series of
Evergreen Money Market Trust, a Massachusetts business trust. Evergreen Tax
Exempt Money Market Fund and Evergreen Institutional Tax Exempt Money Market
Fund are each separate series of The Evergreen Municipal Trust, a Massachusetts
business trust. The Evergreen Treasury Money Market Fund (which prior to July 7,
1995 was known as the First Union Treasury Money Market Portfolio) is a separate
series of Evergreen Investment Trust, a Massachusetts business trust. On July 7,
1995, First Union Funds changed its name to Evergreen Investment Trust. The
Evergreen Pennsylvania Tax Free Money Market Fund is a separate series of
Evergreen Tax Free Trust. Evergreen Tax Free Trust (formerly known as FFB Funds
Trust) is a Massachusetts business trust which was organized on December 4,
1985. Each Trust is governed by a board of trustees. Unless otherwise stated,
references to the "Board of Trustees" or "Trustees" in this Statement of
Additional Information refer to the Trustees of all the Trusts.
Each Fund, other than Pennsylvania, Institutional Money Market, Institutional
Tax Exempt and Institutional Treasury may issue an unlimited number of shares of
beneficial interest with a $0.0001 par value. Pennsylvania, may issue an
unlimited number of shares of beneficial interest with a $.001 par value. All
shares of these Funds have equal rights and privileges. Each share is entitled
to one vote, to participate equally in dividends and distributions declared by
the Funds and on liquidation to their proportionate share of the assets
remaining after satisfaction of outstanding liabilities. Shares of these Funds
are fully paid, nonassessable and fully transferable when issued and have no
pre-emptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share.
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
may issue an unlimited number of shares of beneficial interest with $0.001 par
value. Each of these Funds has two classes of shares, Institutional Service
Shares and Institutional Shares with identical voting, dividend, liquidation and
other rights, except that the Institutional Service Shares bear distribution
expenses and have exclusive voting rights with respect to their Distribution
Plans.
Under each Trust's Declaration of Trust, each Trustee will continue in office
until the termination of the Fund or his or her earlier death, incapacity,
resignation or removal. Shareholders can remove a Trustee upon a vote of
two-thirds of the outstanding shares of beneficial interest of the Trust.
Vacancies will be filled by a majority of the remaining Trustees, subject to the
1940 Act. As a result, normally no annual or regular meetings of shareholders
will be held, unless otherwise required by the Declaration of Trust of each
Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Trustees can elect 100% of the
Trustees if they choose to do so and in such event the holders of the remaining
shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any unissued
shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Funds. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the Commonwealth of Massachusetts. If shares of
another series of a Trust were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of shares
which represent an interest in the same investment portfolio. Except for the
different distribution related and other specific costs borne by such additional
classes, they will have the same voting and other rights described for the
existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the Trustees of
each Trust, similar to those set forth in Section 16(c) of the 1940 Act, will be
available to shareholders of each Fund. The rights of the holders of shares of a
series of a Fund may not be modified except by the vote of a majority of the
outstanding shares of such series.
Distributor
Evergreen Keystone Distributor, Inc. (the "Distributor"), 125 W. 55th Street,
New York, New York 10019, serves as each Fund's principal underwriter, and as
such may solicit orders from the public to purchase shares of any Fund. The
Distributor is not obligated to sell any specific amount of shares and will
purchase shares for resale only against orders for shares. Under the agreement
between each Fund and the Distributor, each Fund has agreed to indemnify the
Distributor, in the absence of its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations thereunder, against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the Funds.
Independent Accountants
Price Waterhouse LLP has been selected to be the independent accountants of
Money Market, Tax Exempt, Institutional Money Market, Institutional Treasury and
Institutional Tax Exempt.
KPMG Peat Marwick LLP has been selected to be the independent auditors of
Treasury and Pennsylvania.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Each Fund may quote a "Current Yield" or "Effective Yield" from time to time.
The Current Yield is an annualized yield based on the actual total return for a
seven-day period. The Effective Yield is an annualized yield based on a
compounding of the Current Yield. These yields are each computed by first
determining the "Net Change in Account Value" for a hypothetical account having
a share balance of one share at the beginning of a seven-day period ("Beginning
Account Value"), excluding capital changes. The Net Change in Account Value will
generally equal the total dividends declared with respect to the account.
The yields are then computed as follows:
Current Yield = Beginning Account Value x 365/7
Effective Yield = (1 + Total Dividend for 7 days) 365/7-1
Tax Equivalent Yield = Effective Yield
----------------------
1 - Fed Tax rate + [state Tax Rate -
(state Tax Rate x Fed Tax Rate]
Yield fluctuations may reflect changes in a Fund's net investment income, and
portfolio changes resulting from net purchases or net redemptions of the Fund's
shares may affect the yield. Accordingly, a Fund's yield may vary from day to
day, and the yield stated for a particular past period is not necessarily
representative of its future yield. Since the Funds use the amortized cost
method of net asset value computation, it does not anticipate any change in
yield resulting from any unrealized gains or losses or unrealized appreciation
or depreciation not reflected in the yield computation, or change in net asset
value during the period used for computing yield. If any of these conditions
should occur, yield quotations would be suspended. A Fund's yield is not
guaranteed, and the principal is not insured.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is a
function of the kind and quality of the instruments in the Funds' investment
portfolios, portfolio maturity, operating expenses and market conditions.
It should be recognized that in periods of declining interest rates the yields
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates the yields will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to a Fund from the
continuous sale of its shares will likely be invested in instruments producing
lower yields than the balance of the Fund's investments, thereby reducing the
current yield of the Fund. In periods of rising interest rates, the opposite can
be expected to occur.
The current yield and effective yield of each Fund (and for Tax Exempt and
Pennsylvania, the tax equivalent yield) for the seven-day period ended February
28, 1997 for each Class of shares offered by the Funds is set forth in the table
below. The table assumes a Federal tax rate of 36% for Tax Exempt, and a
combined Federal and state tax rate for Pennsylvania of 37.8%.
Current Effective Tax Equivalent
Yield Yield Yield
Money Market
Class A 4.86% 4.98% N/A
Class B 4.16% 4.25% N/A
Class C N/A N/A N/A
Class Y 5.16% 5.28% N/A
Tax Exempt
Class A 2.97% 3.01% 4.70%
Class Y 3.27% 3.32% 5.19%
Treasury
Class A 4.61% 4.72% N/A
Class Y 4.91% 5.04% N/A
Pennsylvania
Class A 2.89% 2.93% 4.71%
Class Y 3.03% 3.08% 4.95%
Institutional Tax Exempt
Institutional 3.24% 3.34% 5.22%
Institutional Service 2.99% 3.08% 4.81%
Institutional Money Market
Institutional 5.36% 5.57% N/A
Institutional Service 5.10% 5.30% N/A
Institutional Treasury
Institutional 5.35% 5.38% N/A
Institutional Service 5.10% 5.12% N/A
GENERAL
From time to time, a Fund may quote its performance in advertising and other
types of literature as compared to the performance of the Bank Rate Monitor
National Index which publishes weekly average rates of 50 leading bank and
thrift institution money market deposit accounts. A Fund's performance may also
be compared to those of other mutual funds having similar objectives. This
comparative performance would be expressed as a ranking prepared by Lipper
Analytical Services, Inc., Donoghue's Money Fund Report or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker or to each
Adviser at the address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of Additional Information
does not contain all the information set forth in the Registration Statement
filed by the Trusts with the Securities and Exchange Commission under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the Securities and Exchange Commission or may be
examined, without charge, at the offices of the Securities and Exchange
Commission in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of Money Market, Tax Exempt, Treasury, Pennsylvania,
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
appearing in their most current fiscal year Annual Report to shareholders and
the report thereon of the independent auditors appearing therein, namely Price
Waterhouse LLP (in the case of Money Market, Tax Exempt, Institutional Money
Market, Institutional Tax Exempt and Institutional Treasury) or KPMG Peat
Marwick LLP (in the case of Pennsylvania and Treasury) are incorporated by
reference in this Statement of Additional Information.
You may obtain a copy of each Fund's Annual Report without charge by writing to
EKSC, P.O. Box 2121, Boston, Massachusetts 02106-2121, or by calling EKSC toll
free at 1-800-343-2898.
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate or municipal bond
rating is a current assessment of the credit worthiness of an obligor with
respect to a specific obligation. This assessment of credit worthiness may take
into consideration obligers such as guarantors, insurers or lessees. The debt
rating is not a recommendation to purchase, sell or hold a security, inasmuch as
it does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard & Poor's by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with the
ratings and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or their arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
any principal.
AA - Debt rated AA also qualifies as high quality debt obligations. Capacity to
pay interest and repay principal is very strong and in the majority of instances
they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than is higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. It is used when interest payments or
principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods; it will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus
(-) - To provide more detailed indications of credit quality, the ratings from
AA to CCC may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Some bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. NOTE: Bonds within the above
categories which possess the strongest investment attributes are designated by
the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk factors;
AA -- high credit quality, with strong protection factors and modest risk, which
may vary very slightly from time to time because of economic conditions;
A--average credit quality with adequate protection factors, but with greater and
more variable risk factors in periods of economic stress. The indicators "+" and
"-" to the AA and A categories indicate the relative position of a credit within
those rating categories.
Fitch Investors Service L.P.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those
rating categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run. Rating
symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security elements are
accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protecton commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk. COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper rating
category utilized by Standard & Poor's Ratings Group which uses the numbers 1+,
1, 2 and 3 to denote relative strength within its "A" classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating category
utilized by Duff & Phelps which uses + or - to denote relative strength within
this classification. Duff 2 represents good certainty of timely payment, with
minimal risk factors. Duff 3 represents satisfactory protection factors, with
risk factors larger and subject to more variation.
Fitch Investors Service L.P.: F-1+ -- denotes exceptionally strong credit
quality given to issues regarded as having strongest degree of assurance for
timely payment; F-1 -- very strong, with only slightly less degree of assurance
for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
APPENDIX B
Special Considerations Relating to Investment In Pennsylvania Municipal Issuers
General
The Commonwealth of Pennsylvania, the fifth most populous state,
historically has been identified as a heavy industry state, although that
reputation has changed with the decline of the coal, steel and railroad
industries and the resulting diversification of the Commonwealth's industrial
composition. The major new sources of growth are in the service sector,
including trade, medical and health services, educational and financial
institutions. Manufacturing has fallen behind in both the service sector and the
trade sector as a source of employment in Pennsylvania. The Commonwealth is the
headquarters for 58 major corporations. Pennsylvania's average annual
unemployment rate for the years 1990 has generally not been more than one
percent greater or lesser than the nation's annual average unemployment rate.
The seasonally adjusted unemployment rate for Pennsylvania for March, 1997 was
5.1% and for the United States for March, 1997 was 5.2%. The population of
Pennsylvania, 12,056 million people in 1996 according to the U.S. Bureau of the
Census, represents an increase from the 1987 estimate of 11,811 million. Per
capita income in Pennsylvania for 1995 of $23,558 was higher than the per capita
income of the United States of $23,208. . The Commonwealth's General Fund, which
receives all tax receipts and most other revenues and through which debt service
on all general obligations of the Commonwealth are made, closed fiscal years
ended June 30, 1994, June 30, 1995 and June 30, 1996 with positive fund balances
of $892,940, $688,304 and $635,182, respectively.
Debt
The Commonwealth may incur debt to rehabilitate areas affected by
disaster, debt approved by the electorate, debt for certain capital projects
(for projects such as highways, public improvements, transportation assistance,
flood control, redevelopment assistance, site development and industrial
development) and tax anticipation debt payable in the fiscal year of issuance.
The Commonwealth had outstanding general obligation debt of $5,054 million at
June 30, 1996. The Commonwealth is not permitted to fund deficits between fiscal
years with any form of debt. All year-end deficit balances must be funded within
the succeeding fiscal year's budget. At March 11, 1996, all outstanding general
obligation bonds of the Commonwealth were rated AA- by Standard & Poor's
Corporation and A-1 by Moody's Investors Service, Inc. (see Appendix A). There
can be no assurance that these ratings will remain in effect in the future. Over
the five-year period ending June 30, 2001, the Commonwealth has projected that
it will issue notes and bonds totaling $2,325 million and retire bonded debt in
the principal amount of $2,239 million.
Certain agencies created by the Commonwealth have statutory authorization to
incur debt for which Commonwealth appropriations to pay debt service thereon are
not required. As of December 31, 1996, total combined debt outstanding for these
agencies was $8,356 million. The debt of these agencies is supported by assets
of, or revenues derived from, the various projects financed and is not an
obligation of the Commonwealth. Some of these agencies, however, are indirectly
dependent on Commonwealth appropriations. The only obligations of agencies in
the Commonwealth that bear a moral obligation of the Commonwealth are those
issued by the Pennsylvania Housing Finance Agency ("PHFA"), a state-created
agency which provides housing for lower and moderate income families, and The
Hospitals and Higher Education Facilities Authority of Philadelphia (the
"Hospital Authority"), an agency created by the City of Philadelphia to acquire
and prepare various sites for use as intermediate care facilities for the
mentally retarded.
Local Government Debt
Numerous local government units in Pennsylvania issue general
obligation (i.e., backed by taxing power) debt, including counties, cities,
boroughs, townships and school districts. School district obligations are
supported indirectly by the Commonwealth. The issuance of non-electoral general
obligation debt is limited by constitutional and statutory provisions. Electoral
debt, i.e., that approved by the voters, is unlimited. In addition, local
government units and municipal and other authorities may issue revenue
obligations that are supported by the revenues generated from particular
projects or enterprises. Examples include municipal authorities (frequently
operating water and sewer systems), municipal authorities formed to issue
obligations benefitting hospitals and educational institutions, and industrial
development authorities, whose obligations benefit industrial or commercial
occupants. In some cases, sewer or water revenue obligations are guaranteed by
taxing bodies and have the credit characteristics of general obligations debt.
Litigation
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
example, in Baby Neal v. Commonwealth, the American Civil Liberties Union filed
a lawsuit against the Commonwealth seeking an order that would require the
Commonwealth to provide additional funding for child welfare services. County of
Allegheny v. Commonwealth of Pennsylvania involves litigation regarding the
state constitutionality of the statutory scheme for county funding of the
judicial system. In Pennsylvania Association of Rural and Small Schools v.
Casey, the constitutionality of Pennsylvania's system for funding local school
districts has been challenged. No estimates for the amount of these claims are
available.
Other Factors
The performance of the obligations held by the Fund issued by the
Commonwealth, its agencies, subdivisions and instrumentalities are in part tied
to state-wide, regional and local conditions within the Commonwealth and to the
creditworthiness of certain nonCommonwealth related obligers, depending upon the
Pennsylvania Fund's portfolio mix at any given time. Adverse changes to the
state-wide, regional or local economies or changes in government may adversely
affect the creditworthiness of the Commonwealth, its agencies and
municipalities, and certain other non-government related obligers of
Pennsylvania tax-free obligations (e.g., a university, a hospital or a corporate
obligor). The City of Philadelphia, for example, experienced severe financial
problems which impaired its ability to borrow money and adversely affected the
ratings of its obligations and their marketability. Conversely, some obligations
held by the Fund will be almost exclusively dependent on the creditworthiness of
one underlying obligor, such as a project occupant or provider of credit or
liquidity support.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE LIQUID TRUST
October 31, 1996
As Supplemented January 1, 1997
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Liquid Trust (the "Fund") dated October 31, 1996, as supplemented. You may
obtain a copy of the prospectus from the Fund's principal underwriter, Evergreen
Keystone Distributor, Inc., or your broker-dealer. Evergreen Keystone
Distributor, Inc. is located at 230 Park Avenue, New York, New York 10169.
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TABLE OF CONTENTS
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Page
The Fund ...................................................2
Investment Objective And Policies...........................2
Investment Restrictions.....................................2
Distributions...............................................4
Valuation of Securities.....................................4
Brokerage...................................................4
Sales Charges...............................................6
Distribution Plans..........................................8
Trustees And Officers......................................11
Investment Adviser.........................................14
Principal Underwriter......................................16
Sub-administrator..........................................17
Declaration of Trust.......................................18
Yield Quotations...........................................19
Additional Information.....................................20
Appendix..................................................A-1
Financial Statements......................................F-1
18517
<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company.
Keystone Investment Management Company ("Keystone") is the Fund's investment
adviser. Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds
Distributor, Inc.) ("EKD" or the "Principal Underwriter") is the Fund's
principal underwriter. Evergreen Keystone Investment Services, Inc. (formerly
Keystone Investment Distributors Company) ("EKIS") is the predecessor to the
Principal Underwriter. See "Investment Adviser" and "Principal Underwriter"
below.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide shareholders with high
current income from short-term money market instruments while emphasizing
preservation of capital and maintaining excellent liquidity. The Fund pursues
this objective by investing in securities maturing in 397 days or less. See the
Appendix to this statement of additional information for descriptions of
instruments in which the Fund may invest.
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Fundamental Investment Restrictions
The Fund has adopted the fundamental investment restrictions set forth
below, which may not be changed without the vote of a majority of the Fund's
outstanding shares (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), which means the lesser of (1) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(2) more than 50% of the outstanding shares).
The Fund may not do the following:
(1) invest more than 25% of its assets in the securities of issuers in
any single industry, exclusive of securities issued by banks or securities
issued or guaranteed by the United States ("U.S.") government, its agencies or
instrumentalities;
(2) invest more than 5% of its assets in the securities of any one
issuer, including repurchase agreements with any one bank or dealer, exclusive
of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(3) invest in more than 10% of the outstanding securities of any one
issuer, exclusive of securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities;
(4) borrow money, except that, in an aggregate amount not to exceed
one-third of the Fund's assets, including the amount borrowed, the Fund may (a)
borrow money from banks on a temporary basis; or (b) enter into reverse
repurchase agreements; amounts borrowed shall be used exclusively to facilitate
the orderly maturation and sale of portfolio securities during any periods of
abnormally heavy redemption requests, if they should occur;
(5) pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund, except as may be
necessary in connection with any borrowing mentioned above and in an aggregate
amount not to exceed 15% of the Fund's assets;
(6) make loans, provided that the Fund may purchase money market
securities or enter into repurchase agreements;
(7) enter into repurchase agreements if, as a result thereof, more than
10% of the Fund's assets would be subject to repurchase agreements maturing in
more than seven days;
(8) make investments for the purpose of exercising control over any issuer;
(9) purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization;
(10) invest in real estate, other than money market securities secured
by real estate or interests therein, or money market securities issued by
companies which invest in real estate or interests therein, commodities or
commodity contracts, interests in oil, gas or other mineral exploration or
development programs; except that the Fund may engage in currency or other
financial futures contracts and related options transactions;
(11) purchase any securities on margin;
(12) make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or combinations thereof;
(13) invest in securities of issuers, other than agencies and
instrumentalities of the U.S. Government, having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the Fund's assets would be invested in such securities;
(14) purchase or retain securities of an issuer if those officers or
Trustees of the Fund or Keystone who individually own more than 1/2% of the
outstanding securities of such issuer, together own more than 5% of the
securities of such issuer; and
(15) act as an underwriter of securities.
The Fund has no current intention of attempting to increase its net
income by borrowing and currently intends to repay any borrowings made in
accordance with the fourth investment restriction enumerated above before it
makes any additional investments.
Non-Fundamental Investment Policies
The Fund intends to follow policies of the Securities and Exchange
Commission (the "Commission") as they are adopted from time to time with respect
to illiquid securities, including (1)
treating as illiquid securities that may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the investment on its books; and (2) limiting its
holdings of such securities to less than 10% of net assets.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in the value of
a security or a decrease in Fund assets is not a violation of the limit.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund determines and declares dividends from the net income of the
Fund as of the close of trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time for the purpose of pricing Fund shares) on
each day that the Exchange is open for trading (or at such other times as the
Trustees may determine). The Fund distributes those dividends on the last
business day of each month in the form of additional shares at the rate of one
share for each $1.00 distributed or, at the election of the shareholder, in
cash.
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VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
The Fund values its money market instruments as follows: (1) money
market investments maturing in sixty days or less are valued at amortized cost
(original purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market; and
(2) money market investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value. The money
market securities in which the Fund invests are traded primarily in the
over-the-counter market and are valued at the mean between most recent bid and
asked prices or yield equivalent as obtained from dealers that make markets in
such securities. Investments for which market quotations are not readily
available, or for which the markets establishing the most recent bid and asked
prices are closed or inactive, are valued at fair value as determined pursuant
to procedures established in good faith by the Fund's Board of Trustees.
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BROKERAGE
- --------------------------------------------------------------------------------
Selection of Brokers
In effecting transactions in portfolio securities for the Fund,
Keystone seeks the best execution of orders at the most favorable prices.
Keystone determines whether a broker has provided the Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things:
1. overall direct net economic result to the Fund;
2. the efficiency with which the transaction is effected;
3. the broker's ability to effect the transaction where a large
block is involved;
4. the broker's readiness to execute potentially difficult
transactions in the future;
5. the financial strength and stability of the broker; and
6. the receipt of research services, such as analyses and reports
concerning issuers, industries, securities, economic factors
and trends and other statistical and factual information.
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
Should the Fund or Keystone receive research and other statistical and
factual information from a broker, the Fund would consider such services to be
in addition to, and not in lieu of, the services Keystone is required to perform
under the Advisory Agreement (as defined below). Keystone believes that the
cost, value and specific application of such information are indeterminable and
cannot be practically allocated between the Fund and its other clients who may
indirectly benefit from the availability of such information. Similarly, the
Fund may indirectly benefit from information made available as a result of
transactions effected for Keystone's other clients. Under the Advisory
Agreement, Keystone is permitted to pay higher brokerage commissions for
brokerage and research services in accordance with Section 28(e) of the
Securities Exchange Act of 1934. In the event Keystone follows such a practice,
it will do so on a basis that is fair and equitable to the Fund.
Neither the Fund nor Keystone intends on placing securities
transactions with any particular broker. The Fund's Board of Trustees has
determined, however, that the Fund may consider sales of Fund shares as a factor
in the selection of brokers to execute portfolio transactions, subject to the
requirements of best execution described above.
Brokerage Commissions
The Fund expects that purchases and sales of money market instruments
usually will be principal transactions. Money market instruments are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually will be no brokerage commissions paid by the Fund
for such purchases. Purchases from underwriters will include the underwriting
commission or concession, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices. Where transactions are
made in the over-the-counter market, the Fund will deal with primary market
makers unless more favorable prices are otherwise obtainable.
General Brokerage Policies
In order to take advantage of the availability of lower purchase
prices, the Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities.
Keystone makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that Keystone
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, Keystone will allocate
the transactions according to a formula that is equitable to each of its
clients. Although, in some cases, this system could have a detrimental effect on
the price or volume of the Fund's securities, the Fund believes that in other
cases its ability to participate in volume transactions will produce better
executions.
The Fund does not purchase portfolio securities from or sell portfolio
securities to Keystone, the Principal Underwriter, or any of their affiliated
persons, as defined in the 1940 Act.
The Board of Trustees will, from time to time, review the Fund's
brokerage policy. Because of the possibility of further regulatory developments
affecting the securities exchanges and brokerage practices generally, the Board
of Trustees may change, modify or eliminate any of the foregoing practices.
The Fund paid no brokerage commissions for securities transactions
during its last three fiscal years.
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SALES CHARGES
- --------------------------------------------------------------------------------
The Fund offers three classes of shares that differ primarily with
respect to sales charges and distribution fees. As described below, depending
upon the class of shares that you purchase, the Fund will impose a contingent
deferred sales charge (a "CDSC") when you redeem Fund shares or no sales charges
at all. The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans"). If imposed, the Fund
deducts CDSCs from the redemption proceeds you would otherwise receive. CDSCs
attributable to your shares are, to the extent permitted by the National
Association of Securities Dealers, Inc. ("NASD"), paid to the Principal
Underwriter or its predecessor.
See the prospectus for additional information on a particular class.
Class Distinctions
Class A Shares
Class A shares are sold without a sales charge at the time of purchase.
Class B Shares
The Fund offers Class B shares at net asset value (without an initial
sales charge). With respect to Class B shares purchased after January 1, 1997,
the Fund charges a CDSC on shares redeemed as follows:
Redemption Timing CDSC Rate
Month of purchase and the first twelve-month
period following the month of purchase..............5.00%
Second twelve-month
period following the month of purchase..............4.00%
Third twelve-month
period following the month of purchase..............3.00%
Fourth twelve-month
period following the month of purchase..............3.00%
Fifth twelve-month
period following the month of purchase..............2.00%
Sixth twelve-month
period following the month of purchase..............1.00%
Thereafter...............................................0.00%
Class B shares purchased after January 1, 1997, that have been
outstanding for seven years after the month of purchase, will automatically
convert to Class A shares without imposition of a front-end sales charge or
exchange fee. (Conversion of Class B shares represented by stock certificates
will require the return of the stock certificate to Evergreen Keystone Service
Company (formerly Keystone Investor Resource Center, Inc.) ("EKSC") the Fund's
transfer and dividend disbursing agent.)
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Underwriter. The Fund
offers Class C shares at net asset value (without an initial sales charge). With
certain exceptions, however, the Fund will charge a CDSC of 1.00%, if you redeem
shares purchased after January 1, 1997, during the month of your purchase and
the 12-month period following the month of your purchase. See "Calculation of
Contingent Deferred Sales Charge" below.
Calculation of Contingent Deferred Sales Charge
Any CDSC imposed upon the redemption of shares is a percentage of the
lesser of (1) the net asset value of the shares redeemed or (2) the net cost of
such shares. Upon request for redemption, the Fund will redeem shares not
subject to the CDSC first. Thereafter, the Fund will redeem shares held the
longest first.
Shares That Are Not Subject to a Sales Charge or CDSC
Exchanges
The Fund does not charge a CDSC when you exchange your shares for the
shares of the same class of another Keystone America Fund. However, if you are
exchanging shares that are still subject to a CDSC, the CDSC will carry over to
the shares you acquire by the exchange. Moreover, the Fund will compute any
future CDSC based upon the date you originally purchased the shares you tendered
for exchange.
Waiver of Sales Charges
Shares of the Fund may be sold, to the extent permitted by applicable
law, regulations, interpretations, or exemptions, at net asset value without the
imposition of an initial sales charge to (1) certain Directors, Trustees,
officers, full-time employees or sales representatives of the Fund, Keystone,
the Principal Underwriter, and certain of their affiliates who have been such
for not less than ninety days, and to members of the immediate families of such
persons; (2) a pension and profit-sharing plan established by such companies,
their subsidiaries and affiliates, for the benefit of their Directors, Trustees,
officers, full-time employees, and sales representatives; or (3) a registered
representative of a firm with a dealer agreement with the Principal Underwriter;
provided, however, that all such sales are made upon the written assurance that
the purchase is made for investment purposes and that the securities will not be
resold except through redemption by the Fund.
No initial sales charge or CDSC is imposed on purchases or redemptions
of shares of the Fund by a bank or trust company in a single account in the name
of such bank or trust company as trustee, if the initial investment in shares of
the Fund or any fund in the Keystone Investments Family of Funds, purchased
pursuant to this waiver is at least $500,000 and any commission paid at the time
of such purchase is not more than 1.00% of the amount invested.
With respect to Class C shares purchased by a Qualifying Plan, no CDSC
will be imposed on any redemptions made specifically by an individual
participant in the Qualifying Plan. This waiver is not available in the event a
Qualifying Plan, as a whole, redeems substantially all of its assets.
In addition, no CDSC is imposed on a redemption of shares of the Fund
in the event of (1) death or disability of the shareholder; (2) a lump-sum
distribution from a benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of an
account having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under a Systematic Income Plan of up to 1.0% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
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DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1 (a "Distribution Plan").
The Fund's Class A, B, and C Distribution Plans have been approved by
the Fund's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the Distribution Plans or any agreement
related thereto (the "Independent Trustees").
The NASD limits the amount that the Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits annual expenditures to 1.00% of the aggregate average daily net asset
value of its shares, of which 0.75% may be used to pay such distribution costs
and 0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the Distribution Plan, plus interest at
the prime rate plus 1% on such amounts (less any CDSCs paid by shareholders to
the Principal Underwriter) remaining unpaid from time to time.
Class A Distribution Plan
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, which is currently limited to 0.25% of the Fund's
average daily net asset value attributable to Class A shares, to finance any
activity that is primarily intended to result in the sale of Class A shares,
including, without limitation, expenditures consisting of payments to the
Principal Underwriter of the Fund to enable the Principal Underwriter to pay or
to have paid to others who sell Class A shares a service or other fee, at any
such intervals as the Principal Underwriter may determine, in respect of Class A
shares maintained by any such recipient and outstanding on the books of the Fund
for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as broker-dealers, service fees at an annual
rate of up to 0.25% of the average net asset value of Class A shares maintained
by such others and outstanding on the books of the Fund for specified periods.
Class B Distribution Plans
The Class B Distribution Plans provide that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class B shares to finance any activity that is primarily
intended to result in the sale of Class B shares, including, without limitation,
expenditures consisting of payments to the Principal Underwriter and/or its
predecessor. Payments are made to the Principal Underwriter (1) to enable the
Principal Underwriter to pay to others (broker-dealers) commissions in respect
of Class B shares sold since inception of a Distribution Plan; (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class B
shares maintained by any such recipient and outstanding on the books of the Fund
for specified periods; and (3) as interest.
The Principal Underwriter generally reallows to broker-dealers or
others a commission equal to 4.00% of the price paid for each Class B share
sold. The broker-dealer or other party may also receive service fees at an
annual rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient and outstanding on the books of the Fund for
specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with the Class B
Distribution Plans that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund ("Advances"). The Principal
Underwriter intends to seek full reimbursement of such Advances from the Fund
(together with annual interest thereon at the prime rate plus 1%) at such time
in the future as, and to the extent that, payment thereof by the Fund would be
within the permitted limits. If the Fund's Independent Trustees authorize such
reimbursements of Advances, the effect would be to extend the period of time
during which the Fund incurs the maximum amount of costs allowed by the Class B
Distribution Plans.
In connection with financing its distribution costs, including
commission advances to broker-dealers and others, EKIS, the predecessor to the
Principal Underwriter sold to a financial institution substantially all of its
12b-1 fee collection rights and CDSC collection rights in respect of Class B
shares sold during the period beginning approximately June 1, 1995 through
November 30, 1996. The Fund has agreed not to reduce the rate of payment of
12b-1 fees in respect of such Class B shares unless it terminates such shares'
Distribution Plan completely. If it terminates such Distribution Plans, the Fund
may be subject to adverse distribution consequences.
The financing of payments made by the Principal Underwriter to
compensate broker-dealers or other persons for distributing shares of the Fund
will be provided by FUNB or its affiliates.
Class C Distribution Plan
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity that is primarily
intended to result in the sale of Class C shares, including, without limitation,
expenditures consisting of payments to the Principal Underwriter and/or its
predecessor. Payments are made to the Principal Underwriter (1) to enable the
Principal Underwriter to pay to others (broker-dealers) commissions in respect
of Class C shares sold since inception of the Distribution Plan; (2) to enable
the Principal Underwriter to pay or to have paid to others a service fee, at
such intervals as the Principal Underwriter may determine, in respect of Class C
shares maintained by any such recipient and outstanding on the books of the Fund
for specified periods; and (3) as interest.
The Principal Underwriter generally reallows to broker-dealers or
others a commission in the amount of 0.75% of the price paid for each Class C
share sold plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class C share sold. Beginning approximately fifteen
months after purchase, broker-dealers or others receive a commission at an
annual rate of 0.75% (subject to NASD rules) plus service fees at the annual
rate of 0.25%, respectively, of the average daily net asset value of each Class
C share maintained by the recipient and outstanding on the books of the Fund for
specified periods.
Distribution Plans - General
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the
Independent Trustees quarterly. The Independent Trustees may require or approve
changes in the implementation or operation of a Distribution Plan, and may also
require that total expenditures by the Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by such Distribution Plan
as stated above.
Each of the Distribution Plans may be terminated at any time by a vote
of the Independent Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of Fund shares. If the Class B Distribution Plan
is terminated, the Principal Underwriter and EKIS will ask the Independent
Trustees to take whatever action they deem appropriate under the circumstances
with respect to payment of such Advances.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by votes of
the majority of both (1) the Fund's Trustees and (2) the Independent Trustees
cast in person at a meeting called for the purpose of voting on each amendment.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
During the year ended June 30, 1996, the Fund paid EKIS $148.564,
$77,113, $25,876 and $27,202 in Distribution Plan fees for Class A shares, Class
B shares sold prior to June 1, 1995, Class B shares sold on or after June 1,
1995 and Class C Shares, respectively, which represented 0.06%, 0.89%, 0.30% and
1.00%, respectively, of the average net assedts of each Class.
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TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
FREDERICK AMLING: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Professor,
Finance Department, George Washington
University; President, Amling & Company
(invest ment advice); and former Member,
Board of Advisers, Credito Emilano
(banking).
LAURENCE B. ASHKIN: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
all the Evergreen funds other than Evergreen
Investment Trust; real estate developer and
construction consultant; and President of
Centrum Equities and Centrum Properties,
Inc.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee
or Director of all other funds in the Key
stone Investments Families of Funds;
Investment Counselor to Appleton Partners,
Inc.; and former Managing Director, Seaward
Management Corporation (investment advice).
FOSTER BAM: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
all the Evergreen funds other than Evergreen
Investment Trust; Partner in the law firm of
Cummings & Lockwood; Director, Symmetrix,
Inc. (sulphur company) and Pet Practice,
Inc. (veterinary services); and former
Director, Chartwell Group Ltd. (Manufacturer
of office furnishings and accessories),
Waste Disposal Equipment Acquisition
Corporation and Rehabilitation Corporation
of America (rehabilitation hospitals).
*GEORGE S. BISSELL: Chairman of the Board, Chief
Executive Officer and Trustee of the Fund;
Chairman of the Board, Chief Executive
Officer and Trustee or Director of all other
funds in the Keystone Investments Families
of Funds; Chairman of the Board and Trustee
of Anatolia College; Trustee of University
Hospital (and Chairman of its Investment
Committee); former Director and Chairman of
the Board of Hartwell Keystone; and former
Chairman of the Board, Director and Chief
Executive Officer of Keystone Investments.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Principal,
Padanaram Associates, Inc.; and former
Executive Director, Coalition of Essential
Schools, Brown University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; and former
Director, Peoples Bank (Charlotte, NC).
K. DUN GIFFORD: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee,
Treasurer and Chairman of the Finance
Committee, Cambridge College; Chairman
Emeritus and Director, American Institute of
Food and Wine; Chairman and President,
Oldways Preservation and Exchange Trust
(education); former Chairman of the Board,
Director, and Executive Vice President, The
London Harness Company; former Managing
Partner, Roscommon Capital Corp.; former
Chief Executive Officer, Gifford Gifts of
Fine Foods; former Chairman, Gifford,
Drescher & Associates (environmental
consulting); and former Director, Keystone
Investments and Keystone.
JAMES S. HOWELL: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Chairman and
Trustee of the Evergreen funds; former
Chairman of the Distribution Foundation for
the Carolinas; and former Vice President of
Lance Inc. (food manufacturing).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Chairman of
the Board and Chief Executive Officer,
Carson Products Company; Director of Phoenix
Total Return Fund and Equifax, Inc.; Trustee
of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big
Edge Series Fund; and former President,
Morehouse College.
F. RAY KEYSER, JR.: Trustee of the Fund;
Trustee or Director of all other funds in
the Key stone Investments Families of Funds;
Chairman and Of Counsel, Keyser, Crowley &
Meub, P.C.; Member, Governor's (VT) Council
of Eco nomic Advisers; Chairman of the Board
and Director, Central Vermont Public Service
Corporation and Lahey Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power
Corporation, Grand Trunk Corporation, Grand
Trunk Western Railroad, Union Mutual Fire
Insurance Company, New England Guaranty
Insurance Company, Inc., and the Investment
Company Institute; former Director and
President, Associated Industries of Vermont;
former Director of Keystone, Central Vermont
Railway, Inc., S.K.I. Ltd., and Arrow
Financial Corp.; and former Director and
Chairman of the Board, Proctor Bank and
Green Mountain Bank.
GERALD M. MCDONELL: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
the Evergreen funds; and Sales
Representative with Nucor-Yamoto, Inc.
(Steel producer).
THOMAS L. MCVERRY: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
the Evergreen funds; former Vice President
and Director of Rexham Corporation; and
former Director of Carolina Cooperative
Federal Credit Union.
*WILLIAM WALT PETTIT: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
the Evergreen funds; and Partner in the law
firm of Holcomb and Pettit, P.A.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee
or Director of all other funds in the Key
stone Investments Families of Funds; Vice
Chair and former Executive Vice President,
DHR International, Inc. (executive
recruitment); former Senior Vice President,
Boyden International Inc. (executive recruit
ment); and Director, Commerce and Industry
Association of New Jersey, 411
International, Inc., and J&M Cumming Paper
Co.
RUSSELL A.
SALTON, III MD: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
the Evergreen funds; Medical Director, U.S.
Health Care/Aetna Health Services; and
former Managed Health Care Consultant;
former President, Primary Physician Care.
MICHAEL S. SCOFIELD: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Trustee of
the Evergreen funds; and Attorney, Law
Offices of Michael S. Scofield.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Chairman,
Environmental Warranty, Inc. (Insurance
agency); Executive Consultant, Drake Beam
Morin, Inc. (executive outplacement);
Director of Connecticut Natural Gas
Corporation, Hartford Hospital, Old State
House Association, Middlesex Mutual
Assurance Company, and Enhance Financial
Services, Inc.; Chairman, Board of Trustees,
Hartford Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice
Chairman and Chief Investment Officer, The
Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing
Director and Consultant, Russell Miller,
Inc.
*ANDREW J. SIMONS: Trustee of the Fund; Trustee or
Director of all other funds in the Key stone
Investments Families of Funds; Partner,
Farrell, Fritz, Caemmerer, Cleary, Barnosky
& Armentano, P.C.; Adjunct Professor of Law
and former Associate Dean, St. John's
University School of Law; Adjunct Professor
of Law, Touro College School of Law; and
former President, Nassau County Bar
Association.
JOHN J. PILEGGI: President and Treasurer of the
Fund; President and Treasurer of all other
funds in the Keystone Investments Families
of Funds; President and Treasurer of the
Evergreen funds; Senior Managing Director,
Furman Selz LLC since 1992; Managing
Director from 1984 to 1992; 230 Park Avenue,
Suite 910, New York, NY.
GEORGE O. MARTINEZ: Secretary of the Fund;
Secretary of all other funds in the Keystone
Investments Families of Funds; Senior Vice
President and Director of Administration and
Regulatory Services, BISYS Fund Services;
3435 Stelzer Road, Columbus, Ohio.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
Mr. Bissell is deemed an "interested person" of the Fund by virtue of
his ownership of stock of First Union Corporation ("First Union"), of which
Keystone is an indirect wholly-owned subsidiary. See "Investment Adviser." Mr.
Pettit and Mr. Simons may each be deemed an "interested person" as a result of
certain legal services rendered to a subsidiary of First Union by their
respective law firms, Holcomb and Pettit, P.A. and Farrell, Fritz, Caemmerer,
Cleary, Barnosky & Armentano, P.C. As of the date hereof, Mr. Pettit and Mr.
Simons are each applying for an exemption from the SEC which would allow them to
retain their status as an Independent Trustee.
After the transfer of EKD and its related mutual fund distribution and
administration business to BISYS, it is expected that all of the officers of the
Fund will be officers and/or employees of BISYS.
See "Sub-administrator."
During the fiscal year ended June 30, 1996, no Trustee or officer
received any direct remuneration from the Fund. Annual retainers and meeting
fees paid by all funds in the Keystone Investments Families of Funds (which
includes more than thirty mutual funds) for the calendar year ended December 31,
1995 totaled approximately $450,716. As of September 30, 1996, the Trustees and
officers beneficially owned less than 1% of the Fund's then outstanding Class A,
Class B and Class C shares, respectively.
Except as set forth above, the address of all of the Fund's Trustees
and officers and the address of the Fund is 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
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INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
provides investment advice, management and administrative services to the Fund.
Keystone, organized in 1932, is a wholly-owned subsidiary of Keystone
Investments, 200 Berkeley Street, Boston, Massachusetts 02116-5034.
On December 11, 1996, the predecessor corporation to Keystone
Investments and indirectly each subsidiary of Keystone Investments, including
Keystone, were acquired (the "Acquisition") by FUNB, a wholly-owned subsidiary
of First Union Corporation ("First Union"). The predecessor corporation to
Keystone Investments was acquired by FUNB by merger into a wholly-owned
subsidiary of FUNB,
which entity then succeeded to the business of the predecessor corporation.
Contemporaneously with the Acquisition, the Fund entered into a new investment
advisory agreement with Keystone and into a principal underwriting agreement
with EKD, a wholly-owned subsidiary of Furman Selz LLC ("Furman Selz"). The new
investment advisory agreement (the "Advisory Agreement") was approved by the
shareholders of the Fund on December 9, 1996, and became effective on December
11, 1996. As a result of the above transactions, Keystone Management, Inc.
("Keystone Management"), which prior to the Acquisition acted as investment
manager to the Fund, no longer acts as such to the Fund. Keystone currently
provides the Fund with all the services that may previously have been provided
by Keystone Management. The fee rate paid by the Fund for the services provided
by Keystone and its affiliates has not changed as a result of the Acquisition.
Keystone Investments and each of its subsidiaries, including Keystone,
are now indirectly owned by First Union. First Union is headquartered in
Charlotte, North Carolina, and had $133.9 billion in consolidated assets as of
September 30, 1996. First Union and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
The Capital Management Group of FUNB, together with Lieber & Company and
Evergreen Asset Management Corp., wholly-owned subsidiaries of FUNB, manage or
otherwise oversee the investment of over $50 billion in assets belonging to a
wide range of clients, including the Evergreen Family of Funds.
Pursuant to the Advisory Agreement and subject to the supervision of
the Fund's Board of Trustees, Keystone furnishes to the Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. Keystone pays for all of the expenses
incurred in connection with the provision of its services.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by Keystone, including, but not limited
to, (1) custodian charges and expenses; (2) bookkeeping and auditors' charges
and expenses; (3) transfer agent charges and expenses; (4) fees of Independent
Trustees; (5) brokerage commissions, brokers' fees and expenses; (6) issue and
transfer taxes; (7) costs and expenses under the Distribution Plan; (8) taxes
and trust fees payable to governmental agencies; (9) the cost of share
certificates; (10) fees and expenses of the registration and qualification of
the Fund and its shares with the SEC or under state or other securities laws;
(11) expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges
and expenses of legal counsel for the Fund and for the Independent Trustees of
the Fund on matters relating to the Fund; (14) charges and expenses of filing
annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services at the annual rate of:
(1) 0.50% of the average daily value of the net assets of the Fund on
the first $500,000,000 of such assets; plus
(2) 0.45% of the average daily value of the net assets of the Fund on
such assets which exceed $500,000,000 and are less than $1,000,000,000; plus
(3) 0.40% of the average daily value of the net assets of the Fund on
such assets which are $1,000,000,000 or more.
Keystone's fee is computed as of the close of business each business
day and payable daily.
Under the Advisory Agreement, any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). In either case, the
terms of the Advisory Agreement and continuance thereof must be approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund's Board of
Trustees or by a vote of a majority of outstanding shares. The Advisory
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
During the fiscal year ended June 30, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$1,407,708, which represented 0.50% of the Fund's average net assets. Of such
amount paid to Keystone Management, $1,196,552 was paid to Keystone for its
services to the Fund.
During the fiscal year ended June 30, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$1,923,870, which represented 0.50% of the Fund's average net assets. Of such
amount paid to Keystone Management, $1,635,290 was paid to Keystone for its
services to the Fund.
During the fiscal year ended June 30, 1996, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$1,359,239, which represented 0.50% of the Fund's average net assets. Of such
amount paid to Keystone Management, $1,155,353 was paid to Keystone for its
services to the Fund.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into Principal Underwriting Agreements (each an
"Underwriting Agreement") with EKD with respect to each class. EKD, which is not
affiliated with First Union, replaces EKIS as the Fund's principal underwriter.
EKIS may no longer act as principal underwriter of the Fund due to regulatory
restrictions imposed by the Glass-Steagall Act upon national banks such as FUNB
and their affiliates, that prohibit such entities from acting as the
underwriters of mutual fund shares. While EKIS may no longer act as principal
underwriter of the Fund as discussed above, EKIS may continue to receive
compensation from the Fund or the Principal Underwriter in respect of
underwriting and distribution services performed prior to the termination of
EKIS as principal underwriter. In addition, EKIS may also be compensated by the
Principal Underwriter for the provision of certain marketing support services to
the Principal Underwriter at an annual rate of up to .75% of the average daily
net assets of the Fund, subject to certain restrictions.
The Principal Underwriter, as agent, has agreed to use its best efforts
to find purchasers for the shares. The Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from broker-dealers, and others, acting as principals, for sales of
shares to them. The Underwriting Agreements provide that the Principal
Underwriter will bear the expense of preparing, printing, and distributing
advertising and sales literature and prospectuses used
by it. The Principal Underwriter or EKIS, its predecessor, may receive payments
from the Fund pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the public offering price of the shares, which is determined in accordance
with the provisions of the Fund's Declaration of Trust, By-Laws, current
prospectuses and statement of additional information. All orders are subject to
acceptance by the Fund and the Fund reserves the right, in its sole discretion,
to reject any order received. Under the Underwriting Agreements, the Fund is not
liable to anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreements to pay all
expenses in connection with the registration of its shares with the SEC and
auditing and filing fees in connection with the registration of its shares under
the various state "blue-sky" laws.
The Principal Underwriter has agreed that it will, in all respects,
duly conform with all state and federal laws applicable to the sale of the
shares. The Principal Underwriter has also agreed that it will indemnify and
hold harmless the Fund and each person who has been, is, or may be a Trustee or
officer of the Fund against expenses reasonably incurred by any of them in
connection with any claim, action, suit, or proceeding to which any of them may
be a party that arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact on the part of the
Principal Underwriter or any other person for whose acts the Principal
Underwriter is responsible or is alleged to be responsible, unless such
misrepresentation or omission was made in reliance upon written information
furnished by the Fund.
Each Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Fund's Independent Trustees, and (ii) by vote of a majority of
the Fund's Trustees, in each case, cast in person at a meeting called for that
purpose.
Each Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. Each Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Principal Underwriter's judgment, it
could benefit the sales of Fund shares, the Principal Underwriter may provide to
selected broker-dealers promotional materials and selling aids, including, but
not limited to, personal computers, related software, and Fund data files.
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SUB-ADMINISTRATOR
- --------------------------------------------------------------------------------
Furman Selz provides officers and certain administrative services to
the Fund pursuant to a sub- administration agreement. For its services under
that agreement Furman Selz will receive from Keystone an annual fee at the
maximum annual rate of .01% of the average daily net assets of the Fund.
Furman Selz is located at 230 Park Avenue, New York, New York 10169.
It is expected that on or about January 2, 1997, Furman Selz will
transfer EKD, and its related mutual fund distribution and administration
business, to BISYS Group, Inc. ("BISYS"). At that time, BISYS will succeed as
sub-administrator for the Fund. It is not expected that the acquisition of the
mutual fund distribution and administration business by BISYS will affect the
services currently provided by EKD or Furman Selz.
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DECLARATION OF TRUST
- --------------------------------------------------------------------------------
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated May 22, 1975, as amended and restated on December 1,
1985 (the "Declaration of Trust"). The Fund is similar in most respects to a
business corporation. The principal distinction between the Fund and a
corporation relates to the shareholder liability described below. This summary
is qualified in its entirety by reference to the Declaration of Trust.
Shareholder Liability
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If, the Fund were held to be a partnership, the possibility of Fund
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Fund; (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (3) provides for indemnification out
of Fund property for any shareholder held personally liable for the obligations
of the Fund.
Voting Rights
No meetings of shareholders for the purpose of electing Trustees will
be held, unless required by law or until such time as less than a majority of
the Trustees holding office have been elected by shareholders. At such time, the
Trustees then in office will call a shareholders' meeting for election of
Trustees.
The Trustees shall continue to hold office indefinitely unless
otherwise required by law and may appoint successor Trustees. Any Trustee may
removed from or cease to hold office (1) at any time by two-thirds vote of the
remaining Trustees; (2) when such Trustee becomes mentally or physically
incapacitated; or (3) at a special meeting of shareholders by a two-thirds vote
of the outstanding shares.
Any Trustee may voluntarily resign from office.
Under the terms of the Declaration of Trust, the Fund does not hold
annual meetings. At meetings called for the initial election of Trustees or to
consider other matters, shares are entitled to one vote per share. Shares
generally vote together as one class on all matters. Classes of shares have
equal voting rights except that each class of shares has exclusive voting rights
with respect to its Distribution Plan. No amendment may be made to the
Declaration of Trust that adversely affects any class of shares without the
approval of a majority of the shares of that class. Shares have non-cumulative
voting rights, which means the holders of more than 50% of the shares voting in
the election of Trustees can, if they choose to do so, elect all of the Trustees
of the Fund, in which event the holders of the remaining shares will be unable
to elect any person as a Trustee.
Limitations of Trustees' Liability
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of assets of the Fund and may perform such acts as in their sole
judgment and discretion are necessary and proper for conducting the business and
affairs of the Fund or promoting the interests of the Fund and the shareholders.
- --------------------------------------------------------------------------------
YIELD QUOTATIONS
- --------------------------------------------------------------------------------
The current yield of each class of the Fund equals the net change,
exclusive of capital changes (all realized and unrealized gains and losses); in
the value of a hypothetical pre-existing account having a balance of one share
at the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7) and carrying the
resulting current yield figure to the nearest hundredth of one percent. The
determination of net change in account value reflects the value of additional
shares purchased with the dividends from the original share and dividends
declared on both the original share and any such additional shares and all fees
charged to shareholder accounts in proportion to the length of the base period
and the average account size of a class.
If realized and unrealized gains and losses were included in the
calculation of the current yield, the current yield of a class of the Fund might
vary materially from that reported in advertisements.
For the seven day period ended June 30, 1996, the current yields of
Class A, Class B and Class C shares were 4.50%, 3.61%, and 3.61%, respectively.
In addition to the current yield of a class, the Fund may, from time to
time, advertise effective yield. The effective yield is calculated by
compounding the unannualized base period return by adding 1, raising the sum to
a power equal to 365 divided by 7, subtracting 1 from the result and carrying
the resulting effective yield figure to the nearest hundredth of one percent.
For the seven day period ended June 30, 1996, the effective yields of
Class A, Class B and Class C shares were 4.60%, 3.67%, and 3.67%, respectively.
The current and effective yields, as quoted in such advertisements,
will be based on information as of a date no more than fourteen days prior to
the date of their publication. Each yield will vary depending on market
conditions. Principal is not insured. Each yield also depends on the quality,
maturity and type of instruments held in the Fund and operating expenses. The
advertisements will include, among other things, the length of and the date of
the last day in the base period used in computing the quotation.
The yield of any investment is generally a function of quality and
maturity, type of investment and operating expenses. The current yield of a
class of the Fund will fluctuate from time to time and is not necessarily
representative of future results. In addition, past performance is not a
guarantee of future results.
Current yield information is useful in reviewing the Fund's
performance, but because current yield will fluctuate, such information may not
provide a basis for comparison with bank deposits or other investments that pay
a fixed yield for a stated period of time. An investor's principal is not
guaranteed by the Fund.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Redemptions in Kind
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorized payment to be made in
portfolio securities or other property. The Fund has obligated itself, however,
under the 1940 Act, to redeem for cash all shares presented for redemption by
any one shareholder up to the lesser of $250,000 or 1% of the Fund's net assets
in any 90-day period. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs upon the
securities' sale.
General
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian (the "Custodian") of all securities and
cash of the Fund. The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related record keeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
EKSC, located at 200 Berkeley Street, Boston, Massachusetts 02116, is a
wholly-owned subsidiary of Keystone and is the transfer agent and dividend
disbursing agent for the Fund.
As of September 30, 1996, there were no shareholders of record owning
5% or more of the Fund's outstanding Class A and Class B shares.
As of September 30, 1996, Beacon Council, 80 Southwest 8th Street,
Miami, FL 33130 owned 9.01% of the outstanding Class C shares.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this statement of additional information, or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the
Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
A-1
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APPENDIX
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MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper will consist of issues rated
at the time of investment A-1, by Standard & Poor's Corporation ("S&P"), Prime-1
or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or F-1 or F-2 by Fitch
Investors Service, Inc. ("Fitch").
Commercial Paper Ratings
Standard & Poor's Ratings
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. The issuer's long-term
senior debt is rated A or better, although in some cases BBB credits may be
allowed. The issuer has access to at least two addi tional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry.
Moody's Ratings
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
Fitch's Ratings
The rating F-1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the rela tive strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.
United States Government Securities
Securities issued or guaranteed by the United States Government include
a variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have
A-2
maturities of one year or less. Treasury notes have maturities of one-to-ten
years and Treasury bonds generally have maturities of greater than ten years at
the date of issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Associa
tion, General Services Administration, Central Bank for Cooperatives, Federal
Home Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley
Authority, District of Columbia Armory Board and Federal National Mortgage
Association.
Some obligations of United States Government agencies and
instrumentalities, such as Treasury bills and Government National Mortgage
Association pass-through certificates, are support ed by the full faith and
credit of the United States; others, such as securities of Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; still others,
such as bonds issued by the Federal National Mortgage Association, a private
corporation, are supported only by the credit of the instrumentality. Because
the United States Government is not obligated by law to provide support to an
instrumentality it sponsors, the Fund will invest in the securities issued by
such an instrumentality only when Keystone determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the InterAmerican Development Bank, or issues insured by the
Federal Deposit Insurance Corporation.
Certificates of Deposit
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, and of U.S.
branches of foreign banks, which are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation, and have at least $1 billion in
deposits as of the date of their most recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks (except certificates of deposit of
certain U.S. branches of foreign banks).
Bankers' Acceptances
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds
18517
<PAGE>
A-3
to pay for specific merchandise. The draft is then "accepted" by the bank that,
in effect, uncondition ally guarantees to pay the face value of the instrument
on its maturity date. The acceptance may then be held by the accepting bank as
an earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
SCHEDULE OF INVESTMENTS--June 30, 1996
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
- -------------------------------------------------------- ------- ---------- -------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (17.4%)
Algemene Bank Nederland NV, Euro CD, 5.08% 07/16/96 $ 5,000,000 $ 4,999,222
Bayerische Landesbank, Euro CD, 5.41% 10/29/96 5,000,000 4,996,354
Bayerische Vereinsbank, Euro CD, 5.35% 07/05/96 5,000,000 4,999,919
Bayerische Vereinsbank, Yankee CD, 5.12% 08/05/96 5,000,000 4,998,157
Deutsche Bank, Yankee CD, 5.37% 07/15/96 5,000,000 4,999,933
Deutsche Bank AG, New York, Yankee CD, 5.62% 01/15/97 5,000,000 4,994,081
First Alabama Bank, CD, 5.34% 07/29/96 10,000,000 9,999,346
NBD Bank NA, CD, 5.35% 08/07/96 10,000,000 9,999,992
Rabobank Nederland NV, Yankee CD, 5.31% 07/18/96 5,000,000 4,999,562
Union Bank Switzerland, Euro CD, 5.05% 07/08/96 5,000,000 4,999,595
- -------------------------------------------------------- ------- ---------- -------------
TOTAL CERTIFICATES OF DEPOSIT (Cost--$60,002,903) 59,986,161
- --------------------------------------------------------------------------------- -------------
COMMERCIAL PAPER (62.7%)
ABN-AMRO North America Finance Co. 08/22/96 5,000,000 4,961,000
American Express Credit Corp. 07/16/96 5,000,000 4,988,875
American Express Credit Corp. 07/17/96 5,000,000 4,988,156
Ameritech Corp. (b) 08/12/96 7,000,000 6,955,900
Ameritech Corp. 08/23/96 8,000,000 7,936,871
Associates Corp. 07/03/96 5,000,000 4,998,533
Associates Corp. of North America 07/09/96 5,000,000 4,994,122
Associates Corp. of North America 07/12/96 5,000,000 4,991,918
Bell Atlantic Capital Funding Corp. 07/01/96 4,815,000 4,815,000
Bell Atlantic Financial Services, Inc. 07/26/96 10,000,000 9,962,778
BellSouth Telecommunications, Inc. 07/25/96 9,000,000 8,968,320
BellSouth Telecommunications, Inc. 08/27/96 5,000,000 4,957,329
Coca-Cola Co. 07/19/96 5,000,000 4,986,750
Coca-Cola Co. 07/22/96 10,000,000 9,968,967
Commerzbank AG, New York 07/08/96 5,000,000 4,994,828
duPont (E.I.) deNemours & Co. 07/12/96 5,000,000 4,991,887
duPont (E.I.) deNemours & Co. 07/24/96 5,000,000 4,983,006
duPont (E.I.) deNemours & Co. 08/15/96 5,000,000 4,966,563
Emerson Electric Co. 07/23/96 5,000,000 4,983,744
General Electric Co. 07/26/96 6,000,000 5,976,681
General Electric Capital Corp. 08/13/96 5,000,000 4,967,571
General Electric Capital Corp. 01/06/97 5,000,000 4,851,688
Heinz (H.J.) Co. 07/02/96 5,000,000 4,999,267
Heinz (H.J.) Co. 07/18/96 4,500,000 4,488,695
Heinz (H.J.) Co. 07/30/96 5,000,000 4,978,371
Hewlett Packard Co. 07/11/96 5,000,000 4,992,597
Hewlett Packard Co. 07/30/96 5,000,000 4,978,451
Hewlett Packard Co. 08/29/96 4,200,000 4,162,486
(continued on next page)
<PAGE>
PAGE 4
- ----------------------
Keystone Liquid Trust
Maturity Principal Market
Date Amount Value
- -------------------------------------------------------- ------- ---------- -------------
COMMERCIAL PAPER (continued)
Kellogg Co. 07/31/96 $10,400,000 $ 10,353,633
Nestle Capital Corp. 07/02/96 7,000,000 6,998,973
Nestle Capital Corp. 07/16/96 3,100,000 3,093,141
Pitney Bowes Credit Corp. 07/23/96 5,200,000 5,183,285
Proctor & Gamble Co. 07/10/96 10,000,000 9,986,675
Proctor & Gamble Co. 08/28/96 4,500,000 4,460,705
Unilever Capital Corp. (b) 07/09/96 5,000,000 4,994,111
Unilever Capital Corp. (b) 09/03/96 5,500,000 5,446,711
Unilever Capital Corp. (b) 10/15/96 5,000,000 4,919,322
Wal Mart Stores, Inc. 07/01/96 3,825,000 3,825,000
- -------------------------------------------------------- ------- ---------- -------------
TOTAL COMMERCIAL PAPER (Cost--$217,073,278) 217,051,910
- --------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT (AND AGENCY) ISSUES (14.4%)
FFCB, 5.30% 08/01/96 7,000,000 6,999,551
FHLB Medium Term Notes, 5.82% 05/01/97 3,000,000 2,997,639
FHLMC Discount Notes 07/03/96 10,000,000 9,997,083
FHLMC Discount Notes 07/15/96 5,000,000 4,989,763
FHLMC Discount Notes 08/05/96 5,000,000 4,974,333
FHLMC Discount Notes 08/22/96 5,000,000 4,961,650
FNMA Discount Notes 08/06/96 5,150,000 5,122,808
FNMA Discount Notes 08/20/96 5,000,000 4,963,056
FNMA Discount Notes 09/10/96 5,000,000 4,947,243
- -------------------------------------------------------- ------- ---------- -------------
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (Cost--$49,956,759) 49,953,126
- --------------------------------------------------------------------------------- -------------
Maturity
Value
- -------------------------------------------------------- ------- ---------- -------------
REPURCHASE AGREEMENTS (5.6%)
Keystone Joint Repurchase Agreement (Investments in
repurchase agreements, in a joint trading account,
5.55%, purchased 6/28/96) (c) 07/01/96 $18,008,325 18,000,000
State Street Bank & Trust, Co., 5.00%, purchased
6/28/96 (Collateralized by $1,080,000 U.S. Treasury
Bond, 10.75%, due 8/15/05) 07/01/96 1,400,583 1,400,000
- -------------------------------------------------------- ------- ---------- -------------
TOTAL REPURCHASE AGREEMENTS (Cost--$19,400,000) 19,400,000
- --------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (COST--$346,432,940) (a) 346,391,197
OTHER ASSETS AND LIABILITIES--NET (-0.1%) (268,054)
- --------------------------------------------------------------------------------- -------------
NET ASSETS--(100.0%) $346,123,143
- --------------------------------------------------------------------------------- -------------
</TABLE>
<PAGE>
PAGE 5
- ----------------------
SCHEDULE OF INVESTMENTS--June 30, 1996
(a) The cost of investments for federal income tax purposes is identical.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost, at June 30, 1996 are as follows:
Gross unrealized appreciation $ 0
Gross unrealized depreciation (41,743)
---------
Net unrealized depreciation $(41,743)
=========
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Federal
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at June 30, 1996.
Legend of Portfolio Abbreviations
FFCB--Federal Farm Credit Bank
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
See Notes to Financial Statements.
<PAGE>
PAGE 6
- ----------------------
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------- ------------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------- ------------ ------- ------- ------- ---------
Income from investment operations:
Net investment income .0464 .0454 .0235 .0230 .0386
Net realized and unrealized gain (loss)
on investments (.0001) 0 0 (.0001) .0003
--------------------------------------- ------------ ------- ------- ------- ---------
Total from investment operations .0463 .0454 .0235 .0229 .0389
--------------------------------------- ------------ ------- ------- ------- ---------
Less distributions to shareholders (.0463) (.0454) (.0235) (.0229) (.0389)
--------------------------------------- ------------ ------- ------- ------- ---------
Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------- ------------ ------- ------- ------- ---------
Total return 4.73% 4.63% 2.37% 2.31% 3.96%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 4.66% 4.42% 2.50% 2.29% 3.99%
Total expenses 0.98%(a) 0.92% 1.02% 1.11% 1.10%
Net assets end of year (thousands) $332,796 $245,308 $398,617 $189,167 $227,115
--------------------------------------- ------------ ------- ------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1991 1990 1989 1988 1987
--------------------------------------- ------------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------- ------------ ------- ------- ------- ---------
Income from investment operations:
Net investment income .0634 .0760 .0786 .0597 .0524
Net realized and unrealized gain (loss)
on investments 0 0 .0001 (.0001) 0
--------------------------------------- ------------ ------- ------- ------- ---------
Total from investment operations .0634 .0760 .0787 .0596 .0524
--------------------------------------- ------------ ------- ------- ------- ---------
Less distributions to shareholders (.0634) (.0760) (.0787) (.0596) (.0524)
--------------------------------------- ------------ ------- ------- ------- ---------
Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------- ------------ ------- ------- ------- ---------
Total return 6.47% 7.81% 8.18% 6.31% 5.35%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 6.51% 7.53% 7.88% 5.99% 5.30%
Total expenses 0.92% 1.00% 1.00% 1.00% 1.00%
Net assets end of year (thousands) $400,597 $406,306 $475,640 $461,032 $375,542
--------------------------------------- ------------ ------- ------- ------- ---------
</TABLE>
(a) "Ratio of total expenses to average net assets" for the year ended June
30, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses for the year ended June 30, 1996, the expense ratio would have
been 0.95%.
See Notes to Financial Statements.
<PAGE>
PAGE 7
- ----------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended June 30, (Date of Initial
-------------------------------- Public Offering) to
1996 1995 1994 June 30, 1993
- --------------------------------------------- ------------ ------ ------ --------------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- ------------ ------ ------ --------------------
Income from investment operations:
Net investment income .0369 .0362 .0142 .0047
Net realized and unrealized loss on
investments 0 0 0 (.0001)
- --------------------------------------------- ------------ ------ ------ --------------------
Total from investment operations .0369 .0362 .0142 .0046
- --------------------------------------------- ------------ ------ ------ --------------------
Less distributions to shareholders (.0369) (.0362) (.0142) (.0046)
- --------------------------------------------- ------------ ------ ------ --------------------
Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- ------------ ------ ------ --------------------
Total return (c) 3.76% 3.68% 1.43% 0.46%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.73% 3.66% 1.84% 1.08%(b)
Total expenses 1.91%(a) 1.84% 1.85% 2.15%(b)
Net assets end of year (thousands) $10,042 $ 7,281 $11,198 $ 241
- --------------------------------------------- ------------ ------ ------ --------------------
</TABLE>
(a) "Ratio of total expenses to average net assets" for the year ended June
30, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses for the year ended June 30, 1996, the expense ratio would have
been 1.88%.
(b) Annualized.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 8
- ----------------------
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended June 30, (Date of Initial
-------------------------------- Public Offering) to
1996 1995 1994 June 30, 1993
- --------------------------------------------- ------------ ------ ------ --------------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- ------------ ------ ------ --------------------
Income from investment operations:
Net investment income .0370 .0362 .0142 .0045
Net realized and unrealized loss on
investments (.0001) 0 0 (.0002)
- --------------------------------------------- ------------ ------ ------ --------------------
Total from investment operations .0369 .0362 .0142 .0043
- --------------------------------------------- ------------ ------ ------ --------------------
Less distributions to shareholders (.0369) (.0362) (.0142) (.0043)
- --------------------------------------------- ------------ ------ ------ --------------------
Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- ------------ ------ ------ --------------------
Total return (c) 3.75% 3.68% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.72% 3.52% 1.97% 1.01% (b)
Total expenses 1.94%(a) 1.82% 1.86% 2.09% (b)
Net assets end of year (thousands) $ 3,285 $ 4,112 $ 6,599 $ 34
- --------------------------------------------- ------------ ------ ------ --------------------
</TABLE>
(a) "Ratio of total expenses to average net assets" for the year ended June
30, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses for the year ended June 30, 1996, the expense ratio would have
been 1.91%.
(b) Annualized.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 9
- ----------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
Assets (Note 1)
Investments at market value
(identified cost--$346,432,940) $346,391,197
Cash 147,619
Receivable for:
Fund shares sold 100
Interest 941,675
Prepaid expenses and other assets 56,798
- ------------------------------------------- -------------
Total assets 347,537,389
- ------------------------------------------- -------------
Liabilities (Note 1)
Payable for:
Fund shares redeemed 232,880
Distributions to shareholders 1,132,539
Accrued expenses 48,827
- ------------------------------------------- -------------
Total liabilities 1,414,246
- ------------------------------------------- -------------
Net assets $346,123,143
- ------------------------------------------- -------------
Net assets represented by (Note 2)
Class A Shares ($1.00 a share on
332,795,671 shares outstanding) $332,795,671
Class B Shares ($1.00 a share on
10,042,074 shares outstanding) 10,042,074
Class C Shares ($1.00 a share on 3,285,398
shares outstanding) 3,285,398
- ------------------------------------------- -------------
$346,123,143
- ------------------------------------------- -------------
Net asset value and offering price per
share (Class A, B and C) $1.00
- ------------------------------------------- -------------
STATEMENT OF OPERATIONS
Year Ended June 30, 1996
Investment income (Note 1)
Interest $15,264,626
- -------------------------------------- --------- ------------
Expenses (Notes 2 and 3)
Management fees $1,359,239
Transfer agent fees 759,359
Accounting, auditing and legal fees 52,723
Custodian fees 148,640
Trustees' fees and expenses 34,299
Distribution Plan expenses 278,755
Miscellaneous 149,465
- -------------------------------------- --------- ------------
Total expenses 2,782,480
Less: Expenses paid indirectly
(Note 3) (81,434)
- -------------------------------------- --------- ------------
Net expenses 2,701,046
- -------------------------------------- --------- ------------
Net investment income 12,563,580
- -------------------------------------- --------- ------------
Net realized and unrealized gain
(loss) on investments (Note 1)
Net realized gain on investments 4,475
Net change in unrealized
depreciation on investments (39,780)
- -------------------------------------- --------- ------------
Net realized and unrealized loss on
investments (35,305)
- -------------------------------------- --------- ------------
Net increase in net assets resulting
from operations $12,528,275
- -------------------------------------- --------- ------------
See Notes to Financial Statements.
<PAGE>
PAGE 10
- ----------------------
Keystone Liquid Trust
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------
1996 1995
- ------------------------------------------------------------------------------ ----------- --------------
<S> <C> <C>
Operations
Net investment income $ 12,563,580 $ 16,854,349
Net realized gain (loss) on investments 4,475 (71)
Net change in unrealized depreciation on investments (39,780) (685)
- ------------------------------------------------------------------------------ ----------- --------------
Net increase in net assets resulting from operations 12,528,275 16,853,593
- ------------------------------------------------------------------------------ ----------- --------------
Distributions to shareholders (Note 1)
Class A Shares (12,043,595) (16,168,849)
Class B Shares (383,777) (435,508)
Class C Shares (100,903) (249,236)
- ------------------------------------------------------------------------------ ----------- --------------
Total distributions to shareholders (12,528,275) (16,853,593)
- ------------------------------------------------------------------------------ ----------- --------------
Capital share transactions (Note 2)
Class A Shares 87,487,588 (153,308,964)
Class B Shares 2,760,515 (3,916,029)
Class C Shares (826,275) (2,487,651)
- ------------------------------------------------------------------------------ ----------- --------------
Net increase (decrease) in net assets resulting from capital share
transactions 89,421,828 (159,712,644)
- ------------------------------------------------------------------------------ ----------- --------------
Total increase (decrease) in net assets 89,421,828 (159,712,644)
Net assets
Beginning of year 256,701,315 416,413,959
- ------------------------------------------------------------------------------ ----------- --------------
End of year $346,123,143 $ 256,701,315
- ------------------------------------------------------------------------------ ----------- --------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 11
- ----------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Summary of Accounting Policies
Keystone Liquid Trust (the "Fund") is an open-end diversified investment
management company for which Keystone Management, Inc. ("KMI") is the
Investment Manager and Keystone Investment Management Company ("Keystone") is
the Investment Adviser. The Fund is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund is a money market mutual
fund that seeks high current income from short-term securities while
preserving capital and maintaining liquidity.
The Fund offers Class A, B, and C shares. Class A shares are offered without
an initial sales charge. Class B shares are offered without an initial sales
charge, although a contingent deferred sales charge may be imposed at the
time of redemption, which decreases depending on when the shares were
purchased and how long the shares have been held. Class C shares are offered
without an initial sales charge, although a contingent deferred sales charge
may be imposed on redemptions within one year of purchase. Class C shares are
available only through dealers who have entered into special distribution
agreements with Keystone Investment Distributors Company ("KIDC"), the Fund's
principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"),
a Delaware corporation. KII is a private corporation owned by an investor
group consisting predominantly of current and former members of management of
Keystone and its affiliates.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Fund.
Valuation of Securities--Money market investments maturing in sixty days or
less are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market. Money market investments maturing in
more than sixty days for which market quotations are readily available are
valued at current market value. Money market investments maturing in more
than sixty days when purchased that are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest approximates market.
Repurchase Agreements--When the Fund enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the securities
at a mutually agreed upon date and price) the repurchase price of the
securities will generally equal the amount paid by the Fund plus a negotiated
interest amount. The seller under the repurchase agreement will be required
to provide securities (collateral) to the Fund whose value will be maintained
at an amount not less than the repurchase price. The Fund monitors the value
of the collateral on a daily basis, and, if the value of the collateral falls
below required levels, the Fund intends to seek additional collateral from
the seller or terminate the repurchase agreement. If the seller defaults, the
Fund would suffer a loss to the extent that the proceeds from the sale of the
underlying securities were less than the repurchase price. Any such loss
would be increased by any cost incurred on disposing of such securities. If
bankruptcy proceedings are commenced against the seller under the repurchase
agree-
<PAGE>
PAGE 12
- ----------------------
Keystone Liquid Trust
ment, the realization on the collateral may be delayed or limited. Repurchase
agreements entered into by the Fund will be limited to transactions with
dealers or domestic banks believed to present minimal credit risks, and the
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.Keystone Liquid Trust
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
Distributions--The Fund declares dividends daily, pays dividends monthly and
automatically reinvests such dividends in additional shares at net asset
value, unless shareholders request payment in cash. Dividends are declared
from the total of net investment income, plus realized and unrealized gain
(loss) on investments.
Securities Transactions and Investment Income--Securities transactions are
accounted for no later than one business day after the trade date. Realized
gains and losses from securities transactions are computed on the identified
cost basis. Interest income is recorded on the accrual basis.
Federal Income Taxes--The Fund has qualified, and intends to qualify in the
future, as a regulated investment company under the Internal Revenue Code of
1986, as amended ("Internal Revenue Code"). Thus, the Fund expects to be
relieved of any federal income tax liability by distributing all of its net
tax basis investment income and net tax basis capital gains, if any, to its
shareholders. The Fund intends to avoid any excise tax liability by making
the required distributions under the Internal Revenue Code.
(2.) Shares of Beneficial Interest
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest without par value. Since the Fund
sold, redeemed and reinvested shares at $1.00 net asset value, the shares and
dollar amount are the same. Transactions in Fund shares were as follows:
Year Ended June 30,
Class A Shares 1996 1995
- -------------------------- ------------ --------------
Sales $ 1,105,810,542 $ 725,781,933
Redemptions (1,027,927,276) (892,973,139)
Reinvestment of
distributions from
available sources 9,604,322 13,882,242
- -------------------------- ------------ --------------
Net increase (decrease) $ 87,487,588 $(153,308,964)
========================== ============ ==============
Class B Shares
- -------------------------- ------------ --------------
Sales $ 31,488,209 $ 30,267,166
Redemptions (29,034,624) (34,518,836)
Reinvestment of
distributions from
available sources 306,930 335,641
- -------------------------- ------------ --------------
Net increase (decrease) $ 2,760,515 $ (3,916,029)
========================== ============ ==============
Class C Shares
- -------------------------- ------------ --------------
Sales $ 7,581,549 $ 11,924,336
Redemptions (8,502,653) (14,624,256)
Reinvestment of
distributions from
available sources 94,829 212,269
- -------------------------- ------------ --------------
Net decrease $ (826,275) $ (2,487,651)
========================== ============ ==============
<PAGE>
PAGE 13
- ----------------------
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares
pursuant to Rule 12b-1 under the 1940 Act.
The Fund's Class A Distribution Plan provides for expenditures, which are
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, to pay expenses associated with the distribution of Class A
shares. Amounts paid by the Fund to KIDC under the Class A Distribution Plan
are currently used to pay others, such as dealers, service fees at an annual
rate of up to 0.25% of the average daily net asset value of Class A shares
maintained by such others.
The Fund's Class B Distribution Plans provide for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class B shares to
pay expenses associated with the distribution of Class B shares. For Class B
shares sold on or after June 1, 1995, amounts paid by the Fund under such
shares' Class B Distribution Plan are currently used to pay others (dealers)
a commission at the time of purchase normally equal to 4.00% of the price
paid for each Class B share sold plus the first year's service fee in advance
in the amount of 0.25% of the price paid for each Class B share sold.
Beginning approximately 12 months after the purchase of such Class B shares,
the dealer or other party will receive service fees at an annual rate of
0.25% of the average daily net asset value of such Class B shares maintained
by such others. A contingent deferred sales charge will be imposed, if
applicable, on Class B shares purchased on or after June 1, 1995 at rates
ranging from a maximum of 5% of amounts redeemed during the first 12 month
period from and including the month of purchase to 1% of amounts redeemed
during the sixth twelve month period. Class B shares purchased on or after
June 1, 1995 that have been outstanding for eight years from and including
the month of purchase will automatically convert to Class A shares without a
front-end sales charge or exchange fee. Class B shares purchased prior to
June 1, 1995 convert to Class A shares after seven years.
The Fund's Class C Distribution Plan provides for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class C shares to
pay expenses associated with the distribution of Class C shares. Amounts paid
by the Fund under the Class C Distribution Plan are currently used to pay
others (dealers) a commission at the time of purchase in the amount of 0.75%
of the price paid for each Class C share sold plus the first year's service
fee in advance in the amount of 0.25% of the price paid for each Class C
share. Beginning approximately 15 months after purchase date, the dealer or
other party will receive a commission at an annual rate of 0.75% of the
average net asset value (subject to applicable limitations imposed by rules
adopted by the National Association of Securities Dealers, Inc.("NASD")) plus
service fees at the annual rate of 0.25% of the average net asset value of
each Class C share maintained by such others on the Fund's books for
specified periods.
Each of the Distribution Plans may be terminated at any time by a vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plans were in effect.
During the year ended June 30, 1996, the Fund paid or accrued to KIDC
$148,564 under its Class A Distribution Plan. During the year ended June 30,
1996 under its Class B Distribution Plans, the Fund
<PAGE>
PAGE 14
- ----------------------
Keystone Liquid Trust
paid or accrued to KIDC $77,113 for Class B shares sold prior to June 1, 1995
and $25,876 for Class B shares sold on or after June 1, 1995. During the year
ended June 30, 1996, the Fund paid or accrued $27,202 under its Class C
Distribution Plan.Keystone Liquid Trust
Under applicable NASD rules, the maximum uncollected amounts for which KIDC
may seek payment from the Fund under its Distribution Plans as of June 30,
1996 are $1,069,672 for Class B shares purchased prior to June 1, 1995,
$201,443 for Class B shares purchased on or after June 1, 1995, and
$1,036,758 for Class C shares.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its Distribution
Plan.
(3.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily
calculated by applying percentage rates, starting at 0.50%, and declining as
net assets increase, to 0.40% per annum, to the net asset value of the Fund.
KMI has entered into an Investment Advisory Agreement with Keystone under
which Keystone provides investment advisory and management services to the
Fund and receives for its services an annual fee representing 85% of the
management fee received by KMI.
During the year ended June 30, 1996, the Fund paid or accrued to KMI
investment management and administration services fees of $1,359,239, which
represented 0.50% of the Fund's average net assets. Of such amount paid to
KMI, $1,155,353 was paid to Keystone for its services to the Fund.
During the year ended June 30, 1996, the Fund paid or accrued $17,571 to KII
as reimbursement for certain accounting services provided to the Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, is the Fund's transfer and dividend disbursing agent. For the
year ended June 30, 1996, the Fund paid or accrued $759,359 to KIRC for
transfer agent fees.
The Fund has entered into an expense offset arrangement with its custodian.
For the year ended June 30, 1996, the Fund paid custody fees in the amount of
$67,206 and received a credit of $81,434 pursuant to the expense offset
arrangement, resulting in a total expense of $148,640. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
- ------------------------------------------------------------------------------
FEDERAL TAX STATUS--FISCAL 1996 DISTRIBUTIONS (Unaudited)
During the fiscal year ended June 30, 1996, dividends of $0.0463, $0.0369 and
$0.0369 per share were paid or are payable to shareholders of Keystone Liquid
Trust Class A, B, and C, respectively. All dividends are taxable to
shareholders as ordinary income in the year in which received by them or
credited to their accounts and are not eligible for the corporate dividend
received deduction. In January 1997 we will send you information on the
distributions paid during the calendar year to help you in completing your
federal tax return.
<PAGE>
PAGE 15
- ----------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Liquid Trust
We have audited the accompanying statement of assets and liabilities of
Keystone Liquid Trust, including the schedule of investments, as of June 30,
1996, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
ten-year period then ended for Class A shares, and for each of the years in
the three-year period then ended and the period from February 1, 1993 (date
of initial public offering) to June 30, 1993 for Class B and Class C shares.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1996, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Liquid Trust as of June 30, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 26, 1996
<PAGE>
EVERGREEN
MONEY MARKET FUNDS
(Photos of money, a building, coins and an eagle appear here)
(Photo of trees and river)
1996 ANNUAL REPORT
(Evergreen tree logo)
Evergreen(SM)
Funds
<PAGE>
EVERGREEN MONEY MARKET FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
(Photo of money) A Review of the Past Year and Prospects for the Future.................... 1
MONEY MARKET A Report From Your Portfolio Manager...................................... 3
FUND Statement of Investments.................................................. 4
Statement of Assets and Liabilities....................................... 9
Statement of Operations................................................... 10
Statement of Changes in Net Assets........................................ 11
Financial Highlights...................................................... 12
(Photo of building) PENNSYLVANIA A Report From Your Portfolio Manager...................................... 14
TAX-FREE MONEY Statement of Investments.................................................. 15
MARKET FUND Statement of Assets and Liabilities....................................... 18
Statement of Operations................................................... 19
Statement of Changes in Net Assets........................................ 20
Financial Highlights...................................................... 21
(Photo of coins) TAX EXEMPT A Report From Your Portfolio Manager...................................... 22
MONEY MARKET FUND Statement of Investments.................................................. 23
Statement of Assets and Liabilities....................................... 35
Statement of Operations................................................... 36
Statement of Changes in Net Assets........................................ 37
Financial Highlights...................................................... 38
(Photo of an eagle) TREASURY A Report From Your Portfolio Manager...................................... 39
MONEY MARKET FUND Statement of Investments.................................................. 40
Statement of Assets and Liabilities....................................... 41
Statement of Operations................................................... 42
Statement of Changes in Net Assets........................................ 43
Financial Highlights...................................................... 44
Combined Notes to Financial Statements.................................... 46
Report of Independent Accountants -- Price Waterhouse LLP................. 53
Independent Auditors' Report -- KPMG Peat Marwick LLP..................... 54
Trustees and Officers...................................... Inside Back Cover
</TABLE>
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995, Evergreen Asset Management Corp.
<PAGE>
EVERGREEN MONEY MARKET FUNDS
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER
The continued expansion of the United States (Photo of Stephen A.
economy and the persistence of inflation at 3% or Lieber)
less, has evidently sent mixed signals to the
investment markets. The
equity market this year has gone from new high to new high. The willingness of
American savers to put money into the hands of equity mutual funds to buy stocks
in the United States and abroad is unprecedented. Even foreign investors, who
have long been skeptical of the rising prices of U.S. equities and the recent
relatively higher valuations than in many other industrial countries, have begun
to move heavily into U.S. equities. Only the bond market has suffered negative
trends this year. But, it showed no further losses when measured from the end of
the second calendar quarter to the end of the third.
In contrast, it yielded modest gains early in the third quarter. Evidence of
slowed final demand in many sectors of the economy has begun to reduce the fears
of many investors over inflationary pressures. While confidence increases that
both producer and consumer price indexes will remain in a narrow range, around
3%, apprehensions of possibly renewed inflation are now focused on the trend of
hourly wages. Hourly wages have moved up slightly in the last two months.
The apparent consensus among business economists currently is to expect a 2%
growth rate for the U.S. economy in the second half of 1996, with a similar
level to continue into 1997. These views are, in part, based on historical
trends, in which the late cycle characteristics of the U.S. economy typically
show economic deceleration. Such a deceleration is not widely feared, in view of
the fact that real income growth is likely to be sustained by a 2% to 2 1/2%
employment growth, plus a 3% to 3 1/2% earnings growth, before a 3% inflation.
The appearance of such decelerating trends and their continuation would likely
bring bond yields down, as the inflation premium would be removed from bond
market expectations. Many who dissent from the consensus view that the economy
will slow, argue that the European economies and Japan's economy are likely to
revive in 1997, which will create more export demand for U.S. products and,
therefore, increase our growth rate. More pessimistic observers of the American
economy believe that the American consumer has overspent, as evidenced by the
rising rate of credit card delinquencies, and by the "wealth effect" of a stock
market achieving record highs.
For the bond market, we expect that fairly stable, rather than rising,
inflation, and a somewhat declining overall business rate of growth, together
with a narrow range currency market, should enable a gradual decline in interest
rates.
Tax-exempt fixed income investment in 1996 has had comparatively better
returns than taxable bond investment. Much of this difference is due to the fact
that the flat tax, or sharply
1
<PAGE>
EVERGREEN MONEY MARKET FUNDS
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
reduced income tax, advocacies of presidential candidates earlier in the year,
were eliminated as concerns for tax-exempt investors. Therefore, tax-exempt
bonds have risen to a normal level of relationship to taxable bonds. Further
improving valuations has been the lack of major concerns over credit quality
issues. Orange County California's default has fallen into memory and its credit
is in the process of restoration. Other credit problems regarding certain public
power facilities and the rental of municipal buildings have also been overcome.
Correspondingly, the supply of new tax-exempt issues declined, especially as
interest rate increases cut down the number of new issues replacing refunded
bonds. The credit quality overall has been enhanced by further record gains for
the use of bond insurance, while the insurers themselves have had their credit
quality improved by record accumulations of earnings. In summary, the tax-exempt
securities market toward the end of 1996 appears to be in a healthy condition.
2
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
A REPORT FROM YOUR
PORTFOLIO MANAGER
ETHEL SUTTON
With the unemployment rate down to 5.1% in August, its lowest (Photo of
level in seven years, economists are asking whether unemployment Ethel
can decline further without sparking inflation in the broad Sutton)
wholesale and retail price indexes. While the Federal Reserve
adopted a monetary policy directive with a bias toward higher
interest rates at its July meeting, reflecting concern over the
economy's robust rate of growth during the second quarter, it
held rates steady at both its August and September meetings.
The two key questions that the Federal Reserve will need to
address this fall are how quickly the economy slows and whether
the good news on the inflation front will
continue. If the Federal Reserve does decide to implement its
tightening bias and raise the overnight funds rate by 25 basis points, we think
it unlikely that the Fed would do so before the November elections to avoid the
appearance of politicizing the nation's monetary policy.
After dropping sharply in the wake of the Federal Reserve's interest rate cut
in January, which was viewed as anti-recession insurance, money market yields
started trending upward again in April in response to evidence of unexpectedly
higher second quarter growth. While the quarter ended on a softer note, there
was spotty evidence over the summer that the economy might be continuing to pick
up, and this perception pushed rates higher over the period.
The ambiguity of the economic data suggested to us, however, that the Fed
would be willing to hold rates steady until third quarter Gross Domestic Product
(GDP) figures were released the last week in October. Consequently, we have been
comfortable with maturities that are appreciably longer than the average for
first tier money market funds reported by IBC's Money Fund Report. The Fund's
weighted average maturity at its fiscal year-end on August 31, 1996, was 71
days, as compared with 55 days for the 268 first tier money market funds in the
IBC Average at that time. We shall continue to monitor economic data,
particularly as it relates to inflation, and lengthen or shorten maturities
accordingly.
The total net assets for Evergreen Money Market Fund at its fiscal year-end
on August 31, 1996, were $2.4 billion. The Fund's seven-day current and
effective yields at that time are illustrated in the table below.
<TABLE>
<CAPTION>
7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD
<S> <C> <C>
Class Y Shares 5.12% 5.25%
Class A Shares 4.83% 4.95%
Class B Shares 4.12% 4.20%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
*SOURCE; IBC FINANCIAL DATA, INC., AN INDEPENDENT MONEY MARKET MUTUAL FUNDS
PERFORMANCE MONITOR.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORSEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUNDS
DAILY NET ASSETS OF ITS CLASS A SHARES.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
3
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
BANKERS' ACCEPTANCES* -- 3.0%
$28,400 Bank of Tokyo-Mitsubishi Ltd.,
5.53%, 11/25/96.................... $ 28,029,183
CoreStates Bank,
2,000 5.57%, 12/23/96.................... 1,965,033
2,544 5.57%, 12/26/96.................... 2,498,390
8,700 Dai-Ichi Kangyo Bank Ltd.,
5.52%, 10/22/96.................... 8,631,966
14,000 Fuji Bank Ltd.,
5.50%, 9/26/96..................... 13,946,528
6,000 Republic National Bank of
New York,
5.39%, 1/27/97..................... 5,867,047
Sumitomo Bank Ltd.,
3,000 5.50%, 9/20/96..................... 2,991,291
5,350 5.53%, 11/7/96..................... 5,294,938
5,000 5.61%, 11/25/96.................... 4,933,771
TOTAL BANKERS' ACCEPTANCES
(COST $74,158,147)............ 74,158,147
CERTIFICATES OF DEPOSIT -- 10.7%
25,000 Australia & New Zealand Banking
Group Ltd.
5.51%, 12/31/96.................... 25,000,812
25,000 Bayerische Vereinsbank AG,
5.53%, 1/22/97..................... 25,000,000
Canadian Imperial Bank of Commerce,
20,000 5.50%, 1/9/97...................... 20,000,000
25,000 5.70%, 3/21/97..................... 25,000,000
25,000 5.77%, 5/2/97...................... 25,000,000
50,000 Deutsche Bank AG,
5.70%, 5/1/97...................... 50,000,000
Societe Generale,
20,000 5.50%, 1/9/97...................... 20,000,000
20,000 5.21%, 2/24/97..................... 20,000,000
25,000 5.70%, 3/14/97..................... 25,000,000
25,000 5.75%, 4/1/97...................... 25,000,000
TOTAL CERTIFICATES OF DEPOSIT
(COST $260,000,812)........... 260,000,812
COMMERCIAL PAPER* -- 82.6%
BANK HOLDING COMPANIES -- 11.3%
5,000 B.B.V. Finance (DE), Inc.,
5.44%, 2/18/97..................... 4,871,556
Banca CRT Financial Corp.,
11,000 5.40%, 9/17/96..................... 10,973,600
9,700 5.48%, 9/26/96..................... 9,663,086
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
COMMERCIAL PAPER* -- CONTINUED
BANK HOLDING COMPANIES -- CONTINUED
$10,000 BankAmerica Corp.,
5.50%, 1/13/97..................... $ 9,795,278
Bankers Trust New York Corp.,
25,000 5.53%, 12/19/96.................... 24,581,410
25,000 5.59%, 12/30/96.................... 24,534,166
11,700 BIL North America, Inc.,
5.45%, 10/16/96.................... 11,620,294
BTM Capital Corp.,
19,697 5.53%, 10/15/96.................... 19,563,870
10,000 5.40%, 11/26/96.................... 9,871,000
33,000 Chase Manhattan Corp.,
5.66%, 1/6/97...................... 32,341,082
24,000 HSBC Americas, Inc.,
5.38%, 12/4/96..................... 23,662,853
4,200 IMI Funding Corp. (USA),
5.52%, 11/4/96..................... 4,158,784
6,000 Korea Development Bank,
5.30%, 9/12/96..................... 5,990,283
7,186 MPS U.S. Commercial Paper Corp.,
5.45%, 9/19/96..................... 7,166,418
Royal Bank Canada New York Branch,
20,000 5.54%, 12/31/96.................... 19,627,589
14,750 5.41%, 1/17/97..................... 14,444,110
11,000 Sumitomo Bank Capital
Markets, Inc.,
5.38%, 11/15/96.................... 10,876,708
25,000 Svenska Handelsbanken, Inc.,
5.42%, 9/9/96...................... 24,969,889
Unifunding, Inc.,
2,000 5.30%, 10/8/96..................... 1,989,106
5,000 5.45%, 2/11/97..................... 4,876,618
275,577,700
BUILDING & CONSTRUCTION -- .1%
1,600 Guardian Industries Corp.,
5.31%, 10/21/96.................... 1,588,200
CHEMICALS -- 4.7%
Akzo Nobel, Inc.,
15,000 5.30%, 11/19/96.................... 14,825,542
10,700 5.49%, 11/19/96.................... 10,571,092
9,000 5.55%, 11/19/96.................... 8,890,387
</TABLE>
4
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
CHEMICALS -- CONTINUED
<C> <S> <C>
$13,500 Burmah Castrol Finance PLC,
5.40%, 1/21/97..................... $ 13,212,450
14,000 Cosmair, Inc.,
5.35%, 10/4/96..................... 13,931,342
Hercules, Inc.,
13,300 5.32%, 10/4/96..................... 13,235,140
11,600 5.34%, 12/2/96..................... 11,441,699
WMX Technologies, Inc.,
19,700 5.43%, 1/22/97..................... 19,275,087
10,000 5.77%, 3/25/97..................... 9,671,431
115,054,170
CONTAINERS & PACKAGES -- .5%
12,000 Sonoco Products Co.,
5.42%, 9/10/96..................... 11,983,740
DIVERSIFIED -- 10.7%
1,200 American Home Products Corp.,
5.35%, 10/1/96..................... 1,194,650
5,981 Arena Funding Corp.,
(LOC: Bank of Tokyo-Mitsubishi
Ltd.)
5.40%, 10/15/96.................... 5,941,525
16,600 B.I. Funding, Inc.,
5.38%, 9/27/96..................... 16,535,500
Daewoo International
(America) Corp.,
(LOC: Korea Development Bank)
20,000 5.38%, 11/22/96.................... 19,754,911
30,000 5.66%, 12/13/96.................... 29,514,183
3,000 Eaton Corp.,
5.53%, 1/8/97...................... 2,940,553
Finova Capital Corp.,
29,625 5.40%, 9/10/96..................... 29,585,006
27,800 5.51%, 10/3/96..................... 27,663,842
15,200 5.41%, 10/31/96.................... 15,062,947
20,000 5.40%, 11/14/96.................... 19,778,000
20,000 5.38%, 11/20/96.................... 19,760,889
20,000 Mitsui & Co. (USA), Inc.,
5.50%, 11/13/96.................... 19,776,945
7,700 Newell Co.,
5.32%, 9/9/96...................... 7,690,897
6,200 Progress Funding Corp.
(LOC: Fuji Bank Ltd.)
5.50%, 11/6/96..................... 6,137,483
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
DIVERSIFIED -- CONTINUED
REXAM PLC,
$16,500 5.40%, 9/5/96...................... $ 16,490,100
10,000 5.42%, 10/23/96.................... 9,921,711
12,500 Rubbermaid, Inc.,
5.29%, 9/12/96..................... 12,479,795
260,228,937
ELECTRICAL POWER -- 4.9%
Electricite de France,
25,000 5.44%, 12/23/96.................... 24,573,111
16,000 5.55%, 12/27/96.................... 15,711,400
FP Funding Corp.,
(LOC: Sumitomo Bank Ltd.)
11,566 5.41%, 9/24/96..................... 11,526,023
23,404 5.41%, 9/25/96..................... 23,319,590
20,000 5.52%, 10/21/96.................... 19,846,667
21,500 IES Utilities, Inc.,
5.31%, 9/24/96..................... 21,427,061
3,200 Pacificorp,
5.26%, 10/3/96..................... 3,185,038
119,588,890
ELECTRONICS -- 2.7%
8,000 Hitachi Credit America Corp.,
5.32%, 11/21/96.................... 7,904,240
5,000 Orix America, Inc.,
5.52%, 9/3/96...................... 4,998,467
10,000 Seiko Corp. of America,
(LOC: Dai-Ichi Kangyo Bank Ltd.)
5.40%, 10/24/96.................... 9,920,500
Sharp Electronics Corp.,
8,300 5.31%, 12/20/96.................... 8,165,332
12,330 5.35%, 12/20/96.................... 12,128,439
23,000 Toshiba America, Inc.,
5.42%, 9/3/96...................... 22,993,074
66,110,052
FINANCE -- 21.3%
Aristar, Inc.,
7,000 5.38%, 9/24/96..................... 6,975,939
6,400 5.38%, 9/25/96..................... 6,377,045
34,665 5.35%, 11/15/96.................... 34,278,630
18,965 5.35%, 11/21/96.................... 18,736,709
Astro Capital Corp.,
24,589 5.45%, 10/1/96..................... 24,477,325
9,268 5.50%, 10/11/96.................... 9,211,362
</TABLE>
5
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
FINANCE -- CONTINUED
<C> <S> <C>
$ 3,400 Avco Financial Services, Inc.,
5.42%, 10/21/96.................... $ 3,374,406
Dynamic Funding Corp.,
(LOC: Fuji Bank Ltd.)
1,416 5.40%, 9/5/96...................... 1,415,150
10,944 5.60%, 10/31/96.................... 10,841,856
29,363 5.45%, 11/15/96.................... 29,029,608
26,000 Eiger Capital Corp.,
(LOC: Union Bank of
Switzerland)
5.28%, 9/11/96..................... 25,961,867
20,000 Heller International Corp.,
(LOC: Fuji Bank Ltd.)
5.50%, 10/18/96.................... 19,856,389
Island Finance Puerto
Rico, Inc.,
(LOC: Norwest Corp.)
17,600 5.42%, 9/12/96..................... 17,570,853
20,000 5.31%, 10/15/96.................... 19,870,200
Jet Funding Corp.,
10,377 5.42%, 9/3/96...................... 10,373,875
16,650 5.45%, 9/30/96..................... 16,576,902
18,640 5.52%, 9/30/96..................... 18,557,114
26,528 Premium Funding, Inc.,
(LOC: Citibank)
5.33%, 10/15/96.................... 26,355,185
Receivables Capital Corp.,
8,473 5.41%, 9/25/96..................... 8,442,441
22,977 5.37%, 9/30/96..................... 22,877,605
Sanwa Business Credit Corp.,
(LOC: Sanwa Bank Ltd.)
20,000 5.40%, 9/20/96..................... 19,943,000
20,000 5.37%, 10/2/96..................... 19,907,517
30,000 5.38%, 10/7/96..................... 29,838,600
20,000 5.34%, 10/23/96.................... 19,845,733
Stanford University,
3,500 5.42%, 10/21/96.................... 3,473,653
5,000 5.50%, 11/21/96.................... 4,938,125
3,785 5.46%, 12/2/96..................... 3,732,186
20,000 Stellar Capital Corp.,
(LOC: Bank of Tokyo-
Mitsubishi Ltd.)
5.40%, 10/24/96.................... 19,841,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
FINANCE -- CONTINUED
$ 7,121 Strategic Asset Funding Corp.,
(LOC: Sanwa Bank Ltd.)
5.53%, 9/30/96..................... $ 7,089,278
7,000 Transamerica Corp.,
5.29%, 9/12/96..................... 6,988,685
4,400 Transamerica Finance Corp.,
5.29%, 10/1/96..................... 4,380,603
Tri-Lateral Capital
(USA), Inc.,
(LOC: Industrial Bank of
Japan Ltd.)
30,300 5.50%, 9/19/96..................... 30,216,675
10,649 5.43%, 11/19/96.................... 10,522,108
6,538 Working Capital Management
Co. L.P.,
(LOC: Industrial Bank of
Japan Ltd.)
5.55%, 9/9/96...................... 6,529,937
518,407,561
FOOD & BEVERAGE -- .4%
10,000 COFCO Capital Corp.,
(LOC: Credit Suisse)
5.40%, 9/13/96..................... 9,982,000
INSURANCE -- 1.4%
15,000 Aetna Life & Casualty Co.,
5.50%, 10/15/96.................... 14,899,167
Allianz of America
Finance Corp.,
5,000 5.42%, 9/11/96..................... 4,992,472
15,100 5.34%, 11/26/96.................... 14,907,374
34,799,013
LEASING -- 1.1%
14,700 Amada Leasing Corp.,
(LOC: Dai Ichi Kangyo Bank Ltd.)
5.34%, 9/13/96..................... 14,673,834
Fleet Funding Corp.,
4,100 5.30%, 9/10/96..................... 4,094,567
7,878 5.30%, 9/17/96..................... 7,859,443
26,627,844
MACHINERY, EQUIPMENT &
AUTOS -- 11.0%
American Honda Finance Corp.,
13,840 5.40%, 9/16/96..................... 13,808,860
</TABLE>
6
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
MACHINERY, EQUIPMENT &
AUTOS -- CONTINUED
<C> <S> <C>
$20,000 5.53%, 10/1/96..................... $ 19,907,833
BTR Dunlop Finance, Inc.,
7,200 5.44%, 9/9/96...................... 7,191,296
25,000 5.36%, 9/20/96..................... 24,929,278
30,000 5.42%, 9/25/96..................... 29,891,600
Daimler-Benz North America Corp.,
11,400 5.49%, 11/7/96..................... 11,283,520
18,000 5.45%, 1/6/97...................... 17,653,925
General Motors
Acceptance Corp.,
25,000 5.47%, 2/10/97..................... 24,384,625
25,000 5.45%, 2/14/97..................... 24,371,736
25,000 5.50%, 5/16/97..................... 24,018,403
16,000 Mitsubishi Motors Credit
of America, Inc.,
(LOC: Norinchukin Bank)
5.37%, 10/3/96..................... 15,923,627
Whirlpool Corp.,
17,000 5.33%, 9/3/96...................... 16,994,966
7,200 5.43%, 9/27/96..................... 7,171,764
Whirlpool Financial Corp.,
8,400 5.40%, 9/23/96..................... 8,372,280
16,300 5.46%, 9/23/96..................... 16,245,612
5,000 5.34%, 9/26/96..................... 4,981,459
267,130,784
OIL -- .4%
9,200 Tonen Energy
International Corp.,
(LOC: Industrial Bank of
Japan Ltd.)
5.43%, 9/16/96..................... 9,179,185
PHARMACEUTICALS & HEALTH
CARE -- 4.4%
A.H. Robins Co., Inc.,
26,768 5.39%, 9/27/96..................... 26,663,798
19,000 5.305%, 10/23/96................... 18,854,407
20,000 Holy Cross Health System Corp.,
5.34%, 11/25/96.................... 19,747,833
Massachusetts College of Pharmacy
and Allied Health Services,
8,951 5.35%, 11/8/96..................... 8,860,545
10,470 5.33%, 11/21/96.................... 10,344,439
4,100 5.35%, 11/21/96.................... 4,050,646
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PHARMACEUTICALS & HEALTH
CARE -- CONTINUED
$ 9,500 5.40%, 12/5/96..................... $ 9,364,625
10,000 Metrocrest Hospital Authority,
(LOC: Bank of New York)
5.3932%, 9/3/96.................... 9,997,004
107,883,297
REAL ESTATE -- 1.8%
11,100 Embarcadero Center
Associates (Five),
(LOC: Dai-Ichi Kangyo
Bank Ltd.)
5.42%, 10/2/96..................... 11,048,194
10,000 Embarcadero Center
Venture (One),
(LOC: Dai-Ichi Kangyo
Bank Ltd.)
5.38%, 9/4/96...................... 9,995,517
24,000 SRD Finance, Inc.,
(LOC: Bank of Tokyo-
Mitsuibishi Ltd.)
5.37%, 9/26/96..................... 23,910,500
44,954,211
RETAIL -- 2.4%
Avon Capital Corp.,
8,000 5.53%, 9/9/96...................... 7,990,169
9,000 5.44%, 9/26/96..................... 8,966,000
8,250 5.44%, 9/27/96..................... 8,217,587
12,000 5.50%, 10/10/96.................... 11,928,500
11,000 5.50%, 10/22/96.................... 10,914,291
10,000 Southland Corp.,
5.42%, 9/25/96..................... 9,963,867
57,980,414
TELECOMMUNICATIONS -- 2.4%
50,000 GTE Corp.,
5.40%, 9/12/96..................... 49,917,500
10,000 U.S. West Capital
Funding, Inc.,
5.50%, 10/16/96.................... 9,931,250
59,848,750
TRANSPORTATION -- 1.1%
26,000 BMW U.S. Capital Corp.,
5.31%, 10/24/96.................... 25,796,745
TOTAL COMMERCIAL PAPER
(COST $2,012,721,493)......... 2,012,721,493
</TABLE>
7
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
CORPORATE NOTES -- 3.9%
Federal Home Loan Bank,
$ 4,000 5.35%, 3/14/97..................... $ 4,000,000
25,000 6.105%, 6/20/97.................... 25,000,000
25,000 Federal National Mortgage
Association,
5.245%, 4/11/97, (VR).............. 24,993,413
25,000 Merrill Lynch & Co., Inc.,
5.38%, 9/16/96, (VR)............... 25,000,000
15,000 PNC Bank NA Pittsburgh Pa.,
5.29%, 10/4/96, (VR)............... 14,999,248
TOTAL CORPORATE NOTES
(COST $93,992,661)............ 93,992,661
TAXABLE MUNICIPALS -- .7%
6,100 Brittany Acres,
5.875%, 4/1/97..................... 6,100,000
10,000 Oakland Alameda County,
(LOC: Canadian Imperial Bank of
Commerce)
5.42%, 9/30/96..................... 10,000,000
TOTAL TAXABLE MUNICIPALS
(COST $16,100,000)............ 16,100,000
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000) VALUE
<C> <S> <C> <C>
MUTUAL FUND SHARES -- .0%+
947 Lehman Prime Value Money
Market Fund Series A
(at net asset value)
(COST $947,166)............ $ 947,166
TOTAL INVESTMENTS --
(COST $2,457,920,279)...... 100.9% 2,457,920,279
OTHER ASSETS AND
LIABILITIES -- NET.... (.9) (21,250,912)
NET ASSETS --............ 100.0% $2,436,669,367
</TABLE>
LOC -- Letter of Credit
VR -- Variable-rate issue. Rate shown is the rate in effect at August 31, 1996.
* -- These securities held by the Fund at August 31, 1996 are traded on a
discount basis; the interest rate shown is the discount rate to be earned
at the time of purchase by the Fund.
+ -- Less than one-tenth of one percent
See accompanying notes to financial statements.
8
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (amortized cost $2,457,920,279)........................................................ $2,457,920,279
Cash........................................................................................................ 2,266,305
Interest receivable......................................................................................... 7,428,535
Receivable for Fund shares sold............................................................................. 4,027,732
Other assets................................................................................................ 95,519
Total assets.......................................................................................... 2,471,738,370
LIABILITIES:
Payable for investment securities purchased................................................................. 25,000,812
Dividend payable............................................................................................ 6,420,957
Payable for Fund shares repurchased......................................................................... 1,054,860
Accrued expenses............................................................................................ 982,896
Distribution fee payable.................................................................................... 885,236
Accrued advisory fee........................................................................................ 724,242
Total liabilities..................................................................................... 35,069,003
NET ASSETS..................................................................................................... $2,436,669,367
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $2,437,220,220
Accumulated net realized loss on investment transactions.................................................... (550,853)
Net assets............................................................................................ $2,436,669,367
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($1,755,266,532(division sign)1,755,274,268 shares of beneficial interest outstanding) $1.00
Class B Shares ($10,218,109(division sign)10,218,090 shares of beneficial interest outstanding)...... $1.00
Class Y Shares ($671,184,726(division sign)671,723,771 shares of beneficial interest outstanding).... $1.00
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $97,756,500
EXPENSES:
Advisory fee................................................................................... $8,346,173
Distribution fee -- Class A Shares............................................................. 3,910,297
Distribution fee -- Class B Shares............................................................. 68,566
Shareholder services fee -- Class B Shares..................................................... 22,855
Transfer agent fee............................................................................. 632,040
Registration and filing fees................................................................... 513,593
Custodian fee.................................................................................. 397,865
Reports and notices to shareholders............................................................ 232,570
Professional fees.............................................................................. 45,588
Insurance...................................................................................... 25,263
Trustees' fees and expenses.................................................................... 24,855
Miscellaneous.................................................................................. 14,367
14,234,032
Less advisory fee waiver....................................................................... (2,427,423)
Net expenses............................................................................. 11,806,609
Net investment income............................................................................. 85,949,891
Net realized loss on investment transactions...................................................... (26,141)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $85,923,750
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of money)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 85,949,891 $ 19,245,941
Net realized gain (loss) on investment transactions.................................. (26,141) 19,987
Net increase in net assets resulting from operations.............................. 85,923,750 19,265,928
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares....................................................................... (63,327,347) (4,909,735)
Class B Shares....................................................................... (382,116) (56,561)
Class Y Shares....................................................................... (22,240,428) (14,279,645)
Total distributions to shareholders............................................... (85,949,891) (19,245,941)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................ 6,275,701,649 1,749,914,977
Proceeds from shares issued from acquisition
of FFB Cash Management Fund....................................................... 592,358,361 --
Proceeds from shares issued from acquisition
of FFB Lexicon Cash Management Fund............................................... 95,834,929 --
Proceeds from shares issued from acquisition of
First Union Money Market Portfolio................................................ -- 642,287,528
Proceeds from reinvestment of distributions.......................................... 28,242,023 14,341,469
Payments for shares redeemed......................................................... (5,531,191,681) (1,703,929,225)
Net increase resulting from Fund share transactions............................... 1,460,945,281 702,614,749
Net increase in net assets........................................................ 1,460,919,140 702,634,736
NET ASSETS:
Beginning of year.................................................................... 975,750,227 273,115,491
End of year.......................................................................... $2,436,669,367 $ 975,750,227
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN MONEY MARKET FUND -- CLASS A AND B SHARES
(Photo of money)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 4, JANUARY 26,
1995* 1995*
YEAR ENDED THROUGH YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................ $1.00 $1.00 $1.00 $1.00
Net investment income........................................... .05 .03 .04 .03
Less distributions to shareholders from net investment income... (.05) (.03) (.04) (.03)
Net asset value, end of period.................................. $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+................................................... 5.0% 3.5% 4.3% 2.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................... $1,755,267 $685,155 $10,218 $7,927
Ratios to average net assets:
Expenses**................................................... .75% .81%++ 1.45% 1.51%++
Net investment income**...................................... 4.86% 5.26%++ 4.18% 4.54%++
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value for the periods indicated and
is not annualized. Contingent deferred sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 4, JANUARY 26,
1995* 1995*
YEAR ENDED THROUGH YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Expenses........................................................ .89% 1.02%++ 1.59% 2.39%++
Net investment income........................................... 4.72% 5.05%++ 4.04% 3.66%++
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN MONEY MARKET FUND -- CLASS Y SHARES
(Photo of money)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED AUGUST ENDED YEAR ENDED OCTOBER
31, AUGUST 31, 31,
1996 1995 1994# 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income..................................... .05 .05 .03 .03 .04
Less distributions to shareholders from net investment
income................................................. (.05) (.05) (.03) (.03) (.04)
Net asset value, end of period............................ $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+............................................. 5.3% 5.4% 2.9% 3.2% 4.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........................................ $671,185 $282,668 $273,115 $299,418 $357,917
Ratios to average net assets:
Expenses**............................................. .45% .53% .32%* .39% .36%
Net investment income**................................ 5.16% 5.26% 3.46%* 3.19% 4.18%
</TABLE>
# The Fund changed its fiscal year end from October 31 to August 31.
+ Total return is calculated for the periods indicated and is not annualized.
* Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED AUGUST ENDED YEAR ENDED OCTOBER
31, AUGUST 31, 31,
1996 1995 1994# 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses.................................................. .59% .73% .71%* .71% .72%
Net investment income..................................... 5.02% 5.06% 3.07%* 2.87% 3.82%
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
A REPORT FROM YOUR
PORTFOLIO MANAGER
RICHARD K. MARRONE
We are pleased to bring you the 1996 Annual Report for (Photo of
Evergreen Pennsylvania Tax-Free Money Market Fund. The Fund's Richard K.
fiscal year-end was changed from February 28, to August 31, to Marrone)
coincide with Evergreen's other money market funds.
In the first half of 1996, a continued stream of strong
economic data re-ignited fears about future inflation and caused
a reversal in fortunes in the bond market from the positive
returns experienced in 1995. The underpinnings of economic
growth in 1996 have been in the strength of the housing market,
consumer spending, and job creation. With second quarter Gross
Domestic Product (GDP) coming in at 4.8%, there were concerns in
the market about inflation rearing its ugly head.
Although the Federal Reserve Board did not raise rates at the
September 24 Federal Open Market
Committee meeting, many investors remain prepared for Fed
tightening any time. With elections approaching, the Fed seems in no hurry to
change course, believing that, despite the upticks in economic reports,
underlying inflation is still in check and the economy is not yet overheating.
The market has taken some of the onus from the Fed by pricing a 25 to 50 basis
point rate increase into the yield curve in response to the economic data.
The beginning of the second quarter saw money market funds feeling the crunch
of April 15 income tax payments, as monies flowed out and cash was in scant
supply. Variable rate demand notes saw a spike in rates to 4.11%, the first
reset over 4.00% for 1996. These higher rates did attract some crossover
corporate buyers. In May, short-term rates remained in a tight range due to lack
of supply. Money market funds saw inflows after the May 1 coupon payment, and
cash flowed back into the short-term arena to escape the volatility in other
markets, especially equity markets. Market rates reacted to technical factors
since the Fed remained in a holding pattern on policy moves. Rates increased
about 10 basis points as new notes deals hit the market in the last week of May,
signaling the beginning of the one-year note season.
Variable rates fell 100 basis points in the first week of July as cash poured
in from the July 1 bond redemptions. Once the influx was absorbed, the market
readied itself for the $2.9 billion Texas Tax Revenue Anticipation Notes (TRANs)
sale on August 27, one of the last large note deals of the year. (A $1.0 billion
New York City Revenue Anticipation Notes (RANs) deal is due in October.) During
this period, notes traded at 68% of taxables, with yields of 3.85%, up from 63%
of taxables and yields of 3.30% at the beginning of the Fund's fiscal year.
The Fund experienced large outflows in March and April for tax payments
causing the Fund's net assets to drop from $88 million at the end of February to
$71 million at the end of August. The Fund's weighted average maturity ranged
from 43 to 58 days during that time. At fiscal year-end, it stood at 47 days. At
August 31, the Fund held 11% of net assets in cash, 54% in variable demand
notes, and the remainder in fixed rate securities. Since we believe Fed pressure
to raise rates seems likely before year-end, we plan to keep the Fund's weighted
average maturity short to capture expected increased yields. Purchases are
currently concentrated in fixed rate securities in the 3- to 6-month maturity
range. There has been very little Pennsylvania supply in the market, though the
Fund was able to participate in the Philadelphia TRANs 4.50% due 6/30/97 that
priced to yield 3.95%. It was one of the few liquid deals available in
Pennsylvania, but our participation was limited due to diversification
requirements. It is more difficult in a state specific fund to make timely
changes in average maturity and asset allocation due to lack of supply and
liquidity.
Evergreen Pennsylvania Tax-Free Money Market Fund's seven-day current,
effective and tax-equivalent yields are illustrated in the table below.
<TABLE>
<CAPTION>
7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD TAX-EQUIVALENT YIELD*
<S> <C> <C> <C>
Class Y Shares 3.15% 3.20% 5.14%
Class A Shares 3.07% 3.12% 5.02%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
*TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET, AND 2.8% PENNSYLVANIA
STATE TAX BRACKET. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER
TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. YIELDS FLUCTUATE.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE, AND ABSORBED A PORTION OF THE FUND'S 12B-1
EXPENSES ON ITS CLASS A SHARES. HAD FEE NOT BEEN WAIVED OR EXPENSE ABSORBED,
YIELDS WOULD HAVE BEEN LOWER. FEE WAIVER AND EXPENSE ABSORPTION MAY BE REVISED
AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORSEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUNDS
DAILY NET ASSETS OF ITS CLASS A SHARES.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE.
14
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 100.2%
PENNSYLVANIA -- 99.0%
$ 1,000 Allegheny Cnty. Hosp. Dev. Auth.
RB (Allegheny Gen. Hosp.),
Ser. 1995B, 3.40% -- VRDN
(LOC: Morgan Gty. Tr. Co. of NY)...... $ 1,000,000
Allegheny Cnty. Hosp. Dev. Auth.
RB (Allegheny Health Ed. & Resh.
Corp.), ACES, 3.40% -- VRDN
(LOC: PNC Bk., Pittsburgh)
1,200 Ser. A.............................. 1,200,000
1,100 Ser. C.............................. 1,100,000
1,000 Allegheny Cnty. Hosp. Dev. Auth.
RB (Presbyterian Univ. Hosp.),
Ser. 1988B3, 3.50% -- VRDN
(LOC: PNC Bk., Pittsburgh)............ 1,000,000
Allegheny Cnty. IDA Envir. RRB
(US Steel Corp.) -- TECP (LOC:
The Long-Term Cr. Bk. of Japan)
2,000 Ser. 1985, 3.55%, 10/8/96........... 2,000,000
1,500 Ser. 1985, 3.55%, 11/6/96........... 1,500,000
1,000 Ser. 1986, 3.50%, 10/3/96........... 1,000,000
500 Beaver Cnty. IDA-PCRR
(Duquesne Light Co.) -- TECP
3.45%, 9/6/96 (LOC: Swiss Bk.)........ 500,000
300 Beaver Cnty. IDA-PCRR
(Duquesne Light Co., Beaver Vly.),
Ser. A, 3.45% -- VRDN
(LOC: Barclays Bk. PLC)............... 300,000
2,000 Beaver Cnty. IDA-PCRR
(The Toledo Edison Co.
Mansfield), Ser. 1992E -- TECP,
3.65%, 12/10/96
(LOC: Toronto Dominion Bk.)........... 2,000,000
1,000 Bedford Cnty. IDA-RB
(Sepa Inc. Facility), 3.90% -- VRDN
(LOC: Banque Paribas)................. 1,000,000
200 Bethlehem Authority RB
(Northampton and Lehigh Cnty),
Ser. A, 4.20%, 11/15/96 (MBIA)........ 200,210
240 Big Spring School Dist.
Cumberland Cnty. GO Bds.,
Ser 1992, 4.35%, 3/1/97 (FGIC)........ 240,515
250 Brandywine Heights Area Dist.
GO Bds., 4.40%, 4/1/97 (MBIA)......... 250,300
100 Bucks Cnty. IDA-RRB
(SHV Real Estate, Inc.),
Ser. 1984, 3.30% -- VRDN
(LOC: ABN-AMRO Bk.)................... 100,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
$1,000 Bucks Cnty. IDA Environmental
Impt,. RB (USX Corp.),
3.55% -- ARB, 10/1/96
(LOC: Wachovia Bk. N.C.).............. $ 1,000,000
250 City of Meadville
GO Bds., Ser 1995B, 3.70%,
10/1/96 (AMBAC)....................... 250,000
3,500 City of Philadelphia TRANS
Ser. 1996-1997 A, 4.50%, 6/30/97...... 3,517,036
500 Claysburg-Kimmel School Dist.
Bedford and Blair Cnty. GO Bds.,
Ser. 1989 Prerefunded @ 100
7.00%, 1/15/97........................ 505,613
250 Cnty. of Chester GO Bds.,
Ser. 1993A, 3.75%, 12/15/96........... 250,000
1,000 Cnty. of Chester Hlth. & Ed. Fac.
Auth. RB (Barclays Friends),
Ser. A, 3.50% -- VRDN
(LOC: Bk. of Ireland)................. 1,000,000
1,000 Cnty. of Delaware GO Bds.,
Ser. 1992, 4.45%, 11/15/96............ 1,001,636
500 Cnty. of Montgomery GO Bds.,
Ser. 1992, Prerefunded @ 100
4.10%, 10/15/96....................... 500,380
1,185 Colonial School Dist. GO
Bds., 5.00%, 9/1/96 (MBIA)............ 1,185,000
1,000 Dauphin County GO Bds.,
Prerefunded @ 100
7.70%, 10/15/96....................... 1,004,644
2000 Delaware Cnty. IDA -- PCRR
(BP Oil Inc.), 3.75% -- VRDN
(LOC: Morgan Gty. Tr. Co. of NY)...... 2,000,000
Delaware Cnty. IDA-PCRR
(Philadelphia Electric Co.), TECP
(SPA: FGIC Secs. Purch.),
1,000 3.60%, 9/9/96....................... 1,000,000
3,000 3.45%, 10/7/96...................... 3,000,000
500 Delaware Cnty. IDA -- RRB
(Res. Recovery) Ser. 1993G,
4.25%, 12/1/96
(LOC: Gen. Elec. Capital Corp.)....... 501,152
Delaware Cnty. IDA Solid
Waste RB (Scott Paper Co.),
1984, 3.45% -- VRDN,
700 Ser. C.............................. 700,000
400 Ser. D.............................. 400,000
</TABLE>
15
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$1,000 Delaware Vly. Regl. Fin. Auth.
Local Govt. RB. Ser. 1985A,
3.50% -- VRDN
(LOC: Midland Bk. PLC)................ $ 1,000,000
250 Delaware Vly. Regl. Fin. Auth.
Local Govt. RB Ser. 1986A,
3.80%, 4/15/97 (AMBAC)................ 250,000
500 Downingtown School Dist.
GO Bds., Ser. 1986A,
4.00%, 3/1/97......................... 500,712
Emmaus Gen. Auth. Local
Govt. RB (Bd. Pool Pgm.),
Ser. 1989, 3.60% -- VRDN
(LOC: Midland Bk. PLC)
4,300 Subsrs. B-12........................ 4,300,000
2,000 Subsrs. C-8......................... 2,000,000
1,400 Subsrs. D-11........................ 1,400,000
425 Subsrs. E-9......................... 425,000
2,000 Subsrs. F-5......................... 2,000,000
400 Emmaus Gen. Auth. Local
Govt. RB (Bd. Pool Pgm.),
Ser. 1989, Subser. E-8,
3.55% -- VRDN (LOC: Canadian
Imperial Bk. of Commerce)............. 400,000
300 Geisinger Auth. Health Sys. RB
(Montour Cnty.) 7.10%, 7/1/97......... 307,252
Health Care Facs. Auth. of Sayre
RB (VHA of PA, Inc., Capital
Asset Fin. Prog.), 3.35% -- VRDN
(SPA: Mellon Bk. PLC)
400 Ser. A.............................. 400,000
400 Ser. M.............................. 400,000
475 Lancaster Higher Ed.
Auth College RB
(Franklin & Marshall College),
Ser. 1995, 3.70% -- VRDN.............. 475,000
520 Lehigh Cnty. Auth. Wtr. RB
Ser. 1984, 3.35% -- VRDN
(SPA: ABN-AMRO Bk.)................... 520,000
200 Lehigh Cnty. IDA -- PCR
(Allegheny Elec. Coop., Inc.)
Ser. 1985A, 3.30% -- VRDN
(LOC: Rabobank Nederland)............. 200,000
1,335 Lycoming Cnty. Auth. Hosp. RB
(Williamsport Hosp. Obligated Group),
Ser. 1995, 3.90%, 11/15/96
(Connie Lee Insurance Co.)............ 1,335,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
$ 1,000 Montgomery Cnty. IDA -- PCRR
(PECO Energy Co.), Ser. 1994A,
TECP, 3.50%, 11/7/96
(LOC: Deutsche Bk. AG, NY)............ $ 1,000,000
2,000 New Castle Area Hosp. Auth.
RB (Jameson Mem. Hosp.),
3.50% -- VRDN
(SPA: PNC Bk.)........................ 2,000,000
100 New Castle Area School
Dist. GO Bds., Ser. 1993,
4.00%, 9/1/96
(Asset Gty. Insurance Co.)............ 100,000
1,000 Northeastern Hosp. & Ed. Auth. Rev.
(Health Care Rev. Wyoming Vly.),
Ser. A, 3.45% -- VRDN
(LOC: Industrial Bk. of
Japan Ltd., NY)....................... 1,000,000
930 Northern Tioga School Dist.
GO Bds., Ser. 1996,
3.50%, 9/1/96 (AMBAC)................. 930,000
565 Pennsylvania Higher Ed. Facs.
Auth. RB (LaSalle Univ.), Ser. 1996,
4.00%, 5/1/97 (MBIA).................. 566,084
500 Pennsylvania Higher Ed. Facs.
Auth. RB (The Univ. of Pennsylvania
Health Svs.) Ser. 1994B,
ACES, 3.45% -- VRDN................... 500,000
2,000 Pennsylvania Higher Ed. Facs.
Auth. RB (The Univ. of Pennsylvania
Health Svs.), 3.45% -- VRDN
(SPA: Credit Suisse, NY).............. 2,000,000
2,000 Pennsylvania Higher Ed. Facs.
Auth. RB (Allegheny College)
3.50% -- VRDN
(LOC: Mellon Bk. PLC)................. 2,000,000
251 Pennsylvania State GO Bds.
Second Ser. A,
6.00%, 11/1/96, (MBIA)................ 250,981
2,200 Pennsylvania Tpk. Commn. Tpk.
Rev. Ser. A, Prerefunded @102,
7.875%, 12/1/96....................... 2,268,501
1,000 Pennsylvania Tpk. Comm.
RB, Ser. O 1992,
4.25%,12/1/96 (FGIC).................. 1,001,566
700 Philadelphia Municipal Auth.
Municipal Svs. Building Lease
Rental Bds. Ser. 1990,
6.80%, 3/15/97 (FSA).................. 711,112
</TABLE>
16
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
PENNSYLVANIA -- CONTINUED
$4,200 Schuykill Cnty. IDA Res. Recovery
RB (Gilberton Pwr.), 3.50% -- VRDN
(LOC: Mellon Bk. PLC)................. $ 4,200,000
1,900 Schuykill Cnty. IDA Res. Recovery
RB (Northeastern Pwr. Co.),
Ser. 1985, 3.85% -- VRDN
(LOC: Sumitomo Bk., Ltd.)............. 1,900,000
290 Township of Lower Merion
GO Bds., Ser. 1996B,
3.20%, 12/1/96........................ 290,000
1,700 Washington Cnty. Auth. Lease RB
(Higher Ed. Pooled Equip. Leasing
Prob.), Ser. 1985A, 3.55% -- VRDN
(LOC: Sanwa Bk., Ltd.)................ 1,700,000
250 Westmoreland Cnty. GO
Bds., Ser. A, 3.65%, 10/15/96......... 250,000
69,787,694
PUERTO RICO -- 1.2%
876 Puerto Rico Indl., Med. &
Environmental Pollution
Control Facs. Fin. Auth. RB
(Merck & Co., Inc.), Ser. 1983A,
4.00% -- ARB, 12/1/96................. 875,826
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(COST $70,663,520).................... $70,663,520
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
<S> <C> <C>
MUTUAL FUND SHARES -- .9%
616 Pennsylvania Municipal Cash Trust
Institutional Service Shares
(at net asset value)
(COST $616,000)....................... 616,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $71,279,520)............. 101.1 % 71,279,520
OTHER ASSETS AND
LIABILITIES -- NET............. (1.1) (764,102)
NET ASSETS..................... 100.0 % $70,515,418
</TABLE>
Summary of Abbreviations:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corp.
ARB -- Adjustable Rate Bonds
FGIC -- Financial Guaranty Insurance Co.
FSA -- Financial Security Assurance Inc.
GO -- General Obligations
IDA -- Industrial Development Authority
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corp.
PCR -- Pollution Control Revenue
PCRR -- Pollution Control Revenue Refunding Bonds
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
SPA -- Standby Purchase Agreement
TECP -- Tax Exempt Commercial Paper
TRANS -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
Adjustable Rate Bonds are putable back to the issuer or other parties not
affiliated with the issuer at par on the interest reset dates. Interest rates
are determined and set by the issuer quarterly, semi-annually or annually
depending upon the terms of the security. Interest rates presented for these
securities are those in effect at August 31, 1996. These securities represent 3%
of total investments at August 31, 1996.
Variable Rate Demand Notes are payable on demand on no more than seven calendar
days notice given by the Fund to the issuer or other parties not affiliated with
the issuer. Interest rates are determined and reset by the issuer daily, weekly
or monthly depending upon the terms of the security. Interest rates presented
for these securities are those in effect at August 31, 1996. These securities
represent 54% of total investments at August 31, 1996.
Certain obligations held in the portfolio have credit enhancements or liquidity
features that may, under certain circumstances, provide for repayment of
principal and interest on the obligation upon demand date, interest date reset
date or final maturity. These enhancements include: letters of credit; liquidity
guarantees; standby bond purchase agreements; tender option purchase agreements;
and third party insurance (I.E. AMBAC, FGIC and MBIA)
Adjustable rate bonds and variable rate demand notes held in the portfolio may
be considered derivative securities. Management has determined that these
securities comply with the standards imposed by the Securities and Exchange
Commission under Rule 2a-7 which were designed to minimize both credit and
market risk.
See accompanying notes to financial statements.
17
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (amortized cost $71,279,520).............................................................. $71,279,520
Cash........................................................................................................... 385
Interest receivable............................................................................................ 442,565
Receivable for Fund shares sold................................................................................ 1,200
Total assets............................................................................................. 71,723,670
LIABILITIES:
Payable for investment securities purchased.................................................................... 1,000,000
Dividend payable............................................................................................... 114,151
Accrued expenses............................................................................................... 73,851
Accrued advisory fee........................................................................................... 14,700
Payable for Fund shares repurchased............................................................................ 5,550
Total liabilities........................................................................................ 1,208,252
NET ASSETS........................................................................................................ $70,515,418
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $70,521,835
Undistributed net investment income............................................................................ 3,800
Accumulated net realized loss on investment transactions....................................................... (10,217)
Net assets............................................................................................... $70,515,418
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($22,196,093(division sign)22,196,184 shares of beneficial interest outstanding). $1.00
Class Y Shares ($48,319,325(division sign)48,325,651 shares of beneficial interest outstanding). $1.00
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996*
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................ $1,280,733
EXPENSES:
Advisory fee.................................................................................... $ 148,591
Administration fee.............................................................................. 18,066
Distribution fee -- Class A Shares.............................................................. 24,476
Professional fees............................................................................... 20,458
Transfer agent fee.............................................................................. 19,393
Custodian fee................................................................................... 17,900
Reports and notices to shareholders............................................................. 11,720
Insurance....................................................................................... 4,398
Registration and filing fees.................................................................... 3,160
Trustees' fees and expenses..................................................................... 311
Miscellaneous................................................................................... 889
269,362
Less fee waivers................................................................................ (79,856)
Net expenses.............................................................................. 189,506
Net investment income.............................................................................. 1,091,227
Net realized loss on investments................................................................... (378)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $1,090,849
</TABLE>
* The Fund changed its fiscal year end from February 28 to August 31, resulting
in a six-month period.
See accompanying notes to financial statements.
19
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, FEBRUARY 29,
1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................... $ 1,091,227 $ 2,665,986
Net realized loss on investment transactions............................................. (378) (189)
Net increase in net assets resulting from operations.................................. 1,090,849 2,665,797
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares........................................................................... (242,309) (9,466)
Class Y Shares........................................................................... (848,918) (2,656,520)
Total distributions to shareholders................................................... (1,091,227) (2,665,986)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 61,460,030 179,632,522
Proceeds from reinvestment of distributions.............................................. 621,908 1,766,790
Payments for shares redeemed............................................................. (79,296,671) (137,207,686)
Net increase (decrease) resulting from Fund share transactions........................ (17,214,733) 44,191,626
Net increase (decrease) in net assets................................................. (17,215,111) 44,191,437
NET ASSETS:
Beginning of period...................................................................... 87,730,529 43,539,092
End of period (including undistributed net investment income of $3,800 at August 31, 1996
and February 29, 1996, respectively)................................................... $ 70,515,418 $ 87,730,529
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
MARCH 1, AUGUST 22, MARCH 1,
1996 1995* 1996
THROUGH THROUGH THROUGH YEAR ENDED
AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29, FEBRUARY 28,
1996# 1996 1996# 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.............. $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income............................. .01 .02 .01 .03 .03
Less distributions to shareholders from net
investment income............................... (.01) (.02) (.01) (.03) (.03)
Net asset value, end of period.................... $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+..................................... 1.5% 1.7% 1.5% 3.5% 2.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......... $22,196 $4,333 $48,319 $83,398 $43,539
Ratios to average net assets:
Expenses**...................................... .55%++ .47%++ .50%++ .37% .33%
Net investment income**......................... 2.97%++ 3.14%++ 2.92%++ 3.42% 3.09%
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1994 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.............. $1.00 $1.00
Net investment income............................. .02 .03
Less distributions to shareholders from net
investment income............................... (.02) (.03)
Net asset value, end of period.................... $1.00 $1.00
TOTAL RETURN+..................................... 2.1% 2.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......... $14,383 $15,999
Ratios to average net assets:
Expenses**...................................... .47% .35%
Net investment income**......................... 2.10% 2.62%
</TABLE>
# The Fund changed its fiscal year end from February 28 to August 31.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
* Commencement of class operations
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the adviser, the annualized ratios of
expenses and net investment income to average net assets would have been the
following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
MARCH 1, AUGUST 22, MARCH 1,
1996 1995* 1996
THROUGH THROUGH THROUGH YEAR ENDED
AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29, FEBRUARY 28,
1996# 1996 1996# 1996 1995
<S> <C> <C> <C> <C> <C>
Expenses.......................................... .96%++ 1.08%++ .66%++ .73% 1.05%
Net investment income............................. 2.56%++ 2.53%++ 2.76%++ 3.06% 2.37%
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1994 1993
<S> <C> <C>
Expenses.......................................... 1.26% 1.07%
Net investment income............................. 1.31% 1.90%
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
We are pleased to bring you the 1996 Annual Report for (Photo of
Evergreen Tax Exempt Money Market Fund. This report covers the Steven C.
fiscal year ended August 31, 1996. Shachat)
The markets both elated and frustrated investors during the
last six months of our fiscal year. At the start of 1996, bond
prices drifted lower in reaction to mixed economic signals
despite the fact that the U.S. economy seemed to be following a
slow growth pattern; one generally beneficial for bonds.
Beginning in March, statistics indicating strong job growth and
consumer's continued willingness to spend to their debt limits
and beyond, propelled the bond market on a state of heightened
alert for a resurgence of inflation and a new round of interest
rate increases by the Federal Reserve. Throughout the last half
of the Fund's fiscal year, however, inflation remained
restrained and the Fed chose not to raise or lower interest
rates.
As a consequence of this uncertainty over the economy's
direction, yields for both municipal and treasury bonds rose during the second
half of the Fund's fiscal year, and prices declined. Long-term government bond
yields have gyrated wildly in response to the shifting tone of incoming
statistics but in the end, they've remained in a fairly narrow 6 3/4% to 7 1/4%
range. Municipals, aided by a declining supply of tax-free bonds and steady
demand from retail buyers, outperformed treasuries.
The short-term municipal market is influenced by any Federal Reserve Board
decision to alter interest rates; however, market technicals (i.e.
supply/demand) were the overriding factor affecting the yields that prevailed
throughout this period. One example of these seasonal adjustments occurred in
late June and early July as demand exceeded supply, and short-term yields
dropped accordingly. Apart from seasonal considerations, monthly technicals can
occur also, which result in temporary drops in yield. Available supply
evaporates quickly as interest payments and proceeds of bond maturities flow
into money market funds the first days of each month. Primarily for those
reasons, municipal money market yields tend to seesaw during these time periods.
In yet another example of seasonal influences, the coming weeks may provide a
window of buying opportunity, as year-end technicals are expected to soften
short-term rates temporarily.
Evergreen Tax Exempt Money Market Fund maintained a weighted average maturity
in the 20-day range, a posture we believed was appropriate in view of a rather
flat yield curve during most of this period. We structured the Fund's
investments to maintain share price stability while at the same time allowing
flexibility to take advantage of the imminent supply of tax-free issues over the
summer. The commercial paper and one-year note markets provided the primary
means for us to extend the Fund's maturity, while working to maintain a
competitive yield. However, our success in achieving the desired average
maturity was limited due to a scarcity of attractively priced issues from which
to choose. As a result, the current weighted average maturity of the Fund's
portfolio still leaves room to extend should a change in market or supply
conditions warrant.
The economy is at a crossroads where growth is concerned. Going forward, we
anticipate continued market volatility until the future of economic growth is
made more clear. We shall continue to search for attractive value by weighing
the maturity characteristics, credit quality, and income potential of each bond
we consider for purchase.
At its fiscal year-end on August 31, 1996, Evergreen Tax Exempt Money Market
Fund's total net assets were $1.3 billion. The Fund's seven-day current,
effective and tax-equivalent yields at that time are illustrated in the table
below.
<TABLE>
<CAPTION>
7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD TAX-EQUIVALENT YIELD*
<S> <C> <C> <C>
Class Y Shares 3.33% 3.38% 5.29%
Class A Shares 3.03% 3.08% 4.81%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
*TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET. TAX-EQUIVALENT YIELD
WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN
HIGHER TAX BRACKETS. YIELDS FLUCTUATE.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES. SOME INCOME MAY BE
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
THE FUND MAY INCUR 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORSEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUNDS
DAILY NET ASSETS OF ITS CLASS A SHARES.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE.
22
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 100.7%
ALABAMA -- 3.4%
$ 3,170 Alabama Hsg. Fin. Auth. MHRB
(Westshore Landing Apts.), Ser.
1995H, 3.70% -- VRDN (LOC:
Southtrust Bk. of Alabama, N.A.)... $ 3,170,000
2,420 Alabama IDA-IDRB (Air-Dro
Cylinders, Inc.), 3.89% -- VRDN
(LOC: Southtrust Bk. of Alabama,
N.A.).............................. 2,420,000
3,700 Alabama IDA-IDRB (Automation
Technologies Ind. Inc.), 3.80% --
VRDN (LOC: Columbus Bk. & Tr.
Co.)............................... 3,700,000
5,775 City of Northport Multifamily Hsg.
Ref. Rev. Wt. (Northbrook I), Ser.
1993A, 3.60% -- VRDN (LOC:
Southtrust Bk. of Alabama, N.A.)... 5,775,000
2,265 City of Northport Multifamily Hsg.
RRB Wt. (River Run Apt.) Ser.
1995A, 3.70% -- VRDN (LOC: Amsouth
Bk., N.A.)......................... 2,265,000
Coml. Dev. Auth. of the City
of Birmingham RB,
3.80% -- VRDN
(LOC: Amsouth Bk., N.A.)
1,185 (Avondale Comm. Park, Phase
II).............................. 1,185,000
685 (Southside Business Ctr.)........ 685,000
7,115 Ed. Bldg. Auth. of the City of
Homewood RB (Samford Univ.), Ser.
1990, 3.60% -- VRDN (LOC: Amsouth
Bk., N.A.)......................... 7,115,000
3,235 IDB of Mobile Cnty. RB (Sherman
Intl. Corp.), Ser. 1994A,
3.80% -- VRDN (LOC: Columbus Bk. &
Tr. Co.)........................... 3,235,000
2,475 IDB of the City of Foley RB
(Vulcan, Inc.), 3.60% -- VRDN (LOC:
Amsouth Bk., N.A.)................. 2,475,000
1,100 IDB of the City of Livingston IDRB
(Toin Corp. U.S.A.), Ser. 1987,
4.15% -- VRDN (LOC: Indl. Bk. of
Japan, Ltd., NY)................... 1,100,000
2,000 IDB of the City of Montgomery RB
(Feldmeier/Alabama Equip., Inc.),
Ser. 1996, 3.75% -- VRDN (LOC:
Southtrust Bk. of Alabama, N.A.)... 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ALABAMA -- CONTINUED
$ 2,300 IDB of the City of Pell IDRB (Reh
Kinder/Gorbel), 3.85% -- VRDN (LOC:
Key Bk. of NY)..................... $ 2,300,000
3,000 IDB of the City of Prattville IDRB
(Kuhnash Ppty./Arkay Plastics),
3.80% -- VRDN
(LOC: PNC Bk.)..................... 3,000,000
3,390 Public Park & Rec. Brd. of the City
of Birmingham RRB (Y.M.C.A.), Ser.
1996,
3.55% -- VRDN
(LOC: Amsouth Bk., N.A.)........... 3,390,000
43,815,000
ARIZONA -- 4.2%
6,900 IDA of the City of Glendale, RB
(Thunderbird Gardens), 4.00% --
VRDN (LOC: Sumitomo Trust & Bk. Co.
Ltd., NY)*......................... 6,900,000
9,000 IDA of the City of Phoenix, RB
(Amer. West Airlines, Inc.), Ser.
1986, 3.85% -- VRDN (LOC: Indl. Bk.
of Japan, Ltd.).................... 9,000,000
200 IDA of the Cnty. of Maricopa
(McLane Co., Inc.), Ser. 1984,
3.90% -- VRDN
(LOC: Vly. Natl. Bk.).............. 200,000
Maricopa Cnty. PCRB
3.60% -- VRDN
(El Paso Electric Co. Palo Verde),
24,800 Ser. 1985A
(LOC: Westpac Bkg. Co.).......... 24,800,000
12,235 Ser. 1994A
(LOC: Citibank, N.A.)............ 12,235,000
53,135,000
ARKANSAS -- .1%
City of Jonesboro Residential
Housing & Health Care Fac. Brd.
Hosp. RRB (St. Bernards Regnl.
Medical Ctr.), 4.10%, 7/1/97
(Ins. by AMBAC)
425 Ser. 1996A....................... 425,000
605 Ser. 1996B....................... 605,000
1,030,000
CALIFORNIA -- 8.2%
4,800 Agoura Hills MHRB (Oakridge Apts.),
3.65% -- VRDN (Surety Bond: Contl.
Cas. Corp.)........................ 4,800,000
</TABLE>
23
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
CALIFORNIA -- CONTINUED
<C> <S> <C>
$ 6,000 California Higher Ed. Loan Auth.
Inc. Ser. A-1, 3.95%, 7/1/97 (Gtd.
by Sallie Mae)..................... $ 6,000,000
1,400 City of Barstow MHRB (Mercury Svgs.
& Ln. Assn./Rimrock Vlg. Apts.),
Ser. 1988A, 3.85% -- VRDN (LOC:
Mercury Svgs. & Ln., Coll: U.S.
Treas. Bills)...................... 1,400,000
3,355 City of Hanford Sewer Sys. RRB Ser.
1996A, 3.85% -- VRDN (LOC: Union
Bk. of California)................. 3,355,000
102 Cnty of Orange Irvine Coast Assmt.
Dist. No. 88-1 Ltd. Oblig. Impt.
Bds., 3.65% -- VRDN (LOC:
Kreditbank, NV).................... 102,000
5,500 Cnty. of San Bernardino MHRB
(Rolling Ridge), 4.25% -- VRDN
(LOC: Mercury Svgs. & Ln.)......... 5,500,000
1,900 Glenn Cnty. IDA RB (Land O'Lakes,
Inc.), Ser. 1995, 4.10% -- VRDN
(LOC: Sanwa Bk., Ltd.)............. 1,900,000
4,250 Hsg. Auth. of the City of Paramount
MHRB (Century Place Apt.), Ser.
1989A, 4.22% -- VRDN (LOC: Heller
Finl. Inc.)**...................... 4,250,000
5,000 Hsg. Auth. of the City of Santa Ana
MHRB (Villa Verde Apt.), Ser.
1985B, 3.90% -- VRDN (LOC: Mercury
Svgs. & Ln., Coll: U.S. Treas.
Bills)............................. 5,000,000
2,600 IDA of the City of Simi Vly. IDRB
(Wambold Furniture), Ser. 1984,
3.85% -- VRDN (LOC: Wells Fargo
Bk., N.A.)......................... 2,600,000
8,500 Lancaster Redev. Agy. MHRB (Far
West Svgs. & Ln. Assn./20th St.
Apts.), Ser. 1985R, 3.90% -- VRDN
(LOC: Far West Svgs. & Ln. Assn.,
Coll: U.S. Treas. Bills)........... 8,500,000
4,200 North Cnty. School Fin. Auth. 1996
TRANS (Orange Cnty.), 4.75%,
7/1/97............................. 4,220,068
1,100 Orange Cnty. Mun. Wtr. Dist. 3.70%,
9/12/96 -- TECP
(LOC: Union Bk. of Switzerland).... 1,100,000
23,538 Pitney Bowes Cr. Corp. Leasetops
Trs. (Bart Telesystem Lease),
3.90% -- VRDN (LOC: ABN-Amro Bk.,
N.V.)**............................ 23,538,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
CALIFORNIA -- CONTINUED
$ 3,600 Regional Airports Impt. Corp. Fac.
Sublease RB, Issue 1985 Lax Two
Corp. (Los Angeles Intl. Arpt.),
3.70% -- VRDN
(LOC: Societe Generale, NY)........ $ 3,600,000
15,375 San Bernadino Cnty. COP Ser. 1995,
3.75% -- VRDN
(Ins. by MBIA)**................... 15,375,000
4,000 Santa Paula Pub. Fin. Auth. RB
(Wtr. Sys. Acquisition), Ser. 1996,
3.85% -- VRDN (LOC: Bk. of
California & Sumitomo Bk.)......... 4,000,000
4,500 South Coast Local Ed. Agy. Pooled
TRANS Prog., Ser. 1996A, 4.75%,
6/30/97............................ 4,524,297
5,000 Stanislaus Cnty. Office of Ed. 1996
TRANS, 4.50%, 6/30/97.............. 5,019,871
104,784,236
COLORADO -- 1.5%
5,000 Adams Cnty. IDRB (Yellow Fght.
Sys., Inc.), Ser. 1983,
3.80% -- VRDN (LOC: Union
Bk. of Switzerland)................ 5,000,000
5,000 Arapahoe Cnty. MHRB Ref. (Stratford
Sta.), Ser. 1994, 4.15% -- VRDN
(LOC: Heller Finl., Inc.).......... 5,000,000
550 Boulder Cnty. Dev. RB (The
Geological Society of Amer., Inc.),
Ser. 1992 -- ARB, 4.25%, 12/1/96
(LOC: Banc One Boulder)............ 550,000
5,500 Colorado Hsg. Fin. Auth. RB MERLOTS
Ser. C, 4.125% -- ARB, 2/1/97 (LIQ:
Meridian Bk.)**.................... 5,500,000
2,680 Parkview Met. Dist. Arapahoe Cnty.
GO Bds., Ser. 1993, 3.75% -- VRDN
(LOC: Cent. Bk./Bk. Western,
N.A.).............................. 2,680,000
18,730,000
DELAWARE -- .8%
3,000 Delaware EDA-IDRB (Arlon, Inc.),
Ser. 1989, 4.00% -- VRDN (LOC: Bk.
of Amer., IL)...................... 3,000,000
4,060 Delaware Hsg. Auth. RB MERLOTS,
Ser. G, 4.125% -- ARB, 12/1/96
(Ins. by FGIC)**................... 4,060,000
</TABLE>
24
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
DELAWARE -- CONTINUED
<C> <S> <C>
$ 2,480 New Castle Cnty., EDRB
(Toys R Us), 3.55% -- VRDN
(LOC: Bankers Tr. Co., NY)......... $ 2,480,000
9,540,000
DISTRICT OF COLUMBIA -- 1.7%
1,600 Dist. of Columbia GO Gen. Fd.
Recovery Bd., Ser. B, 3.95% -- VRDN
(LOC: Union Bk. of Switzerland).... 1,600,000
5,120 Dist. of Columbia GO RB (Puttable
Floating Opt. Tax-Exmp. Rcpt., Ser.
PA-64), Ser. 1993C, 3.90% -- VRDN
(LIQ: Merrill Lynch Cap. Svs.,
Inc.)**............................ 5,120,000
Dist. of Columbia GO RFB,
3.95% -- VRDN
1,200 Ser. 1992A-1
(LOC: Natl. Westminster Bk.)..... 1,200,000
5,100 Ser. 1992A-2
(LOC: Bk. of Nova Scotia)........ 5,100,000
3,700 Ser. 1992A-4
(LOC: Toronto Dominion Bk.)...... 3,700,000
4,700 Ser. 1992A-5
(LOC: Bk. of Nova Scotia)........ 4,700,000
21,420,000
FLORIDA -- 2.4%
5,155 Florida Hsg. Fin. Auth. Long Option
Mode Ser. 2-CR-25C 3.80% -- ARB,
12/15/96
(Ins. by FGIC)..................... 5,155,000
5,100 Jacksonville Elec. Auth. St. Johns
River Pwr. Park Sys. RB Issue One,
Ser. 3, 3.65%, 10/7/96 -- TECP
(LOC: Morgan Gty., NY)............. 5,100,000
10,900 Orange Cnty., Hlth. Fac. Auth. RRB
(Pooled Hosp. Ln. Prg.), ACES Ser.
1985, 3.70% -- VRDN (LIQ: Banque
Paribas & Ins. by MBIA)............ 10,900,000
2,800 Orange Cnty. Hsg. Fin. Auth. MHRB
Ser. E, (Oakwood), 4.20% -- ARB,
10/1/96
(LOC: Fleet Bk. N.A.).............. 2,800,000
1,005 Palm Beach Cnty. Hsg. RB (Meridian
Hsg.), Ser. 1985, 4.2925% -- VRDN
(LOC: Bk. of California, N.A.)..... 1,005,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
FLORIDA -- CONTINUED
$ 5,875 Palm Beach Cnty. School Brd. (MSTR
Ser. 1996B), 4.00% -- VRDN (LIQ:
Norwest Bk., MN & Ins. by
AMBAC)**........................... $ 5,875,000
30,835,000
GEORGIA -- 2.6%
1,000 Albany Dougherty Cnty. Hosp. RB
Ser. 1984A, 3.90% -- VRDN (Gtd. by
Merck & Co.)....................... 1,000,000
5,000 Albany Dougherty Payroll,
3.90% -- VRDN
(Gtd. by Merck & Co.).............. 5,000,000
2,550 Clayton Cnty. Hsg. Auth. RB (Oxford
Townhomes),
3.60% -- VRDN
(LOC: Amsouth Bk., N.A.)........... 2,550,000
1,800 Dev. Auth. of Burke Cnty. PCRB
(Georgia Pwr. Co. Plant Vogtle),
Second Ser. 1995,
3.75% -- VRDN
(Gtd. by Georgia Pwr. Co.)......... 1,800,000
6,000 Dev. Auth. of Polk Cnty. RB (Kimoto
Tech. Inc.), Ser. 1985,
3.90% -- VRDN
(LOC: Indl. Bk. of Japan, Ltd.).... 6,000,000
10,600 Hsg. Auth. of Cobb Cnty., MHRB Ref.
(Terrell Mill II Assoc., Ltd.),
Ser. 1993, 3.70% -- VRDN (LOC:
Mellon Bk., N.A.).................. 10,600,000
2,200 Hsg. Auth. of Columbus MHRB Ref.
(Quail Ridge), Ser. 1988,
3.90% -- VRDN
(LOC: Columbus Bk. & Tr. Co.)...... 2,200,000
1,000 Hsg. Auth. of Marietta MHRB (Falls
at Bells Ferry), 3.55% -- ARB,
1/15/97 (LOC: Guardian Svgs. & Ln.,
Houston)........................... 1,000,000
3,375 Jackson Cnty., IDA RB (Buhler
Quality Yarns Corp.), Ser. 1996,
3.61% -- VRDN (LOC: Union Bk. of
Switzerland)**..................... 3,375,000
33,525,000
ILLINOIS -- 12.1%
9,740 City of Aurora MHRB
(Fox Vly Vlg. Apts.), Ser. 1993,
4.00% -- VRDN
(LOC: Sumitomo Bk., Ltd.).......... 9,740,000
</TABLE>
25
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- CONTINUED
<C> <S> <C>
$ 4,200 City of Chicago, Cook Cnty. IDRB
(Fed. Marine Term.), 3.80% -- VRDN
(LOC: Royal Bk. of Canada)......... $ 4,200,000
1,000 City of Chicago, Cook Cnty. RB (CSX
Beckett Aviation), Ser. 1984,
3.72% -- VRDN
(LOC: Barclay's Bk. PLC)........... 1,000,000
2,900 City of Chicago GO Bds. (MSTR
SAK-13), Ser. 1995A-2, 3.60% --
VRDN (LIQ: Societe Generale & Ins.
by AMBAC)**........................ 2,900,000
6,680 City of Chicago (MSTR 1995 SGA-8)
GO Bds., Ser. 1993B, 3.60 -- VRDN
(LIQ: Societe Generale & Ins. by
AMBAC)**........................... 6,680,000
2,640 City of Jacksonville Indl. RB (AGI,
Inc.), Ser. 1995, 3.80% -- VRDN
(LOC: Bk. of Amer., IL)............ 2,640,000
15,000 City of Oakbrook Terrace
Multifamily Hsg. Mtg. RB
(Renaissance), Ser. 1985A Subser.
III, 4.45% -- ARB, 11/1/96 (LOC:
Bayerische Landesbank,
Girozentrale)...................... 15,000,000
4,000 City of Peoria Solid Waste Disposal
RB (PMP Fermentation Products,
Inc.), Ser. 1996, 3.90% -- VRDN
(LOC: Sanwa Bk., Ltd.)............. 4,000,000
5,900 City of West Chicago IDRB (Acme
Printing Inc.), Ser. 1989
3.925% -- VRDN
(LOC: Bk. of Tokyo, Ltd.).......... 5,900,000
1,000 Cnty. of Dupage MHRB (Myerstown,
L.L.C.), Ser. 1996B, 3.95% -- VRDN
(LOC: First of Amer. Bk., N.A.,
IL)................................ 1,000,000
3,400 Illinois Dev. Fin. Auth. EDRB (MTI
Corp.), 4.15% -- VRDN (LOC: Indl.
Bk. of Japan, Ltd.)................ 3,400,000
Illinois Dev. Fin. Auth. IDRB --
VRDN (LOC: Amer. Natl. Bk. & Tr.,
Chicago)
2,500 (Icon Metalcraft, Inc.), Ser.
1995, 3.65%...................... 2,500,000
3,040 (Uhlich Children's Home),
3.85%**.......................... 3,040,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ILLINOIS -- CONTINUED
$10,000 Illinois Dev. Fin. Auth. MHRB
(Garden Glen Apts.),
3.75% -- VRDN
(Surety Bond: Contl. Cas. Corp.)... $ 10,000,000
6,800 Illinois Dev. Fin. Auth. RB (Gen.
Accident Ins. Co.), Ser. 1985 --
ARB (Gtd. by Gen. Accident Ins. Co.
of Amer.) 3.25%, 9/1/96............ 6,800,000
6,000 Illinois Health. Fac. Auth. RB
(Central DuPage Hosp. Assn.), Ser.
1990, 3.85% -- VRDN (LOC: Robobank
Nederland)......................... 6,000,000
8,145 Illinois Hsg. Dev. Auth. RB
(Illinois Ctr. Apts.),
3.70% -- VRDN
(Gtd. by Met. Life Ins. Co.)....... 8,145,000
11,162 LaSalle Natl. Bk. Leasetops Trs.
Ser. 1995A, 3.90% -- VRDN (LOC:
LaSalle Natl. Bk.)**............... 11,162,512
3,000 Vlg. of Carol Stream IDRB (MI
Enterprises, Inc.), 3.65% -- VRDN
(LOC: Amer. Natl. Bk. & Tr.,
Chicago)........................... 3,000,000
16,640 Vlg. of Hazel Crest Retirement Ctr.
RB (Waterford Estates), Ser. 1992A
, 4.00% -- VRDN
(LOC: Sumitomo Bk.)................ 16,640,000
2,345 Vlg. of Lombard IDRB (Chicago Roll
Co., Inc.), Ser. 1995,
3.90% -- VRDN (LOC: Amer. Natl. Bk.
& Tr., Co. of Chicago)............. 2,345,000
1,200 Vlg. of Palatine IDRB (Lightner
Land Holdings LLC), Ser. 1995,
3.85% -- VRDN
(LOC: Bk. One, Chicago, N.A.)...... 1,200,000
10,000 Vlg. of Schaumburg MHRB (Treehouse
II Apt.), Ser. 1989, 4.00% -- VRDN
(LOC: Sumitomo Bk.)................ 10,000,000
2,000 Vlg. of Skokie EDRB (Skokie Fashion
Square Assn.), Ser. 1984,
3.775% -- VRDN
(LOC: LaSalle Ntl. Bk.)............ 2,000,000
15,210 Vlg. of Vernon Hills MHRB (Hawthorn
Lakes), Ser. 1991, 4.35% -- VRDN
(LIQ: Fuji Bk., Ltd. & Ins. by
FSA)............................... 15,210,000
154,502,512
</TABLE>
26
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
INDIANA -- 4.9%
$17,800 City of Fort Wayne PCRB (Gen. Mtrs.
Corp.), 3.70% -- VRDN (Gtd. by Gen.
Mtrs. Corp.)....................... $ 17,800,000
7,000 City of Gary EDRB (Miller
Partnership, L.P.), Ser. 1995A,
3.75% -- ARB
(LOC: Royal Bk. of Scotland)....... 7,000,000
2,000 City of New Albany EDRB (Bert R.
Huncilman & Son Inc.), Ser. 1996A,
3.80% -- VRDN
(LOC: PNC Bk.)..................... 2,000,000
2,000 City of New Albany EDRB (Gordon L.
& Jeffery Huncilman -- Partner.),
Ser. 1996B, 3.80% -- VRDN
(LOC: PNC Bk.)..................... 2,000,000
2,000 City of South Bend MHRB (Maple Lane
Assn.), Ser. 1987, 4.00% -- VRDN
(LOC: Society Bk. of Cleveland).... 2,000,000
1,080 Decatur Indl. EDA-RB (Silberline
Mfg. Co. Inc.), 4.125%, 12/01/96
(LOC: Corestates Capital Mkt.,
Inc.).............................. 1,080,000
25,000 Indiana Bd. Bk. (Reassessment
Assist. Prog. Nts.), Ser. 1996B,
4.50%, 1/30/97..................... 25,060,261
3,150 Indianapolis EDA-EDRB
(Sutton Pl. Apt.), Ser. A,
4.30% -- ARB, 10/1/96
(GIC: Berkshire Hathaway).......... 3,150,000
2,435 Indianapolis Airport Auth. RB (MSTR
Ser. SGA-31), 3.60% -- VRDN (LIQ:
Societe Generale & Ins. by
FGIC)**............................ 2,435,000
62,525,261
IOWA -- .8%
5,680 Iowa Finance Auth. IDRB (McWane,
Inc.), Ser. 1992, 3.75% -- VRDN
(LOC: Amsouth Bk., N.A.)........... 5,680,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
IOWA -- CONTINUED
$ 5,000 City of Council Bluffs RB Catholic
Hlth. Corp. (Mercy Hosp., Council
Bluffs), Ser. 1985, 3.75% -- ARB,
10/1/96
(LOC: Fuji Bk., Ltd., LA).......... $ 5,000,000
10,680,000
KANSAS -- .6%
2,250 Burlington PCRB 3.70%,
9/24/96 -- TECP (Gtd. by Natl.
Rural Utility Fin. Corp.).......... 2,250,000
1,000 City of Fredonia RB (Systech Envir.
Corp.), Ser. 1989, 3.80% -- VRDN
(LOC: Banque Natl. de Paris, NY)... 1,000,000
City of Salina RB (Salina Central
Mall L.P.), Ser. 1984,
3.65% -- VRDN,
(LOC: Boatmen's Bancshares, Inc.)
1,105 Dillard's........................ 1,105,000
1,200 Penney's......................... 1,200,000
1,800 City of Praire Vlg. MHRB (J.C.
Nichol's Co.), Ser. 1985,
4.00% -- VRDN
(Gtd. by Bankers Life Ins. Co.).... 1,800,000
7,355,000
KENTUCKY -- 1.5%
2,000 Cnty. of Jefferson Indl. Bldg. RB
(Thomas Dev.), Ser. 1995,
3.70% -- ARB
(LOC: PNC Bk.)..................... 2,000,000
10,300 Cnty. of Ohio PCRB (Big Rivers
Elec. Corp.), Ser. 1985, 3.80% --
VRDN
(LOC: Chemical Bk.)................ 10,300,000
904 Jefferson Cnty. IDRB (Belknap
Inc.), 3.60% -- VRDN
(LOC: Chemical Bk.)................ 904,000
6,100 Pendleton Cnty. RB (Kentucky Assn.
of Cnty. Leasing Tr. Prog.), Ser.
1989, 3.70% -- ARB, 10/9/96 (LOC:
PNC Bk.)........................... 6,100,000
19,304,000
</TABLE>
27
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
LOUISIANA -- .4%
$ 5,000 Indl. Dist. No. 3 of the Parish of
West Baton Rouge (Dow Chemical
Co.), Ser. 1994B, 3.85% -- VRDN
(Gtd. by Dow Chemical Co.)......... $ 5,000,000
MARYLAND -- 1.0%
3,355 Community Dev. Admin. State of
Maryland Dept. of Hsg. & Comm. Dev.
(Single Family Prog.),
Ser. 1987 Fourth,
3.60% -- ARB, 10/1/96
(LOC: First Natl. Bk. of Boston)... 3,355,000
9,400 Mayor & City Council of Baltimore
RRB (MSTR SGA-20), (Wastewater),
3.60% -- VRDN (LIQ: Societe
Generale & Ins. by MBIA)**......... 9,400,000
12,755,000
MASSACHUSETTS -- .2%
360 City of Lowell Indl. RB (Oak Realty
Tr.) Ser. 1985,
4.2925% -- VRDN
(LOC: First Natl. Bk. of Boston)... 360,000
500 Massachusetts Indl. Finl. Agy.
(Copley Pharmac),
4.5425% -- VRDN
(LOC: First Natl. Bk. of Boston)... 500,000
855 Massachusetts Indl. Finl. Auth.
IDRB (Leavy Realty & Jencoat
Metal), Ser. 1994,
4.2925% -- VRDN
(LOC: First Natl. Bk. of Boston)... 855,000
700 Massachusetts Indl. Finl. Auth.
Indl. RB (Portland Causeway Rlty.),
Ser. 1988, 4.2925% -- VRDN (LOC:
Citibank, N.A.).................... 700,000
2,415,000
MICHIGAN -- 1.3%
2,000 Economic Dev. Corp. of the Twp. of
Van Buren Economic RB
(Daikin Clutch USA, Inc.),
Ser. 1987, 3.90% -- VRDN
(LOC: Sanwa Bk., Ltd.)............. 2,000,000
5,000 Sault. Ste. Marie Tribe Bldg. Auth.
RB Ser. 1996A, 4.46% -- ARB,
12/2/96 (LOC: First of Amer. Bk.,
N.A.).............................. 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MICHIGAN -- CONTINUED
$10,000 School Dist.of the City of Detroit
Wayne Cnty. GO Bds., (State School
Aid Nts.), Ser. 1996, 4.50%,
5/1/97............................. $ 10,035,317
17,035,317
MINNESOTA -- 2.7%
14,905 City of Eden Prairie MHRB (Park at
City West Apt.), Ser. 1990,
4.00% -- VRDN
(LOC: Sumitomo Bk.)................ 14,905,000
2,300 City of Robbinsdale IDRB (Unicare
Homes, Inc.), Ser. 1984,
3.80% -- VRDN
(LOC: Banque Paribas).............. 2,300,000
1,700 Eagle Tax-Exmp. Tr. Cl. A-COP
(Minnesota Hsg. Fin. Agy.),
Ser. D, 3.61% -- VRDN
(LOC: Citibank, N.A.)**............ 1,700,000
5,750 Hennepin Cnty. GO Bds.
Ser. 1996C, 3.75% -- VRDN.......... 5,750,000
4,220 Minneapolis GO (Sports Arena),
(MSTR Ser. 1996A), 3.75% -- VRDN
(LIQ: Norwest Bk., MN)**........... 4,220,000
845 Minneapolis/Saint Paul Housing Fin.
Brd. RB (Minneapolis/Saint Paul
Fam. Hsg. Prog., Phase VI), 4.00%,
2/1/97 (Coll: GNMA)................ 845,000
2,550 Minnesota Agric. & EDRB
(Como Partnership), Ser. 1996,
3.85% -- VRDN
(LOC: First Bk. Natl. Assn.)....... 2,550,000
1,000 Minnesota Insured (MSTR Ser.
1996B), 3.75% -- VRDN (LIQ: Norwest
Bk., MN & Ins. by MBIA)............ 1,000,000
750 Southern Minnesota Mun. Pwr. Agy.
Supply Sys., (MSTR Ser. 1996I),
3.75% -- VRDN
(LIQ: Norwest Bk., MN & Ins. by
FGIC)**............................ 750,000
1,000 Spring Lake Park I.S.D. No. 16
(MSTR Ser. 1996G), 3.75% -- VRDN
(LIQ: Norwest Bk., MN & Ins. by
MBIA)**............................ 1,000,000
35,020,000
</TABLE>
28
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
MISSISSIPPI -- .2%
$ 3,000 Lee Cnty. IDRB (Hunter Douglas
Inc.), Ser. 1985, 3.75% -- VRDN
(LOC: Bk. of Amer. Natl. Tr. & Svg.
Assn.)............................. $ 3,000,000
MISSOURI -- 2.4%
3,000 Boatmens St. Louis Grantor Tr.
(Cert. Partn.), Ser. 1996A-1,
3.70% -- VRDN (LOC: Boatmens Natl.
Bk., St. Louis).................... 3,000,000
8,375 City of St. Louis TRANS
4.75%, 6/30/97..................... 8,425,585
7,700 Health & Ed. Fac. Auth. of the
State of Missouri RB (Washington
University), Ser. 1989A, 3.80% VRDN
(LOC: Morgan Gty., NY)............. 7,700,000
IDA of the City of Kansas MHRB Ser.
1988A, 4.20%, 10/1/96 (LOC: Home
Svgs. Assn. of Kansas City)
2,950 (Twin Oaks I Apt.)............... 2,950,000
2,950 (Twin Oaks II Apt.).............. 2,950,000
4,415 Missouri Dev. Fin. Brd. IDRB (Cook
Composites & Polymers Co.), Ser.
1994, 3.85% -- VRDN (LOC: Societe
Generale).......................... 4,415,000
825 School District of North Kansas GO
School Bldg. Bds. (Missouri Direct
Deposit Prog.), Ser. 1996 7.00%,
3/1/97............................. 836,966
30,277,551
MONTANA -- .1%
760 Butte Silver Bow City & Cnty.
(Copper City Assn.), Ser. 1988,
4.25% -- VRDN
(LOC: Bank of America)............. 760,000
NEBRASKA -- .7%
4,200 Lancaster Cnty. IDRB (AS Mid-Amer.,
Inc.), Ser. 1994, 4.25% --
VRDN (LOC: Heller Finl., Inc.)..... 4,200,000
4,300 Nebraska Investment Fin. Auth. MHRB
(Briarhurst/Candle Tree Apts.) Ser.
1985, 3.65% -- ARB, 10/1/96 (LOC:
Citibank, N.A.).................... 4,300,000
8,500,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
NEVADA -- .4%
$ 4,450 Nevada Housing Division RB (Oakmont
at Reno), 3.90% -- VRDN (LOC:
Banque Paribas).................... $ 4,450,000
NEW HAMPSHIRE -- .1%
1,500 New Hampshire Hsg. Fin. Auth. MHRB
(Nashua-Oxford),
Ser. 1990, 3.80% -- VRDN
(Surety Bond: Contl. Cas. Corp.)... 1,500,000
NEW JERSEY -- .4%
4,750 New Jersey EDA (Center for Aging,
Inc. Applewood), 3.95% -- VRDN
(LOC: Banque Paribas).............. 4,750,000
NEW MEXICO -- 2.8%
31,300 City of Farmington PCRB (El Paso
Elec. Co. Four Corners), Ser.
1994A, 3.60% -- VRDN
(LOC: Citibank, N.A.).............. 31,300,000
4,855 Cnty. of Sandoval MHRB (Arrowhead
Ridge Apt.) Ser. 1996, 4.65%,
7/1/97 (LIQ: FGIC)................. 4,855,000
36,155,000
NEW YORK -- 2.5%
Battery Park City Auth. Hsg. RB
(Marina Towers Tender Corp.),
3.95% -- VRDN
(LOC: Sumitomo Bk.)
8,560 Ser. A........................... 8,560,000
7,765 Ser. B........................... 7,765,000
1,000 Nassau Cnty. Indl. Dev. Agy. IDRB
(Crand Plumbing, Inc.),
3.75% -- VRDN (LOC: Amer. Natl. Bk.
& Tr. of Chicago).................. 1,000,000
New York City GO Subser. H3, 3.90%,
TECP (LIQ: Banque
Paribas & Ins. by FSA)
2,000 9/9/96........................... 2,000,000
11,900 10/1/96.......................... 11,900,000
31,225,000
NORTH CAROLINA -- 2.2%
3,600 Cabarrus Cnty. Indl. Fac. PCRB
(Oiles Amer. Corp.), Ser. 1989,
4.20% -- VRDN (LOC: Industral Bk.
of Japan, Ltd., NY)................ 3,600,000
</TABLE>
29
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
NORTH CAROLINA -- CONTINUED
<C> <S> <C>
$ 7,700 Columbus Cnty. Indl. Fac. &
Pollution Ctl. Fin. Auth. Solid
Waste Disposal RB (Fed. Paper Brd.
Co., Inc.), Ser. 1992,
3.90% -- VRDN
(LOC: Dai-Ichi Kangyo Bk., Ltd.)... $ 7,700,000
3,000 Guilford Cnty. Indl. Fac. &
Pollution Control Fing. Auth. RB
Sewage Disp. (High Pt. Chem.),
3.90% -- VRDN
(LOC: Sumitomo Bk.)................ 3,000,000
10,300 Lenoir Cnty. Indl. Fac. PCRB
(Carolina Energy, Ltd.
Partnership), Ser. 1995,
3.75% -- VRDN
(LOC: Bank of Tokyo, Ltd. NY)...... 10,300,000
870 NCNB Pooled Tax-Exmp.Tr. COP Ser.
1990A, 4.125% -- VRDN (LOC:
NationsBank of NC)**............... 870,000
3,000 Richmond Cnty. Indl. Fac. PCRB
(Bibb Co.), 4.21% -- VRDN (LOC:
Citibank, NY)...................... 3,000,000
28,470,000
OHIO -- 2.9%
5,000 City of Dayton Ohio Spec. Fac. RB
(Emery Air Fght. Corp.),
Ser. 1993E, 3.80% -- VRDN
(LOC: Mellon Bk., N.A.)............ 5,000,000
16,250 Cleveland City School Dist. TRANS
Ser. 1996, 5.85%, 12/31/96 (LOC:
Banque Paribas).................... 16,344,729
4,800 Cnty. of Stark IDRB (Crane
Plumbing, Inc.), Ser. 1984,
3.80% -- VRDN (LOC: Amer. Natl. Bk.
& Tr. Co. of Chicago).............. 4,800,000
4,200 Cnty. of Summit IDA-IDRB (Shin-Etsu
Silicones of Amer. Inc.) Ser. 1994,
3.90% -- VRDN (LOC: Bk. of Tokyo,
Ltd. & Mitsubishi Bk., Ltd.)....... 4,200,000
4,250 Dayton Ohio Airport Impt. Nts.
4.50%, 3/25/97..................... 4,261,617
3,000 Ohio Hsg. Fin. Agy. MHRB (10
Wilmington Place), Ser. 1991B,
4.35% -- VRDN (LIQ: Fuji Bk., Ltd.
& Ins. by FSA)..................... 3,000,000
37,606,346
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
OREGON -- 1.4%
Oregon EDRB Series CLVI,
4.00% -- VRDN
(LOC: Bk. of California, N.A.)
$ 1,960 (Pacific Coast Seafoods Co.)..... $ 1,960,000
1,210 (Pacific Oyster Co.)............. 1,210,000
2,050 Oregon EDRB (Stagg Foods, Inc.),
Ser. 75, 3.80% -- VRDN
(LOC: Bk. of Amer.)................ 2,050,000
5,050 Oregon Health Hsg. Ed. & Culture
Fac. Auth. RB (Evangelical
Lutheran), Ser A, 3.60% -- VRDN
(LOC: First Natl. Bk. N.A.)........ 5,050,000
7,000 Oregon State Brd. of Higher Ed.
(MSTR SGA-29), Ser. 1996,
3.60% -- VRDN
(LIQ: Societe Generale)**.......... 7,000,000
17,270,000
PENNSYLVANIA -- 6.9%
1,430 Chester Cnty. IDA Coml. Dev. RB
(Plaza Assn.), Ser. A,
3.70% -- VRDN
(LOC: First Fed. Svgs. & Ln.)...... 1,430,000
3,000 Chester Cnty. IDA Mfg. Fac. RB
(Devault Packing Co., Inc.),
Ser. 1995, 3.95% -- VRDN
(LOC: Meridian Bk.)................ 3,000,000
25,000 City of Philadelphia GO Bds.,
Ser. 1990, 3.65%, 9/12/96
(LOC: Fuji Bk., Ltd., NY).......... 25,000,000
500 Elk Cnty. IDA-IDRB Ref. (Stackpole
Corp.), Ser. 1989, 4.2925% -- VRDN
(LOC: First Natl. Bk. of Boston)... 500,000
855 Fayette Cnty. Hosp. Auth. RB
(Uniontown Hosp.), Ser. 1996,
4.25%, 6/15/97
(Ins. by Connie Lee)............... 855,912
650 Lawrence Cnty. IDA-PCRB (Calgon
Carbon), Ser. 1983A, 3.90% -- VRDN
(Gtd. by Merck & Co.).............. 650,000
25,000 Montgomery Cnty. Higher Ed. & Hlth.
Auth. RB (Pennsylvania Higher Ed. &
Hlth. Ln. Prog.), Ser. 1996A,
3.65% -- VRDN (LOC: Dauphin Deposit
Bk. & Tr. Co.)..................... 25,000,000
</TABLE>
30
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
<C> <S> <C>
$ 1,500 Montgomery Cnty. IDA-RB (Laneko
Engineering Co.),
Ser. 1995 3.95% -- VRDN
(LOC: Meridian Bk.)................ $ 1,500,000
3,000 Moon IDRB (One Thorn Run Ctr.) Ser.
1995A, 3.85% -- VRDN (LOC: Natl.
City Bk.).......................... 3,000,000
2,500 Northeastern PA Hosp. Auth. (Hosp.
Central Svs, Capital Asset Fin.
Prog.), Ser. B,
3.70% -- VRDN
(LIQ: PNC Bk. & Ins. by MBIA)...... 2,500,000
1,300 Pennsylvania Economic Dev. Fin.
Auth. RB (C.F. Martin & Co., Inc.),
Ser. H, 3.95% -- VRDN (LOC:
Meridian Bk.)**.................... 1,300,000
8,760 Pennsylvania Hsg. Fin. Agy. Single
Family Mtg. RB Ser. O,
4.125% -- ARB...................... 8,760,000
9,400 School Dist. of Philadelphia TRANS,
Ser. 1996,
4.50%, 6/30/97..................... 9,437,443
2,010 West Cornwall Twp. Mun. Auth. RB
(Lebanon Vly. Brethren Home), Ser.
1995, 3.75% -- VRDN (LOC: Meridian
Bk.)............................... 2,010,000
3,040 Westmoreland Cnty. IDA-IDRB (White
Consolidated Ind., Inc.),
4.125% -- ARB, 12/1/96
(LOC: Chemical Bk.)................ 3,041,829
87,985,184
RHODE ISLAND -- .2%
3,000 Rhode Island Solid Waste Mgmt.
Corp. Landfill Lease Nts. Ser.
1995A, 4.50%, 8/1/97............... 3,009,223
SOUTH CAROLINA -- .9%
3,500 Darlington Cnty. IDA-IDRB (Hobart
Corp.), 3.90% -- VRDN (LOC: Fuji
Bk., Ltd.)......................... 3,500,000
4,000 South Carolina Jobs EDA-EDRB (B.F.
Shaw, Inc.), Ser. 1995,
3.95% -- VRDN (LOC: Mercantile Bk.
of St. Louis N.A.)................. 4,000,000
2,700 South Carolina Jobs EDA-EDRB
(Roller Bearing Co.), Ser. 1994A,
4.36% -- VRDN
(LOC: Cr. Coml. de France)**....... 2,700,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SOUTH CAROLINA -- CONTINUED
South Carolina Jobs EDA-EDRB Ser.
1989B, 3.80% -- VRDN (LOC: Cr.
Coml. de France)
$ 800 Ser. A (Tuttle Co., Inc.)........ $ 800,000
650 Ser. B (Ridge Pallets)........... 650,000
11,650,000
SOUTH DAKOTA -- .7%
5,385 City of Rapid EDRB (Civic Center
Assoc.), 3.81% -- VRDN (LOC:
Bayerische Vereinsbank AG)......... 5,385,000
3,500 South Dakota Hsg. Dev. Auth. RB
(Homeownership Mtg. Bd.), Ser.
1995E, 4.05% -- ARB, 10/24/96...... 3,500,000
8,885,000
TENNESSEE -- 3.2%
1,000 IDB of Blount Cnty. IDRB (Advanced
Crystal, Inc.),
Ser. 1988, 4.15% -- VRDN
(LOC: Indl. Bk. of Japan, Ltd.).... 1,000,000
5,000 IDB of the City of Morristown
IDRB (Camvac Intl., Inc.),
Ser. 1983, 3.775% -- VRDN
(LOC: ABN Amro Bk.)................ 5,000,000
3,700 IDB of Rutherford Cnty. IDRB
Ref. (Outboard Marine Corp.),
Ser. 1987, 3.80% -- VRDN
(LOC: First Chicago NBD Corp.)..... 3,700,000
3,200 IDB of the City of Chattanooga
RRB (Radisson Read House),
Ser. 1995, 4.25% -- VRDN
(LOC: Heller Finl., Inc.).......... 3,200,000
IDB of the Met. Govt. of Nashville
& Davidson Cnty. RB, 4.00% -- VRDN
Ser. 1989
(LOC: Sumitomo Bk.)
8,995 (Beechwood)...................... 8,995,000
4,680 (Belle Vly.)..................... 4,680,000
6,710 (Graybrook Apts.)................ 6,710,000
4,285 Smyrna Hsg. Assn. MHRB (Imperial
Gardens Apts.),
Ser. 1989, 4.00% -- VRDN
(LOC: Sumitomo Bk.)................ 4,285,000
</TABLE>
31
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
TENNESSEE -- CONTINUED
<C> <S> <C>
$ 3,405 Shelby Cnty. Hlth. Edl.& Hsg. Fac.
Brd. (Methodist Hlth. Sys.), Ser.
C, 4.05% -- ARB (LIQ: Sanwa Bk.,
Ltd. & Ins. by MBIA)............... $ 3,405,000
40,975,000
TEXAS -- 8.4%
1,000 Bexar Cnty. Hsg. Fin. Corp. Gtd.
Mtg. Multifamily RFB Ser. 1988A,
(Creightons Mill Dev.),
3.65% -- VRDN (Surety Bond: New
England Mutual).................... 1,000,000
3,000 Board of Reg. of the Texas A&M
Univ. Sys. Rev. Fin. Bds., Ser.
1996, 3.60% -- VRDN
(LIQ: Societe Generale)**.......... 3,000,000
7,040 Brazos River Harbor IDA-PCRB 3.70%,
9/25/96 -- TECP
(Gtd. by Dow Chemical)............. 7,040,000
4,250 City of Dallas Indl. Dev. Corp.
IDRB (Crane Plumbing), Ser. 1985,
3.75% -- VRDN
(LOC: Amer. Natl. Bk. & Tr.
Co. of Chicago).................... 4,250,000
6,600 Dallas Fort Worth Regl. Arpt. RB
(MSTR Ser. SGB5), 3.60% -- VRDN
(LIQ: Societe Generale & Ins. by
FGIC)**............................ 6,600,000
5,010 Dallas Fort Worth Regl. Airport RRB
Ser. B, 5.00%, 11/1/96............. 5,019,780
8,230 Denton Utility System RRB (MSTR
Ser. SGA-32), 3.60% -- VRDN (LIQ:
Societe Generale & Ins. by
MBIA)**............................ 8,230,000
6,225 Galveston Hsg. Fin. Corp. MHRB Ref.
(Vlg. by the Sea Apt.), Ser. 1993,
3.95% -- VRDN
(LOC: Sumitomo Bk.)................ 6,225,000
12,000 Harris Cnty. Health Fac. Hosp.
(Methodist Hosp.), Ser. 1994,
3.75% -- VRDN
(LOC: Morgan Guaranty, NY)......... 12,000,000
1,000 Harris Cnty. Hsg. Fin. Corp, MHRB
(Arbor II Ltd.), 3.95% -- ARB,
10/1/96 (LOC: Guardian Svgs. & Ln.,
Houston)........................... 1,000,000
5,000 Harris Cnty. Toll Road Unlimited
Tax and Sub Lien RB, Ser. 1994A,
3.61% -- VRDN
(LOC: Citibank, N.A.).............. 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
TEXAS -- CONTINUED
$ 4,400 Houston, Wtr. and Swr. Sys. (MSTR
SGA-22),
3.60% -- VRDN (LIQ: Societe
Generale & Ins. by MBIA)**......... $ 4,400,000
15,000 Houston, Wtr. and Swr. Sys. RB
Fltg. SG-77, 3.70% -- VRDN (LIQ:
Societe Generale & Ins. by
MBIA)**............................ 15,000,000
9,205 NCNB Pooled Tax Empt.-Tr. COP Ser.
1990B, 4.125% -- VRDN (LOC:
NationsBank of Texas)**............ 9,205,000
4,000 Port of Corpus Christi Auth. Nueces
Cnty. RRB (Union Pacific Corp.),
Ser. 1989, 4.05%, 11/25/96 -- TECP
(Gtd. by Union Pacific Corp.)...... 4,000,000
2,470 Robertson Cnty. IDRB
(Crane Plumbing), Ser. 1990,
3.75% -- VRDN (LOC: Amer
Natl. Bk. & Tr. Co. of Chicago).... 2,470,000
4,380 Tarrant Cnty. Hsg. Fin. Corp. MHRB
Ref. (Lincoln Meadows), Ser.
1988 -- ARB, 4.30%,12/1/96 (Surety
Bond: Contl. Cas. Corp.)........... 4,380,000
2,500 Texas Wtr. Dev. Brd. State
Revolving Fd. Senior Lien RB
Ser. 1996A, 3.60% -- VRDN
(LIQ: Societe Generale)**.......... 2,500,000
6,000 Tyler Health Fac. Dev. Corp. RB
(East Texas Med. Ctr. Regl. Hlth.),
Ser. 1993C, 4.00%, 9/24/96 -- TECP
(LOC: Banque Paribas).............. 6,000,000
107,319,780
UTAH -- 3.4%
3,900 Hsg. Auth. of Provo City
Multifamily Rent Hsg. Rent Hsg. RRB
(Branbury Park), Ser. 1987A,
3.60% -- VRDN
(LOC: Dai-Ichi Kangyo Bk., Ltd.)... 3,900,000
2,800 Summit Cnty. IDRB (Hornes' Kimball
Junction L.P.), Ser. 1985,
3.90% -- VRDN
(LOC: West One Tr.)................ 2,800,000
</TABLE>
32
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
UTAH -- CONTINUED
<C> <S> <C>
Tooele Cnty. Hazardous Waste
Treatment RB -- TECP (Union Pacific
Corp.), Ser. A (Gtd. by Union
Pacific Corp.)
$10,000 4.15%, 9/12/96................... $ 10,000,000
15,000 4.125%, 10/17/96................. 15,000,000
7,000 4.125%, 10/24/96................. 7,000,000
4,725 Utah Cnty. IDRB (McWane Inc.),
3.75% -- VRDN
(LOC: Amsouth Bk., N.A.)........... 4,724,991
43,424,991
VIRGINIA -- .9%
1,200 Henrico Cnty. IDA RB (San-J),
3.95% -- VRDN
(LOC: Tokai Bk., Ltd).............. 1,200,000
9,800 Richmond Cnty. Indl. Fac. PCRB
(Cogentrix of Richmond),
4.40% -- VRDN
(LOC: Banque Paribas).............. 9,800,000
1,000 Rockingham Cnty. Indl. Dev.
PCRB (Merck & Co., Inc.),
Ser. 1983A, 3.65% -- VRDN
(Gtd. by Merck & Co.).............. 1,000,000
12,000,000
WASHINGTON -- 4.6%
8,370 City of Kent Ltd. Tax GO Bds. Ser.
1996A, 3.60% -- VRDN (LIQ: Societe
Generale)**........................ 8,370,000
2,200 Klickitat Cnty. Pub. Corp. RB
(Mercer Ranches), Ser. 1996
3.75% -- VRDN (LOC: U.S. Bk. of
Washington, N.A.).................. 2,200,000
Pilchuck Dev. Pub. Corp. IDRB
(Hillsdale Assn.),
4.05% -- VRDN
(LOC: Bk. of California, N.A.)
1,455 (Canyon Park Assn.).............. 1,455,000
1,047 (Hillsdale Assn.)................ 1,047,000
1,312 (Omni Assn.)..................... 1,312,000
8,450 Pilchuck Dev. Pub. Corp. IDRB
(Romac Industries, Inc.), Ser. 1995
3.90% -- VRDN
(LOC: Bk. of California, N.A.)..... 8,450,000
3,000 Port Pasco EDRB (Douglas Fruit
Co.), 3.75% -- VRDN
(LOC: U.S. Bk. of Washington)...... 3,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
WASHINGTON -- CONTINUED
$ 1,090 Washington Cmnty. Econ. Brd.
Redevelopment Bd.,
3.90% -- VRDN
(LOC: Indl. Bk. of Japan, Ltd.).... $ 1,090,000
3,185 Washington Cmnty. Econ. Brd.
Revitalization Bd.,
3.90% -- VRDN
(LOC: Indl. Bk. of Japan, Ltd.).... 3,185,000
15,020 Washington GO Bds. Ser. 1995A,
3.61% -- VRDN
(LIQ: Citibank, N.A.).............. 15,020,000
6,555 Washington Hsg. Fin. Comm. (Emerald
Heights), Ser. 1990, 4.25% -- VRDN
(LOC: Banque Paribas).............. 6,555,000
6,410 Washington Pub. Pwr. Sup. Sys.
Nuclear No. 2 RB (CR-145),
Ser. 1990, 3.61% -- VRDN
(LOC: Citibank, N.A.).............. 6,410,000
1,000 Washington Pub. Pwr. Sup. Sys.
Nuclear RRB No. 1
7.10%, 7/1/97...................... 1,025,011
59,119,011
WEST VIRGINIA -- .1%
1,000 Marshall Cnty. PCRB (Allied Signal
Co.), 3.65% -- VRDN (Gtd. by Allied
Signal, Co.)....................... 1,000,000
WISCONSIN -- .2%
3,000 City of Whitewater IDRB
(Maclean-Fogg Co.), Ser. 1989,
3.80% -- VRDN
(LOC: Bk. of Amer. Illinois)....... 3,000,000
OTHER -- 4.7%
50 Puttable Floating Opt. Tax-Empt.
PPT4, 3.70% -- VRDN
(LIQ: Merrill Lynch)**............. 50,000
54,490 Puttable Floating Opt. Tax-Empt.
(IBM Grantor Trust), Ser. 1996C
3.85% -- VRDN
(LIQ: Credit Suisse)**............. 54,490,000
5,920 Puttable Floating Opt. Tax-Empt.
(KOCH Fin. Corp.), 3.95% -- VRDN
(LIQ: Credit Suisse)**............. 5,920,000
60,460,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $1,286,198,412)....... 100.7% 1,286,198,412
OTHER ASSETS AND
LIABILITIES -- NET........ (.7) (8,849,189)
NET ASSETS.................. 100.0% $1,277,349,223
</TABLE>
33
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1996
Summary of Abbreviations:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corp.
ARB -- Adjustable Rate Bonds
COP -- Certificates of Participation
EDA -- Economic Development Authority
EDRB -- Economic Development Revenue Bond
FGIC -- Financial Guaranty Insurance Co.
FSA -- Financial Security Assurance Inc.
GNMA -- Governmental National Mortgage Association
GO -- General Obligations
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDRB -- Industrial Development Revenue Bond
LIQ -- Liquidity Provider
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
MERLOTS -- Municipal Exempt Receipts Liquidity Option
Tenders
MHRB -- Multifamily Housing Revenue Bond
MSTR -- Municipal Securities Trust Receipt
PCRB -- Pollution Control Revenue Bond
RB -- Revenue Bonds
RFB -- Refunding Bonds
RRB -- Refunding Revenue Bonds
TECP -- Tax Exempt Commercial Paper
TRANS -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
Adjustable Rate Bonds are putable back to the issuer or other
parties not affiliated with the issuer at par on the interest reset
dates. Interest rates are determined and set by the issuer
quarterly, semi-annually or annually depending upon the terms of the
security. Interest rates presented for these securities are those in
effect at August 31, 1996. These securities represent 10% of
total investments at August 31, 1996.
Variable Rate Demand Notes are payable on demand on no more
than seven calendar days notice given by the Fund to the issuer or
other parties not affiliated with the issuer. Interest rates are
determined and reset by the issuer daily, weekly or monthly
depending upon the terms of the security. Interest rates
presented for these securities are those in effect at August 31, 1996.
These securities represent 76% of total investments at August
31, 1996.
Certain obligations held in the portfolio have credit
enhancements or liquidity features that may, under certain
circumstances, provide for repayment of principal and interest on the
obligation upon demand date, interest rate reset date or final
maturity. These enhancements include: letters of credit; liquidity
guarantees; standby bond purchase agreements; tender option
purchase agreements; and third party insurance (i.e. AMBAC,
FGIC and MBIA). Adjustable rate bonds and variable rate
demand notes held in the portfolio may be considered derivative
securities within the standards imposed by the Securities and
Exchange Commission under Rule 2a-7 which were designed to
minimize both credit and market risk.
* Security of which $200,000 was purchased on a delayed
settlement basis and an additional $200,000 was segregated as
collateral for the delayed settlement purchase.
** Rule 144A security which are restricted in resale to qualified
institutions and are considered liquid.
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $1,286,198,412)....................................................... $1,286,198,412
Interest receivable......................................................................................... 6,664,474
Receivable for Fund shares sold............................................................................. 1,113,117
Other assets................................................................................................ 41,698
Total assets.......................................................................................... 1,294,017,701
LIABILITIES:
Due to custodian bank....................................................................................... 6,042,257
Payable for investment securities purchased................................................................. 4,580,086
Payable for Fund shares repurchased......................................................................... 2,873,540
Dividends payable........................................................................................... 1,846,107
Accrued expenses............................................................................................ 519,220
Accrued advisory fee........................................................................................ 455,408
Distribution fee payable.................................................................................... 351,860
Total liabilities..................................................................................... 16,668,478
NET ASSETS..................................................................................................... $1,277,349,223
NET ASSETS CONSISTS OF:
Paid-in capital............................................................................................. $1,277,607,103
Accumulated net realized loss on investment transactions.................................................... (257,880)
Net assets............................................................................................ $1,277,349,223
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($660,515,996(division sign)660,634,719 shares of beneficial interest outstanding). $ 1.00
Class Y Shares ($616,833,227(division sign)616,933,587 shares of beneficial interest outstanding). $ 1.00
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................................... $43,981,149
EXPENSES:
Advisory fee.................................................................................. $ 5,540,924
Distribution fee -- Class A Shares............................................................ 1,898,665
Registration and filing fees.................................................................. 359,766
Transfer agent fee............................................................................ 295,626
Custodian fee................................................................................. 270,970
Reports and notices to shareholders........................................................... 118,264
Professional fees............................................................................. 34,283
Insurance..................................................................................... 21,691
Trustees' fees and expenses................................................................... 17,641
Miscellaneous................................................................................. 28,431
8,586,261
Less advisory fee waiver...................................................................... (1,243,131)
Net expenses............................................................................... 7,343,130
Net investment income............................................................................ 36,638,019
Net realized loss on investments................................................................. (6,227)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................. $36,631,792
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 36,638,019 $ 16,223,403
Net realized loss on investments........................................................ (6,227) (374,299)
Net increase in net assets resulting from operations................................. 36,631,792 15,849,104
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.......................................................................... (19,837,670) (2,645,739)
Class Y Shares.......................................................................... (16,800,349) (13,577,664)
Total distributions to shareholders.................................................. (36,638,019) (16,223,403)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 2,572,408,736 523,419,419
Proceeds from shares issued from acquisition of FFB Tax-Free Money Market Fund.......... 103,129,021 --
Proceeds from shares issued from acquisition of First Union Tax-Free Money Market
Portfolio............................................................................. -- 604,010,226
Proceeds from reinvestment of distributions............................................. 16,202,992 13,277,476
Payments for shares redeemed............................................................ (2,390,799,129) (566,638,173)
Net increase resulting from Fund share transactions.................................. 300,941,620 574,068,948
CAPITAL CONTRIBUTION (NOTE 4).............................................................. -- 300,000
Net increase in net assets........................................................... 300,935,393 573,994,649
NET ASSETS:
Beginning of year....................................................................... 976,413,830 402,419,181
End of year............................................................................. $1,277,349,223 $976,413,830
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES
JANUARY 5,
1995* CLASS Y SHARES
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, YEAR ENDED AUGUST 31,
1996 1995 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income................................... .03 .02 .03 .04 .02 .03
Less distributions to shareholders from net
investment income..................................... (.03) (.02) (.03) (.04) (.02) (.03)
Net asset value, end of period.......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+........................................... 3.2% 2.2% 3.5% 3.6% 2.5% 2.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $660,516 $ 554,924 $ 616,833 $421,490 $402,419 $401,376
Ratios to average net assets:
Expenses**............................................ .79% .78%++ .49% .50% .34% .34%
Net investment income**............................... 3.14% 3.28%++ 3.44% 3.53% 2.47% 2.58%
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $1.00
Net investment income................................... .04
Less distributions to shareholders from net
investment income..................................... (.04)
Net asset value, end of period.......................... $1.00
TOTAL RETURN+........................................... 3.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $416,924
Ratios to average net assets:
Expenses**............................................ .32%
Net investment income**............................... 3.72%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursement. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS A SHARES
JANUARY 5,
1995* CLASS Y SHARES
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31, YEAR ENDED AUGUST 31,
1996 1995 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Expenses................................................ .90% .90%++ .60% .63% .64% .63%
Net investment income................................... 3.03% 3.16%++ 3.33% 3.40% 2.17% 2.29%
<CAPTION>
1992
<S> <C>
Expenses................................................ .63%
Net investment income................................... 3.41%
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of an eagle)
A REPORT FROM YOUR
PORTFOLIO MANAGER
KELLIE ALLEN
In the last half of 1995, we saw very mixed economic data, but (Photo of
as the year came to a close, economic reports grew progressively Kellie
weaker, clearly showing signs that the Federal Reserve would Allen)
need to lower the Fed Funds rate in order to help boost the
slowing economy. In December and again in February, short-term
rates were indeed lowered by 25 basis points each time, ending
February at 5.25%. In anticipation of short-term rates dropping,
we extended the average maturity of the Fund. This allowed us to
lock in higher yielding securities for longer time periods.
In the first half of 1996, a continued stream of strong
economic data re-ignited fears about
future inflation and caused a reversal in fortunes in the bond
market from the positive returns experienced in 1995. The underpinnings of
economic growth in 1996 have been in the strength of the housing market,
consumer spending, and job creation. With second quarter Gross Domestic Product
(GDP) coming in at 4.8%, there were concerns in the market about inflation
rearing its ugly head.
So far this year, monthly job growth has averaged 230,000 versus about 185,000
for last year. This would lead the markets to believe that inflation is not far
behind and the Fed should start raising interest rates to head it off. (The
primary means by which the Federal Reserve attempts to control the economy is by
raising or lowering short-term interest rates, i.e. the Fed Funds rate. For
example, if the economy is growing too fast the Federal Reserve can raise the
Fed Funds rate and, in essence, try to put the brakes on the economy.)
The Fed has not made a move since January because inflation has not shown
itself even with the economy moving along at a fairly strong pace. Lack of
inflation cannot go on forever with this pace of economic activity. In our view,
it is not a question of whether short-term rates will move higher over the next
several months but when it will happen. It is questionable, however, whether the
Federal Reserve will raise rates before the November election. All eyes will be
on the November Federal Open Market Committee (FOMC) meeting to see if they will
finally make their move.
We use a barbell approach in the Fund's portfolio maturities as opposed to a
laddered approach, in order to take advantage of higher yields out on the curve.
This helps us to remain competitive while still maintaining the shorter average
maturities that AAA rated money funds are limited to in order to maintain their
rating.
In the last six months, the yield curve from overnight to one year has
continued to steepen. We have taken advantage of this by extending our
maturities further out on the curve and keeping our Repurchase Agreement versus
Treasury position in the 65%/35% range. We ended the fiscal year with an average
maturity of 52 days. In anticipation of the Federal Reserve raising interest
rates, we will shorten our average maturity slightly, making our maturity target
45 to 50 days.
At its ficsal year-end on August 31, 1996, Evergreen Treasury Money Market
Fund's total net assets were $3.4 billion. The Fund's seven-day current and
effective yields at that time are illustrated in the table below.
<TABLE>
<CAPTION>
7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD
<S> <C> <C>
Class Y Shares 4.96% 5.08%
Class A Shares 4.66% 4.77%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORSEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUNDS
DAILY NET ASSETS OF ITS CLASS A SHARES.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U. S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
39
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of an eagle)
STATEMENT OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
U.S. TREASURY BILLS -- 4.4%
$150,000 5.25%, 9/17/96
(COST $149,694,041)................ $ 149,694,041
U.S. TREASURY NOTES -- 35.0%
20,000 6.50%, 9/30/96..................... 20,010,343
30,000 8.00%, 10/15/96.................... 30,078,470
150,000 6.875%, 10/31/96................... 150,415,920
125,000 7.25%, 11/15/96.................... 125,455,094
200,000 7.50%, 12/31/96.................... 201,332,352
50,000 8.00%, 1/15/97..................... 50,429,269
250,000 7.50%, 1/31/97..................... 252,264,102
125,000 6.875%, 2/28/97.................... 125,946,960
100,000 6.50% to 6.875%, 4/30/97........... 100,848,499
70,000 8.50%, 5/15/97..................... 71,246,809
50,000 6.00%, 8/31/97..................... 50,003,906
TOTAL U.S. TREASURY NOTES
(COST $1,178,031,724).............. 1,178,031,724
REPURCHASE AGREEMENTS* -- 65.2%
150,000 Daiwa Securities Co., Ltd., 5.24%,
dated 8/30/96, due 9/3/96 (1)...... 150,000,000
150,000 Dean Witter Reynolds, Inc., 5.24%,
dated 8/26/96, due 9/3/96 (2)...... 150,000,000
170,000 Donaldson, Lufkin & Jenrette
Securities Corp., 5.23%,
dated 8/30/96, due 9/3/96 (3)...... 170,000,000
100,000 Dresdner Bank AG, 5.25%,
dated 8/26/96, due 9/3/96 (4)...... 100,000,000
75,000 Dresdner Bank AG, 5.25%,
dated 8/30/96, due 9/3/96 (5)...... 75,000,000
150,000 First Boston Corp., 5.25%,
dated 8/30/96, due 9/3/96 (6)...... 150,000,000
200,000 Goldman, Sachs Group L.P.,
5.24%, dated 8/30/96,
due 9/3/96 (7)..................... 200,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS* -- CONTINUED
$150,000 HSBC Securities, Inc., 5.24%,
dated 8/30/96, due 9/3/96 (8)...... $ 150,000,000
150,000 Merrill Lynch, Pierce, Fenner &
Smith, 5.20%, dated 8/30/96,
due 9/3/96 (9)..................... 150,000,000
200,000 Morgan Guaranty Trust Co. of New
York, 5.25%, dated 8/30/96,
due 9/3/96 (10).................... 200,000,000
150,000 Morgan Stanley Co., 5.23%,
dated 8/30/96, due 9/3/96 (11)..... 150,000,000
50,000 NationsBank, 5.23%,
dated 8/30/96, due 9/3/96 (12)..... 50,000,000
200,000 Nikko Securities Co. International,
Inc., 5.22%, dated 8/26/96,
due 9/3/96 (13).................... 200,000,000
150,000 State Street Bank & Trust Co.,
5.21%, dated 8/30/96,
due 9/3/96 (14).................... 150,000,000
150,000 Union Bank Switzerland, 5.24%,
dated 8/30/96, due 9/3/96 (15)..... 150,000,000
TOTAL REPURCHASE AGREEMENTS
(COST $2,195,000,000).............. 2,195,000,000
<CAPTION>
SHARES
(000)
<C> <S> <C>
MUTUAL FUND SHARES -- 1.1%
36,386 Fidelity U.S. Treasury, Inc.,
Portfolio (at net asset value)
(COST $36,386,133)................ 36,386,133
TOTAL INVESTMENTS
(COST $3,559,111,898)..... 105.7% 3,559,111,898
OTHER ASSETS AND
LIABILITIES -- NET........ (5.7) (191,448,210)
NET ASSETS................ 100.0% $3,367,663,688
</TABLE>
See accompanying notes to financial statements.
*Collateralized by:
(1) $139,858,000 U.S. Treasury Notes, 6.00% to 8.875%, 8/31/97 to 2/15/99;
value including accrued interest -- $147,118,513 and $5,472,000 U.S.
Treasury Bonds, 7.875%, 11/15/07; value including accrued
interest -- $5,882,008.
(2) $134,065,401 U.S. Treasury Strips, 2/15/97 to 2/15/26;
value -- $133,534,995; $14,637,000 U.S. Treasury Notes, 5.125% to 7.25%,
8/31/96 to 7/15/06; value including accrued interest -- $14,904,368;
$2,495,000 U.S. Treasury Bonds, 8.75% to 11.25%, 2/15/15 to 5/15/20; value
including accrued interest -- $3,142,556 and $1,420,000 U.S. Treasury
Bills, 9/5/96; value -- $1,418,811.
(3) $191,154,000 U.S. Treasury Strips, 11/15/97 to 2/15/25;
value -- $70,652,564 and $101,611,000 U.S. Treasury Notes, 5.50% to 8.75%,
11/15/98 to 9/30/00; value including interest -- $102,748,325.
(4) $59,390,000 U.S. Treasury Notes, 6.25% to 7.75%, 1/31/00 to 8/31/00; value
including accrued interest -- $60,853,502 and $42,605,000 U.S. Treasury
Bonds, 6.75%, 8/15/26; value including accrued interest -- $41,151,377.
(5) $56,857,000 U.S. Treasury Notes, 5.00% to 9.25%, 12/31/97 to 10/31/99;
value including accrued interest -- $56,991,500 and $103,700,000 U.S.
Treasury Strips, 8/15/19; value $19,509,081.
(6) $151,706,000 U.S. Treasury Notes, 5.625% to 6.375%, 3/31/98 to 3/31/01;
value including accrued interest -- $153,439,998.
(7) $206,574,000 U.S. Treasury Notes, 5.50%, 4/15/00; value including accrued
interest -- $204,000,177.
(8) $150,104,000 U.S. Treasury Notes, 5.00% to 9.00%, 12/31/97 to 5/31/98;
value including accrued interest -- $153,001,642.
(9) $152,111,000 U.S. Treasury Notes, 5.25% to 7.75%, 11/30/00 to 3/31/01;
value including accrued interest -- $153,001,585.
(10) $209,500,000 U.S. Treasury Bills, 2/27/97; value -- $204,002,720.
(11) $150,305,000 U.S. Treasury Notes, 7.25%, 8/15/04; value including accrued
interest -- $154,759,313.
(12) $51,100,000 U.S. Treasury Notes, 5.25%, 12/31/97; value including accrued
interest -- $51,017,729.
(13) $202,483,000 U.S. Treasury Notes, 5.125% to 8.25%, 2/15/98 to 7/15/06;
value including accrued interest -- $205,988,770.
(14) $153,880,000 U.S. Treasury Bonds, 7.125%, 2/15/23; value -- $156,154,225.
(15) $361,936,000 U.S. Treasury Strips, 5/15/05 to 8/15/10;
value -- $153,001,660.
40
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of an eagle)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in repurchase agreements........................................................................ $2,195,000,000
Investments in securities................................................................................... 1,364,111,898
Investments at value (identified cost $3,559,111,898).................................................... 3,559,111,898
Interest receivable......................................................................................... 21,792,711
Receivable for Fund shares sold............................................................................. 1,662,207
Prepaid expenses............................................................................................ 43,829
Total assets.......................................................................................... 3,582,610,645
LIABILITIES:
Payable for investments purchased........................................................................... 199,722,810
Dividends payable........................................................................................... 11,292,281
Distribution fee payable.................................................................................... 1,403,451
Accrued expenses............................................................................................ 1,266,972
Accrued advisory fee........................................................................................ 905,039
Payable for Fund shares repurchased......................................................................... 246,346
Administration fee payable.................................................................................. 110,058
Total liabilities..................................................................................... 214,946,957
NET ASSETS..................................................................................................... $3,367,663,688
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $3,367,614,048
Accumulated net realized gain on investment transactions.................................................... 49,640
Net assets............................................................................................ $3,367,663,688
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($2,607,700,900(division sign)2,607,674,461 shares of beneficial interest
outstanding)............................................................................................. $ 1.00
Class Y Shares ($759,962,788(division sign)759,956,138 shares of beneficial interest outstanding).... ...... $ 1.00
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of an eagle)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................................................... $138,252,376
EXPENSES:
Advisory fee................................................................................ $ 8,857,503
Administrative personnel and services fees.................................................. 1,255,724
Distribution fee -- Class A Shares.......................................................... 6,381,827
Registration and filing fees................................................................ 762,020
Custodian fee............................................................................... 600,746
Reports and notices to shareholders......................................................... 170,245
Transfer agent fee.......................................................................... 149,948
Professional fees........................................................................... 95,656
Trustees' fees and expenses................................................................. 56,840
Insurance................................................................................... 27,186
Miscellaneous............................................................................... 36,366
18,394,061
Less advisory fee waiver.................................................................... (2,109,068)
Net expenses............................................................................. 16,284,993
Net investment income.......................................................................... 121,967,383
Net realized gain on investments............................................................... 161,674
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $122,129,057
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of an eagle)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................... $ 121,967,383 $ 43,113,269
Net realized gain (loss) on investment transactions................................. 161,674 (7,403)
Net increase in net assets resulting from operations............................. 122,129,057 43,105,866
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares...................................................................... (101,441,299) (33,495,553)
Class Y Shares...................................................................... (20,526,084) (9,617,716)
Total distributions to shareholders from net investment income................... (121,967,383) (43,113,269)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares...................................................................... -- (67,232)
Class Y Shares...................................................................... -- (15,822)
Total distributions to shareholders in excess of net
investment income............................................................. -- (83,054)
Total distributions to shareholders........................................... (121,967,383) (43,196,323)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold........................................................... 6,442,829,718 2,358,670,175
Proceeds from shares issued from acquisition
of FFB U.S. Treasury Fund........................................................ 1,070,672,333 --
Proceeds from shares issued from acquisition
of FFB U.S. Government Fund...................................................... 327,532,054 --
Proceeds from shares issued from acquisition
of FFB 100% U.S. Treasury Fund................................................... 28,227,573 --
Proceeds from reinvestment of distributions......................................... 17,972,077 5,178,570
Payments for shares redeemed........................................................ (5,974,992,600) (1,826,468,286)
Net increase resulting from Fund share transactions.............................. 1,912,241,155 537,380,459
Net increase in net assets....................................................... 1,912,402,829 537,290,002
NET ASSETS:
Beginning of period................................................................. 1,455,260,859 917,970,857
End of period....................................................................... $ 3,367,663,688 $ 1,455,260,859
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
CLASS A SHARES
(Photo of an eagle)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
1996 1995# 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period....................................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income...................................................... .05 .03 .04 .03 .03
Less distributions to shareholders from net investment income.............. (.05) (.03) (.04) (.03) (.03)
Net asset value, end of period............................................. $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+.............................................................. 5.0% 3.6% 3.8% 2.7% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).................................... $2,608 $1,178 $755 $261 $209
Ratios to average net assets:
Expenses**............................................................... .69% .63%++ .50% .48% .48%
Net investment income**.................................................. 4.76% 5.30%++ 3.91% 2.70% 3.22%
</TABLE>
# The Fund changed its fiscal year end from December 31 to August 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
1996 1995# 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses................................................................... .77% .79%++ .78% .82% .82%
Net investment income...................................................... 4.68% 5.14%++ 3.63% 2.36% 2.88%
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
CLASS Y SHARES
(Photo of an eagle)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
1996 1995# 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...................................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income..................................................... .05 .04 .04 .03 .04
Less distributions to shareholders from net investment income............. (.05) (.04) (.04) (.03) (.04)
Net asset value, end of period............................................ $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+............................................................. 5.3% 3.8% 4.1% 3.0% 3.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)................................... $760 $277 $163 $366 $286
Ratios to average net assets:
Expenses**.............................................................. .39% .33%++ .20% .18% .17%
Net investment income**................................................. 5.12% 5.60%++ 3.78% 3.00% 3.61%
</TABLE>
# The Fund changed its fiscal year end from December 31 to August 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
1996 1995# 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses.................................................................. .47% .49%++ .48% .52% .52%
Net investment income..................................................... 5.04% 5.44%++ 3.50% 2.66% 3.26%
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Money Market Funds (the "Funds") are separate series of
open-end management companies registered under the Investment Company Act of
1940, as amended (the "Act"). The Evergreen Money Market Funds consist of
Evergreen Money Market Fund ("Money Market"), Evergreen Pennsylvania Tax-Free
Money Market Fund ("Pennsylvania"), Evergreen Tax Exempt Money Market Fund ("Tax
Exempt") and Evergreen Treasury Money Market Fund ("Treasury"), known
collectively as the Funds. Money Market is the sole series of Evergreen Money
Market Trust, Pennsylvania is a series of Evergreen Tax-Free Trust, Tax Exempt
is a series of Evergreen Municipal Trust and Treasury is a series of Evergreen
Investment Trust.
The investment objective of Money Market and Pennsylvania is to achieve as
high a level of current income as is consistent with preserving capital and
providing liquidity. The investment objective of Tax Exempt is to achieve as
high a level of current income exempt from Federal income tax, as is consistent
with preserving capital and providing liquidity. Treasury's investment objective
is to maintain stability of principal while earning current income.
NOTE 2 -- ACQUISITION INFORMATION
Effective January 1, 1996, First Union Corporation, the corporate parent of
First Union National Bank of North Carolina ("First Union"), the Funds' current
investment advisor, consummated a merger with First Fidelity Bancorporation.
Effective on the close of business January 19, 1996, the Funds noted below
acquired substantially all of the net assets of the following management
investment companies previously advised by a subsidiary of First Fidelity
Bancorporation through non-taxable exchanges. The net assets acquired, valued at
$1 per share, and class of shares exchanged are as follows:
<TABLE>
<CAPTION>
CLASS OF SHARES NET ASSETS
ACQUIRED FUND ACQUIRING FUND EXCHANGED ACQUIRED
<S> <C> <C> <C>
FFB Cash Management Fund Money Market Class A $ 592,358,361
FFB Lexicon Cash Management Fund Money Market Class Y 95,834,929
FFB Tax-Free Money Market Fund Tax Exempt Class A 103,129,021
FFB U.S. Treasury Fund Treasury Class A 1,070,672,333
FFB U.S. Government Fund Treasury Class A 327,532,054
FFB 100% U.S. Treasury Fund Treasury Class A 28,227,573
</TABLE>
The aggregate net assets of Money Market, Tax Exempt and Treasury
immediately after the acquisitions were $1,865,328,722, $1,141,961,188 and
$3,053,739,559, respectively.
Also, effective January 19, 1996, the FFB Pennsylvania Tax-Free Money
Market Fund was renamed Evergreen Pennsylvania Tax-Free Money Market Fund.
Shares of the FFB Pennsylvania Tax-Free Money Market Fund's class previously
known as the institutional class and service class were redesignated
Pennsylvania's Class Y Shares and Class A Shares, respectively. Pennsylvania
subsequently changed its fiscal year end to August 31.
Effective July 7, 1995, Money Market acquired substantially all of First
Union Money Market Portfolio's net assets, valued at $1.00 per share through a
non-taxable exchange for 642,283,253 shares of Money Market. The aggregate net
assets of Money Market immediately after the acquisition were $884,502,198.
In addition, effective July 7, 1995, Tax Exempt acquired substantially all
of First Union Tax-Free Money Market Portfolio's net assets, valued at $1.00 per
share through a non-taxable exchange for 604,175,076 shares of Tax Exempt. The
aggregate net assets of Tax Exempt immediately after the acquisition were
$952,382,736.
46
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Portfolio securities are valued at amortized cost
which approximates market value. The amortized cost method involves valuing a
security at cost on the date of purchase and thereafter assuming a straight-line
amortization of any discount or premium to maturity.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized or accreted into
interest income.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis, and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by each Funds'
Trustees.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis begin earning interest on the settlement date.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared daily and paid monthly. Dividends from net realized capital gains on
investments, if any, will be distributed at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from the amounts available for distribution under
generally accepted accounting principles. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable and other net income to its
shareholders. Accordingly, no provisions for Federal income or excise taxes are
necessary. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is each Fund's policy not to distribute such gains.
At August 31, 1996, the Funds had capital loss carryforwards in the
following amounts:
<TABLE>
<CAPTION>
EXPIRATION
2001 2002 2003 2004
<S> <C> <C> <C> <C>
Money Market.................. -- -- $516,766 --
Pennsylvania.................. $ 3,800 -- 6,039 $ 378
Tax Exempt.................... 177,088 $266 15,847 64,670
</TABLE>
Capital losses incurred after October 31 within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Money Market and Tax Exempt have incurred and will elect to defer
$34,087 and $9, respectively, of such capital losses.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Net investment income (other than class
specific expenses) and
47
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union is entitled to an annual fee
of .35 of 1% of Treasury's average daily net assets pursuant to the fund's
investment advisory agreement. For the year ended August 31, 1996, First Union
voluntarily waived $2,109,068 of its advisory fee.
For Pennsylvania, First Union is entitled to an annual advisory fee based
on the Fund's net assets in accordance with the following schedule:
<TABLE>
<CAPTION>
ADVISORY FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.40% on the first $500 million
0.36% on the next $500 million
0.32% on the next $500 million
0.28% in excess of $1.5 billion
</TABLE>
For the six months ended August 31, 1996, First Union voluntarily waived
$59,186 of its advisory fee. First Union can modify or terminate voluntary fee
waivers at any time.
Pursuant to an agreement with Money Market's and Tax Exempt's investment
adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned
subsidiary of First Union, Evergreen Asset is entitled to an annual fee based on
Money Market's and Tax Exempt's average daily net assets in accordance with the
following schedule:
<TABLE>
<CAPTION>
ADVISORY FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.50% on the first $1 billion
0.45% in excess of $1 billion
</TABLE>
Evergreen Asset has agreed to reimburse Money Market and Tax Exempt to the
extent that either Fund's operating expenses (including the investment advisory
fee but excluding interest, taxes, brokerage commissions, 12b-1 distribution and
shareholder services fees and extraordinary expenses) exceeds 1.00% of its
average daily net assets for any fiscal year. For the year ended August 31,
1996, the expenses of Money Market and Tax Exempt did not exceed this limit. For
the year ended August 31, 1996, Evergreen Asset voluntarily waived $2,427,423
and $1,243,131 of its advisory fee for Money Market and Tax Exempt,
respectively. Evergreen Asset can modify or terminate these voluntary waivers at
any time.
Lieber & Company, an affiliate of First Union is the investment sub-adviser
to Money Market and Tax Exempt. Lieber & Company is reimbursed by Evergreen
Asset at no additional expense to the Funds.
During the year ended August 31, 1995, Tax Exempt entered into stand-by
purchase agreements ("agreements") with First Union with regards to securities
issued by Orange County, California. The agreements enabled the securities to be
valued at par, which was $300,000 in excess of the securities fair market value
on the date of the issuance. The increase in the value is deemed to be a
voluntary contribution of capital to offset the loss in value. The agreements
were exercised during the year ended August 31, 1995, and accordingly, the
securities were sold to First Union at par.
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes Money Market and Tax
Exempt with administrative services as part of their advisory agreements and
accordingly, these Funds do not pay a separate administration fee. Furman Selz
LLC ("Furman Selz") is each of the Fund's sub-administrator. As
sub-administrator, Furman Selz provides the officers of the Funds. For Money
Market and Tax Exempt, Furman Selz' fee is paid by Evergreen Asset and is not a
fund expense. Evergreen Asset is also Pennsylvania's and Treasury's
administrator and Furman Selz is the sub-administrator. Evergreen Asset's and
Furman Selz' fees for Pennsylvania and Treasury are based on the average daily
net assets of all the funds administered by Evergreen Asset for which First
Union or Evergreen Asset is also investment adviser. These are calculated at the
following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
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
0.010% in excess of $30 billion
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>
At August 31, 1996, assets for which Evergreen Asset was the administrator
for which either Evergreen Asset or First Union was investment adviser totaled
approximately $15.7 billion.
PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A Shares
and Class B Shares (Money Market only) Distribution Plans (the "Plans") pursuant
to Rule 12b-1 under the Act (See Note 5). Under the terms of the Plans, the
Funds may incur distribution-related and shareholder servicing expenses which
may not exceed .75 of 1% for Class A Shares for Money Market and Tax Exempt and
.35 of 1% for Class A Shares for Pennsylvania and Treasury. The payments for
Class A Shares for Money Market, Tax Exempt and Treasury were voluntarily
limited to .30 of 1% and for Pennsylvania were limited to .05 of 1% of average
daily net assets. Money Market may incur distribution-related and shareholder
servicing expenses, which may not exceed an annual fee of 1% for its Class B
Shares.
In connection with their Plans, the Funds have entered into distribution
agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of
Furman Selz whereby each Fund will compensate EFD for its services at a rate
which may not exceed .30 of 1% of its Class A average daily net assets and 1% of
its Class B average daily net assets (Money Market only). A portion of Money
Market's Class B Plan, up to .25 of 1% of average daily net assets may
constitute a shareholder service fee. EFD has entered into a Shareholder
Services Agreement with First Union Brokerage Services ("FUBS"), an affiliate of
First Union, whereby EFD will compensate FUBS for certain services provided to
shareholders and/or maintenance of shareholder accounts relating to Money
Market's Class B shares.
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
Money Market and Tax Exempt have an unlimited number of $0.0001 par value
shares of beneficial interest authorized. Pennsylvania and Treasury have an
unlimited number of $.001 par value shares of beneficial interest authorized.
The shares are divided into classes which are designated Class Y, Class A and
Class B Shares (Money Market only). Class Y shares are
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
available only to investment advisory clients of First Union and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates as of December 30, 1994.
The classes have identical voting, dividend, liquidation and other rights,
except that Class A and Class B shares bear distribution expenses (see Note 4)
and have exclusive voting rights with respect to their distribution plans.
Transactions in shares of beneficial interest (valued at $1.00 per share)
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
MONEY MARKET 1996 1995*
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 3,360,065,151 263,807,185
Shares issued from acquisition of FFB Cash Management Fund................................... 592,362,245 --
Shares issued from acquisition of First Union Money Market Portfolio......................... -- 577,090,623
Shares issued from reinvestment of distributions............................................. 13,630,468 1,073,970
Shares redeemed.............................................................................. (2,895,924,591) (156,830,783)
Net increase................................................................................. 1,070,133,273 685,140,995
CLASS B
Shares sold.................................................................................. 13,107,126 1,222,632
Shares issued from acquisition of First Union Money Market Portfolio......................... -- 8,848,122
Shares issued from reinvestment of distributions............................................. 307,330 41,082
Shares redeemed.............................................................................. (11,123,113) (2,185,089)
Net increase................................................................................. 2,291,343 7,926,747
CLASS Y
Shares sold.................................................................................. 2,902,529,372 1,484,885,160
Shares issued from acquisition of FFB Lexicon Cash Management Fund........................... 95,834,876 --
Shares issued from acquisition of First Union Money Market Portfolio......................... -- 56,344,508
Shares issued from reinvestment of distributions............................................. 14,304,225 13,226,417
Shares redeemed.............................................................................. (2,624,143,977) (1,544,913,353)
Net increase................................................................................. 388,524,496 9,542,732
Total net increase resulting from Fund share transactions.................................... 1,460,949,112 702,610,474
</TABLE>
* The Fund share activity for Class A reflects the period from January 4, 1995
(commencement of class operations) through August 31, 1995. The Fund share
activity for Class B reflects the period from January 26, 1995 (commencement
of class operations) through August 31, 1995.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, FEBRUARY 29,
PENNSYLVANIA 1996 1996*
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 40,205,338 4,636,845
Shares issued from reinvestment of distributions............................................. 35,417 3,934
Shares redeemed.............................................................................. (22,377,383) (307,967)
Net increase................................................................................. 17,863,372 4,332,812
CLASS Y
Shares sold.................................................................................. 21,254,692 174,995,677
Shares issued from reinvestment of distributions............................................. 586,491 1,762,856
Shares redeemed.............................................................................. (56,919,288) (136,899,719)
Net increase (decrease)...................................................................... (35,078,105) 39,858,814
Total net increase (decrease) resulting from Fund share transactions......................... (17,214,733) 44,191,626
</TABLE>
* The Fund share activity for Class A reflects the period from August 22, 1995
(commencement of class operations) through February 29, 1996.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
TAX-EXEMPT 1996 1995*
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 1,329,098,871 126,822,267
Shares issued from acquisition of FFB Tax-Free Money Market Fund............................. 103,102,728 --
Shares issued from acquisition of First Union Tax-Free Money Market Portfolio................ -- 529,834,393
Shares issued from reinvestment of distributions............................................. 3,435,421 499,871
Shares redeemed.............................................................................. (1,330,067,450) (102,091,382)
Net increase................................................................................. 105,569,570 555,065,149
CLASS Y
Shares sold.................................................................................. 1,243,309,865 396,597,152
Shares issued from acquisition of First Union Tax-Free Money Market Portfolio................ -- 74,340,683
Shares issued from reinvestment of distributions............................................. 12,767,571 12,777,605
Shares redeemed.............................................................................. (1,060,731,679) (464,546,791)
Net increase................................................................................. 195,345,757 19,168,649
Total net increase resulting from Fund share transactions.................................... 300,915,327 574,233,798
</TABLE>
* The Fund share activity for Class A reflects the period from January 5, 1995
(commencement of class operations) through August 31, 1995.
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
AUGUST 31, AUGUST 31,
TREASURY 1996 1995
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 4,828,856,886 1,854,109,537
Shares issued from acquisition of FFB U.S. Treasury Fund..................................... 1,070,688,429 --
Shares issued from acquisition of FFB U.S. Government Fund................................... 327,554,031 --
Shares issued from acquisition of FFB 100% U.S. Treasury Fund................................ 28,227,628 --
Shares issued from reinvestment of distributions............................................. 16,836,594 5,178,018
Shares redeemed.............................................................................. (4,842,442,130) (1,436,384,809)
Net increase................................................................................. 1,429,721,438 422,902,746
CLASS Y
Shares sold.................................................................................. 1,613,972,832 504,560,638
Shares issued from reinvestment of distributions............................................. 1,135,483 552
Shares redeemed.............................................................................. (1,132,550,470) (390,083,477)
Net increase................................................................................. 482,557,845 114,477,713
Total net increase resulting from Fund share transactions.................................... 1,912,279,283 537,380,459
</TABLE>
NOTE 6 -- CONCENTRATION OF CREDIT RISK
Each Fund maintains a diversified portfolio of money market instruments
which are deemed, under Rule 2a-7 of the Act, to have a maturity of 397 days or
less and whose ratings are determined to be of eligible quality under Securities
and Exchange Commission rules. The ability of the issuers of the securities held
by the Funds to meet their obligations may be affected by economic developments
in a specific industry, state, region or country. Certain instruments may be
entitled to the benefit of standby letters of credit or other guarantees of
banks or other financial institutions.
NOTE 7 -- LINE OF CREDIT
Effective July 3, 1996, a financing agreement was put in place with all the
Evergreen Funds and their custodian, State Street Bank and Trust Company (the
"Bank"). Under the agreement, the Bank is providing an unsecured, uncommitted
line of credit facility, in the aggregate amount of $50 million, to be accessed
by the Funds for temporary or emergency purposes only and is subject to each
participating Fund's borrowing restrictions. Borrowings under this facility bear
interest at .75% per annum above the Bank's cost of funds as set periodically by
the Bank. During the year ended August 31, 1996, the Funds had no borrowings
outstanding under this agreement.
52
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN MONEY MARKET FUND AND
EVERGREEN TAX EXEMPT MONEY MARKET FUND
In our opinion, the accompanying Statements of Assets and Liabilities,
including the Statements of Investments, and the related Statements of
Operations and of Changes in Net Assets and the Financial Highlights present
fairly, in all material respects, the financial position of Evergreen Money
Market Fund and Evergreen Tax Exempt Money Market Fund (one of the Evergreen
Municipal Trust Portfolios), (the "Funds"), at August 31, 1996, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 18, 1996
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN PENNSYLVANIA TAX-FREE MONEY MARKET FUND AND
EVERGREEN TREASURY MONEY MARKET FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, for Evergreen Pennsylvania Tax-Free
Money Market Fund and Evergreen Treasury Money Market Fund as of August 31,
1996, and the related statements of operations, changes in net assets and the
financial highlights for each of the periods listed below:
Evergreen Pennsylvania Tax-Free Money Market Fund -- statement of
operations for the six-month period ended August 31, 1996, statements of
changes in net assets for the six-month period ended August 31, 1996 and
the year ended February 29, 1996 and the financial highlights for each of
the years or periods from March 1, 1993 through August 31, 1996.
Evergreen Treasury Money Market Fund -- statement of operations for
the year ended August 31, 1996, statements of changes in net assets for the
year ended August 31, 1996 and the eight month period ended August 31, 1995
and the financial highlights for each of the years or periods from January
1, 1992 through August 31, 1996.
These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of Evergreen Pennsylvania Tax-Free Money Market Fund for the year
ended February 28, 1993 were audited by other auditors whose reports expressed
unqualified opinions on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1996 by correspondence with the custodian and
brokers. An audit also includes assessing the overall accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Evergreen Pennsylvania Tax-Free Money Market Fund and Evergreen Treasury Money
Market Fund as of August 31, 1996, and the results of their operations, changes
in their net assets and their financial highlights for each of the periods
listed in the third preceding paragraph, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
October 16, 1996
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
100% of the dividends distributed by Pennsylvania Tax-Free Money
Market Fund and Tax Exempt Money Market Fund for the period
ended August 31, 1996 are exempt from federal income tax, other
than alternative minimum tax.
54
<PAGE>
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55
<PAGE>
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56
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin*
Foster Bam*
James S. Howell, Chairman
Robert J. Jeffries*+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
* Not a Trustee for Evergreen Treasury Money Market Fund.
+ Trustee Emeritus
This brochure must be preceeded or accompanied by a prospectus of an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing
or sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Asset Management Corp.
Copyright 1996, Evergree Asset Management Corp.
44944 539583
10/96
<PAGE>
EVERGREEN
MONEY MARKET FUNDS
(Photo of currency)
(Photo of coins)
(Photo of building)
(Photo of eagle)
SEMIANNUAL
REPORT
FEBRUARY 28, 1997
Evergreen Keystone
[logo] FUNDS(sm) [logo]
<PAGE>
EVERGREEN MONEY MARKET FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
(Photo of currency) Economic Overview......................................................... 1
MONEY MARKET A Report From Your Portfolio Manager...................................... 2
FUND Statement of Investments.................................................. 3
Statement of Assets and Liabilities....................................... 8
Statement of Operations................................................... 9
Statement of Changes in Net Assets........................................ 10
Financial Highlights...................................................... 11
(Photo of building) PENNSYLVANIA A Report From Your Portfolio Manager...................................... 13
TAX-FREE MONEY Statement of Investments.................................................. 14
MARKET FUND Statement of Assets and Liabilities....................................... 18
Statement of Operations................................................... 19
Statement of Changes in Net Assets........................................ 20
Financial Highlights...................................................... 21
(Photo of coins) TAX EXEMPT A Report From Your Portfolio Manager...................................... 22
MONEY MARKET FUND Statement of Investments.................................................. 23
Statement of Assets and Liabilities....................................... 34
Statement of Operations................................................... 35
Statement of Changes in Net Assets........................................ 36
Financial Highlights...................................................... 37
(Photo of eagle) TREASURY A Report From Your Portfolio Manager...................................... 38
MONEY MARKET FUND Statement of Investments.................................................. 39
Statement of Assets and Liabilities....................................... 41
Statement of Operations................................................... 42
Statement of Changes in Net Assets........................................ 43
Financial Highlights...................................................... 44
Combined Notes to Financial Statements.................................... 46
Trustees and Officers...................................... Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN MONEY MARKET FUNDS
ECONOMIC OVERVIEW
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
The strong momentum of the United States economy
at the end of 1996 was well sustained through the [photo]
first quarter of 1997. Industrial production rose in
each month of the first quarter, 0.10% in January,
0.60% in February, and 0.90% in March. Industrial
capacity utilization reflected the dynamic economy,
rising to 84.1%, the highest level since March 1995.
Despite the sustained growth in the U.S. economy, the
rate of inflation continues to be moderate. The Consumer
Price Index increase was 1.8% on an annual rate basis
during the first quarter, well below the moderate 3.3%
rise during 1996. These recent economic figures combine
to offset the fearful expectations of many economists and
participants in the fixed income markets that the economy
might not be capable of significant overall growth without
inciting inflation. Most observers, however, are very
reluctant to assume that the major driving force of inflation,
rising wages, is unlikely to appear. They point to record low
inventory-to-sales ratios, low level of inventories on the
retailing and wholesaling level, and the rising operating
rate of industrial production. While arguing over whether the
recent 6% growth in consumer spending is sustainable, and
whether consumer credit card debt is over-extended, there are
few who would project any near-term significant decline in
overall domestic demand.
The many aspects of domestic economic growth have led to an intense watch on
the trends of wage levels. The rise in average hours worked, some gradual creep
in compensation, and the sustained jobless level at just over 5%, have led many
key observers to conclude that any further acceleration in the economy's
momentum will lead to some breakout in wage compensation, especially in areas of
labor shortage. The Federal Reserve has clearly concluded that this risk
justifies the slowing effort of the recent 0.25% increase in the discount rate.
The majority of observers expect that the economic figures published through
April will probably lead to another 0.25% rise in May. There is widespread
discussion about whether there will be more increases of 0.25%, or even a rise
of 0.50% over the next few months. In initiating the recent discount rate
increase, Federal Reserve Chairman, Alan Greenspan, described the move as "pre-
emptive". Consequently, most observers conclude that the Federal Reserve policy
is going to be one of pre-emptive moves when inflationary signs appear in the
economy. Higher short-term interest rates will be the Fed's first line of
defense. The real return in long-term fixed income investments today is in the
area of 5%. This is strikingly higher than the "normal" real return of 3% to 4%,
and well above the 3.6% yield of the new ten-year U.S. Treasury Inflation
Indexed Bonds, which are an appropriate proxy for the real return. This
extremely high rate of real return suggests either that the long-term interest
rate structure in the United States is forecasting a much higher rate of
inflation than presently seen, or is at a level which discounts expectations of
a higher rate of inflation. Many bond market observers believe that the
discounting has been done and, therefore, has provided the better than 7% yields
now available in long-term United States Treasuries.
The fixed income markets currently provide a combination of short-term
uncertainty, and increased long-term confidence. Over the short-term, the data
on economic strength and trends are being read with anxiety as indicators of
whether or not interest rates will rise. Over the longer term, the demonstrated
readiness of the Federal Reserve Open Market Committee to act "pre-emptively" to
ensure the longer term control of inflation, and to maintain stability in the
economy, is highly encouraging for fixed income investment.
1
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
A REPORT FROM YOUR
PORTFOLIO MANAGER
ETHEL SUTTON
We are happy to present you with the Semiannual Report for
Evergreen Money Market Fund. In a pre-emptive strike against
inflation, the Federal Reserve Board raised the overnight
Federal Funds rate to 5 1/2% from 5 1/4% at its Open Market
Committee meeting on March 25, 1997, finally deciding to act on
a policy bias that had been in effect since July.
Although the economy turned in a strong performance in the [Photo]
fourth quarter of last year and appears to be equally as strong
so far this year, inflation has been remarkably subdued, owing
to the strong U.S. dollar. The latest Producer Price Index
actually showed a decline from the previous period. The
sustained job growth of the past several months, however, has
not produced lower unemployment rates, leading to a belief that
a growing economy could manage to accommodate tighter labor markets without
driving up unemployment costs and overheating the economy. In his most recent
Congressional testimony, Federal Reserve Chairman, Alan Greenspan, emphasized
that, historically, most policy mistakes occurred because rate hikes were
started too late, putting the Fed "behind the curve" in coping with inflation
and necessitating a more drastic response than the gentle one-quarter point
nudge of March 25. Many economists think that this is the first of a series of
one-quarter point increases that will lead to a Federal Funds rate of 6% by
year-end.
Our approach since the beginning of 1997 has been to "barbell" the portfolio,
moving out on the yield curve to longer maturities when nervousness over strong
economic data causes rates to steepen. Our average maturities are, consequently,
longer than they would be if we had adopted a strictly "laddered" approach. On
February 28, for instance, the Fund's weighted average maturity was 79 days, as
compared with a 61-day average for the 275 first tier money market funds as
tracked by IBC's Money Fund Report* during that time.
As we search for attractive value, we not only monitor the latest economic
data, we constantly review credit quality in our quest to match stability of
principal with competitive yield.
* MONTHLY AVERAGES AS REPORTED IN THE MONTHLY IBC'S MONEY FUND REPORT. IBC IS AN
INDEPENDENT MONEY MARKET MUTUAL FUND PERFORMANCE MONITOR.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
2
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
BANKERS' ACCEPTANCES* -- 0.2%
(COST $4,987,689)
$ 5,000 Suntrust Bank, Inc.,
5.54%, 3/17/97..................... $ 4,987,689
BANKERS' ACCEPTANCES
-- YANKEE & EURO DOLLAR* -- 1.0%
18,000 Bank of Tokyo-Mitsubishi,
5.43%, 5/21/97..................... 17,780,085
5,000 Dai-Ichi Kangyo Bank Ltd.,
5.45%, 5/2/97...................... 4,953,070
5,000 Sanwa Bank Ltd.,
5.45%, 6/5/97...................... 4,927,333
TOTAL BANKERS' ACCEPTANCES --
YANKEE & EURO DOLLAR
(COST $27,660,488)............ 27,660,488
CERTIFICATES OF DEPOSIT -- 10.1%
25,000 Bank Brussels Lambert,
5.85%, 1/9/98...................... 25,000,000
25,000 Banque National de Paris,
5.86%, 1/23/98..................... 25,000,000
25,000 Bayerische Vereinsbank AG,
5.76%, 12/19/97.................... 25,000,000
Canadian Imperial Bank of Commerce:
25,000 5.70%, 1/2/98...................... 25,000,000
25,000 5.75%, 12/23/97.................... 25,000,000
25,000 5.85%, 2/27/98..................... 25,000,000
25,000 National Bank of Canada,
5.50%, 11/14/97.................... 25,000,000
Societe Generale:
25,000 5.70%, 12/16/97.................... 25,000,000
25,000 5.70%, 1/2/98...................... 25,000,000
25,000 5.80%, 1/9/98...................... 25,000,000
25,000 Societe Generale (New York),
5.66%, 2/23/98..................... 25,000,000
TOTAL CERTIFICATES OF DEPOSIT
(COST $275,000,000)........... 275,000,000
COMMERCIAL PAPER* -- 86.6%
BANK HOLDING COMPANIES -- 24.0%
15,000 Banca CRT Financial Corp.,
5.45%, 7/15/97..................... 14,691,167
25,000 BankAmerica Corp.,
5.40%, 8/13/97..................... 24,381,250
Bankers Trust New York Corp.:
25,000 5.48%, 10/20/97.................... 24,113,306
25,000 5.51%, 10/10/97.................... 24,146,715
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
BANK HOLDING COMPANIES -- CONTINUED
BHF Finance (De), Inc.:
$20,565 5.30%, 4/11/97..................... $ 20,440,867
30,000 5.35%, 4/16/97..................... 29,794,917
Chiao Tung Bank:
20,000 5.37%, 4/22/97..................... 19,844,867
20,000 5.40%, 4/3/97...................... 19,901,000
10,000 5.44%, 7/23/97..................... 9,782,400
50,000 Compagnie Bancaire USA
Finance Corp.,
5.42%, 7/21/97..................... 48,931,055
10,000 Deutsche Bank Financial Inc.,
5.46%, 5/1/97...................... 9,907,483
HSBC Americas, Inc.:
20,000 5.31%, 4/21/97..................... 19,849,550
50,000 5.38%, 3/14/97..................... 49,902,861
33,485 Indosuez N.A., Inc.,
5.40%, 4/9/97...................... 33,289,113
Industrial Bank Korea:
5,000 5.35%, 3/7/97...................... 4,995,542
25,000 5.37%, 4/24/97..................... 24,798,625
15,000 5.38%, 8/11/97..................... 14,634,608
10,000 5.40%, 4/18/97..................... 9,928,000
2,858 5.41%, 4/14/97..................... 2,839,102
Korea Development Bank:
20,600 5.31%, 5/13/97..................... 20,378,189
46,500 5.45%, 3/17/97..................... 46,387,367
10,000 Nordbanken N.A., Inc.,
5.40%, 6/23/97..................... 9,829,000
6,700 Societe Generale (Canada),
5.30%, 5/5/97...................... 6,635,885
Sumitomo Bank Capital
Markets, Inc.:
39,000 5.42%, 3/10/97..................... 38,947,155
25,000 5.45%, 3/4/97...................... 24,988,646
20,000 5.48%, 6/10/97..................... 19,692,511
Unifunding, Inc.:
11,800 5.31%, 5/12/97..................... 11,674,684
10,300 5.33%, 4/21/97..................... 10,222,227
50,000 5.39%, 7/2/97...................... 49,079,208
10,000 5.42%, 5/14/97..................... 9,888,589
653,895,889
CHEMICALS -- 2.5%
2,500 Burmah Castrol Finance PLC,
5.50%, 3/18/97..................... 2,493,507
7,300 Great Lakes Chemical Corp.,
5.34%, 3/21/97..................... 7,278,343
</TABLE>
3
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
CHEMICALS -- CONTINUED
<C> <S> <C>
Hercules, Inc.:
$15,500 5.30%, 3/24/97..................... $ 15,447,515
13,920 5.35%, 3/19/97..................... 13,882,764
4,200 Sherwin Williams Co.,
5.37%, 4/8/97...................... 4,176,193
WMX Technologies, Inc.:
14,613 5.37%, 3/25/97..................... 14,560,686
10,000 5.77%, 3/25/97..................... 9,961,533
67,800,541
DIVERSIFIED -- 8.8%
Daewoo International
(America) Corp.,
(LOC: Korean Development Bank):
10,000 5.35%, 5/27/97..................... 9,870,708
20,000 5.41%, 5/7/97...................... 19,798,628
15,000 Green Tree Financial Corp.,
5.42%, 3/10/97..................... 14,979,675
Mitsubishi International Corp.:
20,000 5.34%, 4/1/97...................... 19,908,033
10,000 5.35%, 3/12/97..................... 9,983,653
Mitsui & Co. (USA), Inc.:
15,000 5.30%, 3/7/97...................... 14,986,750
4,680 5.30%, 3/19/97..................... 4,667,598
19,760 5.55%, 3/17/97..................... 19,711,259
28,725 5.55%, 3/18/97..................... 28,649,716
Progress Funding Corp.,
(LOC: Fuji Bank Ltd.):
17,500 5.45%, 3/7/97...................... 17,484,104
10,000 5.47%, 4/11/97..................... 9,937,703
4,920 Rubbermaid, Inc.,
5.44%, 4/3/97...................... 4,895,466
Sumitomo Corp. of America:
16,000 5.32%, 3/11/97..................... 15,976,356
11,100 5.32%, 3/18/97..................... 11,072,114
16,000 5.36%, 3/24/97..................... 15,945,209
19,300 5.37%, 3/27/97..................... 19,225,148
237,092,120
ELECTRICAL POWER -- 0.6%
16,608 Fpl Fuels, Inc.,
(LOC: Sumitomo Bank),
5.35%, 3/20/97..................... 16,561,106
ELECTRONICS -- 4.0%
5,000 Avnet, Inc.,
5.33%, 3/18/97..................... 4,987,415
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ELECTRONICS -- CONTINUED
Hitachi Credit America Corp.:
$ 8,500 5.50%, 3/25/97..................... $ 8,468,833
9,000 5.50%, 3/27/97..................... 8,964,250
15,500 5.55%, 3/27/97..................... 15,437,871
10,000 5.55%, 3/31/97..................... 9,953,750
Orix America, Inc.,
(LOC: Sanwa Bank Ltd.):
25,000 5.43%, 3/17/97..................... 24,939,666
11,500 5.46%, 6/30/97..................... 11,288,956
13,700 Sharp Electronics Corp.,
5.32%, 3/14/97..................... 13,673,681
10,000 Toshiba America, Inc.,
5.35%, 4/1/97...................... 9,953,931
107,668,353
FINANCE -- 22.2%
12,423 Apex Funding Corp.,
(LOC: Bank of
Tokyo-Mitsubishi Ltd.),
5.57%, 3/31/97..................... 12,365,337
Aristar, Inc.:
8,700 5.32%, 4/3/97...................... 8,657,573
5,500 5.35%, 3/10/97..................... 5,492,644
19,279 Astro Capital Corp.,
5.40%, 3/31/97..................... 19,192,244
30,000 Atlas Funding Corp.,
(LOC: Dai-Ichi Kangyo Bank Ltd.),
5.41%, 3/31/97..................... 29,864,750
6,001 Barton Capital Corp.,
5.32%, 4/17/97..................... 5,959,320
Dynamic Funding Corp.,
(LOC: Fuji Bank Ltd.):
5,000 5.42%, 3/5/97...................... 4,996,989
56,311 5.42%, 4/2/97...................... 56,039,706
20,000 5.46%, 4/11/97..................... 19,875,633
17,200 5.60%, 3/12/97..................... 17,170,569
5,740 Enterprise Funding Corp.,
(LOC: NationsBank),
5.40%, 3/5/97...................... 5,736,556
15,159 Gotham Funding Corp.,
(LOC: Bank of
Tokyo-Mitsubishi Ltd.),
5.42%, 4/16/97..................... 15,054,015
20,600 Island Finance Puerto Rico, Inc.,
(LOC: Norwest Corp.),
5.43%, 3/14/97..................... 20,559,607
</TABLE>
4
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
FINANCE -- CONTINUED
<C> <S> <C>
Jet Funding Corp.:
$18,968 5.43%, 3/31/97..................... $ 18,882,170
8,317 5.47%, 4/30/97..................... 8,241,177
18,600 5.48%, 6/2/97...................... 18,336,686
12,435 5.50%, 3/31/97..................... 12,378,006
25,000 Lehman Brothers Holdings, Inc.,
5.53%, 3/26/97..................... 24,903,993
31,620 Market Street Funding Corp.,
5.30%, 3/27/97..................... 31,498,966
9,000 Oak Funding Corp.,
(LOC: Sumitomo Bank),
5.60%, 3/19/97..................... 8,974,800
Premium Funding, Inc.,
(LOC: Citibank):
13,067 5.30%, 4/3/97...................... 13,003,516
12,000 5.30%, 4/18/97..................... 11,915,200
21,900 Rembrandt International Co., Inc.,
5.35%, 3/14/97..................... 21,857,690
52,075 Sigma Finance Corp.,
(LOC: Deutsche Bank),
5.35%, 3/27/97..................... 51,873,788
7,000 Stanford University,
5.38%, 7/23/97..................... 6,849,360
11,054 Strait Capital Corp.,
(LOC: Sumitomo Bank),
5.42%, 3/31/97..................... 11,004,073
31,590 Tri-Lateral Capital (USA), Inc.,
(LOC: Industrial Bank of Japan
Ltd.),
5.40%, 4/1/97...................... 31,443,106
Twin Towers, Inc.,
(LOC: Deutsche Bank):
34,000 5.30%, 4/24/97..................... 33,729,700
14,716 5.30%, 7/31/97..................... 14,386,689
Wood Street Funding Corp.,
(LOC: PNC Bank):
7,886 5.32%, 4/7/97...................... 7,842,881
25,000 5.37%, 3/21/97..................... 24,925,417
25,000 Working Capital Management Corp.
II, (LOC: Industrial Bank of Japan
Ltd.),
5.45%, 4/4/97...................... 24,871,319
6,300 Yale University,
5.35%, 4/21/97..................... 6,252,251
604,135,731
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
FOOD & BEVERAGE -- 0.3%
$10,000 Cargill Financial Services Corp.,
5.40%, 10/10/97.................... $ 9,665,500
INSURANCE -- 2.6%
9,988 Allianz of America Finance Corp.,
5.39%, 4/10/97..................... 9,928,183
16,320 Equitable Life Assurance Society of
the U.S.,
5.32%, 3/10/97..................... 16,298,295
Equitable of Iowa:
5,000 5.34%, 4/2/97...................... 4,976,267
5,000 5.35%, 3/21/97..................... 4,985,139
13,100 5.35%, 4/8/97...................... 13,026,021
12,500 John Hancock Capital Corp.,
5.32%, 3/31/97..................... 12,444,583
10,000 Swiss RR Financial Prods. Corp.,
5.25%, 4/15/97..................... 9,934,375
71,592,863
LEASING -- 0.6%
JLUS Funding Corp.,
(LOC: Norinchukin Bank):
7,000 5.42%, 3/5/97...................... 6,995,784
8,252 5.45%, 4/28/97..................... 8,179,543
15,175,327
MACHINERY, EQUIPMENT &
AUTOS -- 7.4%
10,200 BTR Dunlop Finance, Inc.,
5.35%, 4/7/97...................... 10,143,914
General Motors Acceptance Corp.:
20,000 5.31%, 8/22/97..................... 19,486,700
25,000 5.32%, 8/18/97..................... 24,371,944
20,000 5.50%, 4/1/97...................... 19,905,278
25,000 5.50%, 5/16/97..................... 24,709,722
15,000 Hyundai Motor Finance Co.,
(LOC: Bank of America),
5.30%, 4/25/97..................... 14,878,542
Mitsubishi Motors Credit of
America, Inc., (LOC: The Bank of
Tokyo-Mitsubishi Ltd.):
21,000 5.36%, 4/25/97..................... 20,828,033
10,000 5.40%, 4/10/97..................... 9,940,000
20,000 5.45%, 4/17/97..................... 19,857,695
(LOC: Norinchukin Bank),
25,000 5.45%, 4/29/97..................... 24,776,701
</TABLE>
5
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
COMMERCIAL PAPER* -- CONTINUED
MACHINERY, EQUIPMENT &
AUTOS -- CONTINUED
<C> <S> <C>
Ryobi Finance Corp.,
(LOC: Sumitomo Bank):
$ 7,000 5.42%, 3/6/97...................... $ 6,994,730
5,730 5.42%, 3/18/97..................... 5,715,334
201,608,593
PHARMACEUTICALS & HEALTH
CARE -- 3.9%
AC Acquisition Holding CO.:
4,100 5.32%, 3/4/97...................... 4,098,182
20,000 5.32%, 3/27/97..................... 19,923,156
Holy Cross Health System Corp.:
58,200 5.34%, 4/7/97...................... 57,880,579
6,500 5.35%, 4/10/97..................... 6,461,361
8,743 Massachusetts College of Pharmacy
and Allied Health Services,
5.40%, 4/1/97...................... 8,702,345
10,000 Metrocrest Hospital Authority,
(LOC: Bank of New York),
5.41%, 3/3/97...................... 9,996,997
107,062,620
REAL ESTATE -- 4.5%
Copley Financing Corp.,
(Aetna Surety Bond):
3,500 5.28%, 4/3/97...................... 3,483,060
6,656 5.30%, 3/21/97..................... 6,636,402
21,000 Mec Finance USA, Inc.,
5.38%, 3/5/97...................... 20,987,447
PHH Corp.:
20,300 5.28%, 3/18/97..................... 20,249,385
41,535 5.30%, 3/19/97..................... 41,424,932
28,500 5.32%, 3/6/97...................... 28,478,942
121,260,168
RETAIL -- 0.3%
8,100 Southland Corp.,
5.30%, 4/14/97..................... 8,047,530
TELECOMMUNICATIONS -- 0.3%
7,820 Frontier Corp.,
5.34%, 4/18/97..................... 7,764,322
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
TEXTILES & APPAREL -- 3.0%
$20,000 B.I. Funding, Inc.,
5.30%, 4/30/97..................... $ 19,823,334
Calcot Ltd.:
4,000 5.38%, 4/18/97..................... 3,971,307
5,000 5.40%, 3/5/97...................... 4,997,000
5,000 5.40%, 3/7/97...................... 4,995,500
5,000 5.40%, 3/11/97..................... 4,992,500
8,000 5.40%, 3/21/97..................... 7,976,000
8,000 5.40%, 3/27/97..................... 7,968,800
5,000 5.40%, 4/9/97...................... 4,970,750
5,000 5.40%, 4/17/97..................... 4,964,750
5,000 5.40%, 5/6/97...................... 4,950,500
4,000 5.42%, 5/9/97...................... 3,958,447
8,000 5.42%, 5/13/97..................... 7,912,075
81,480,963
TRANSPORTATION -- 1.6%
9,000 Harper Group, Inc. (The),
5.37%, 3/10/97..................... 8,987,917
Norfolk Southern Corp.:
6,850 5.27%, 4/24/97..................... 6,795,851
18,600 5.32%, 4/24/97..................... 18,451,572
10,000 Yamaha Motor Finance Corp. USA,
(LOC: Dai-Ichi Kangyo Bank Ltd.),
5.38%, 3/6/97...................... 9,992,528
44,227,868
TOTAL COMMERCIAL PAPER
(COST $2,355,039,494)......... 2,355,039,494
CORPORATE NOTES -- 2.0%
4,000 Federal Home Loan Bank,
5.35%, 3/14/97..................... 4,000,000
25,000 Federal National Mortgage
Association,
5.245%, 4/11/97, (VR).............. 24,998,783
25,000 Student Loan Marketing Association,
5.76%, 1/14/98..................... 25,000,000
TOTAL CORPORATE NOTES
(COST $53,998,783)............ 53,998,783
</TABLE>
6
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
TAXABLE MUNICIPALS -- 0.2%
(COST $6,000,000)
$ 6,000 Brittany Acres,
5.875%, 4/1/97..................... $ 6,000,000
<CAPTION>
SHARES
(000)
<C> <S> <C>
MUTUAL FUND SHARES -- 0.0%
(COST $53,419)
53 Federated Prime Value Obligation
Fund............................... 53,419
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $2,722,739,873) 100.1% 2,722,739,873
NET OTHER ASSETS AND
LIABILITIES --........ (0.1) (1,720,515)
NET ASSETS --............ 100.0% $2,721,019,358
</TABLE>
Summary of Abbreviations:
LOC -- Letter of Credit
VR -- Variable-rate issue. Rate shown is the rate in effect at February 28,
1997.
* -- These securities held by the Fund at February 28, 1997 are traded on a
discount basis; the interest rate shown is the discount rate to be earned
at the time of purchase by the Fund.
See accompanying notes to financial statements.
7
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (cost $2,722,739,873).................................................................. $2,722,739,873
Cash........................................................................................................ 99,255
Receivable for Fund shares sold............................................................................. 5,181,649
Interest receivable......................................................................................... 2,493,496
Prepaid expenses and other assets........................................................................... 126,825
Total assets.......................................................................................... 2,730,641,098
LIABILITIES:
Dividends payable........................................................................................... 6,410,848
Payable for Fund shares redeemed............................................................................ 1,058,365
Distribution fee payable.................................................................................... 935,913
Accrued advisory fee........................................................................................ 767,763
Accrued expenses............................................................................................ 448,851
Total liabilities..................................................................................... 9,621,740
NET ASSETS..................................................................................................... $2,721,019,358
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $2,721,622,178
Accumulated net realized loss on investment transactions.................................................... (602,820)
Net assets............................................................................................ $2,721,019,358
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($1,916,360,422)(1,916,403,945 shares of beneficial interest outstanding)..................... $ 1.00
Class B Shares ($11,333,510)(11,333,722 shares of beneficial interest outstanding)........................... $ 1.00
Class Y Shares ($793,325,426)(793,880,420 shares of beneficial interest outstanding)......................... $ 1.00
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................................... $71,580,270
EXPENSES:
Advisory fee.................................................................................. $ 6,061,353
Distribution fee -- Class A Shares............................................................ 2,698,374
Distribution fee -- Class B Shares............................................................ 39,539
Shareholder services fee -- Class B Shares.................................................... 13,180
Transfer agent fee............................................................................ 294,153
Custodian fee................................................................................. 261,156
Registration and filing fees.................................................................. 117,104
Reports and notices to shareholders........................................................... 110,915
Professional fees............................................................................. 20,465
Trustees' fees and expenses................................................................... 16,820
Insurance..................................................................................... 11,362
Other......................................................................................... 8,149
9,652,570
Less advisory fee waiver...................................................................... (1,255,415)
Net expenses............................................................................ 8,397,155
Net investment income............................................................................ 63,183,115
Net realized loss on investments................................................................. (51,967)
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS................................................. $63,131,148
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN MONEY MARKET FUND
(Photo of currency)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1997 AUGUST 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 63,183,115 $ 85,949,891
Net realized loss on investment transactions......................................... (51,967) (26,141)
Net increase in net assets resulting from operations.............................. 63,131,148 85,923,750
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares....................................................................... (43,236,799) (63,327,347)
Class B Shares....................................................................... (215,992) (382,116)
Class Y Shares....................................................................... (19,730,324) (22,240,428)
Total distributions to shareholders from net investment income.................... (63,183,115) (85,949,891)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................ 4,338,016,279 6,275,701,649
Proceeds from shares issued from acquisition of FFB Cash Management Fund............. -- 592,358,361
Proceeds from shares issued from acquisition of FFB Lexicon Cash Management Fund..... -- 95,834,929
Proceeds from reinvestment of distributions.......................................... 19,150,157 28,242,023
Payments for shares redeemed......................................................... (4,072,764,478) (5,531,191,681)
Net increase resulting from Fund share transactions............................... 284,401,958 1,460,945,281
Net increase in net assets........................................................ 284,349,991 1,460,919,140
NET ASSETS:
Beginning of period.................................................................. 2,436,669,367 975,750,227
End of period........................................................................ $2,721,019,358 $ 2,436,669,367
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN MONEY MARKET FUND -- CLASS A AND B SHARES
(Photo of currency)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS JANUARY 4, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 28, YEAR ENDED THROUGH FEBRUARY 28, YEAR ENDED
1997 AUGUST 31, AUGUST 31, 1997 AUGUST 31,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................ $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income............................... 0.02 0.05 0.03 0.02 0.04
Less distributions to shareholders from net
investment income................................. (0.02) (0.05) (0.03) (0.02) (0.04)
Net asset value, end of period...................... $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+....................................... 2.4% 5.0% 3.5% 2.1% 4.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $1,916,360 $1,755,267 $685,155 $11,334 $10,218
Ratios to average net assets:
Expenses**........................................ 0.74%++ 0.75% 0.81%++ 1.44%++ 1.45%
Net investment income**........................... 4.81%++ 4.86% 5.26%++ 4.10%++ 4.18%
<CAPTION>
JANUARY 26,
1995*
THROUGH
AUGUST 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................ $1.00
Net investment income............................... 0.03
Less distributions to shareholders from net
investment income................................. (0.03)
Net asset value, end of period...................... $1.00
TOTAL RETURN+....................................... 2.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $7,927
Ratios to average net assets:
Expenses**........................................ 1.51%++
Net investment income**........................... 4.54%++
</TABLE>
+ Total return is calculated on net asset value for the periods indicated and
is not annualized. Contingent deferred sales charge is not reflected.
++ Annualized.
* Commencement of class operations.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS JANUARY 4, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 28, YEAR ENDED THROUGH FEBRUARY 28, YEAR ENDED
1997 AUGUST 31, AUGUST 31, 1997 AUGUST 31,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
Expenses.............................................. 0.83%++ 0.89% 1.02%++ 1.53%++ 1.59%
Net investment income................................. 4.71%++ 4.72% 5.05%++ 4.00%++ 4.04%
<CAPTION>
JANUARY 26,
1995*
THROUGH
AUGUST 31,
1995
<S> <C>
Expenses.............................................. 2.39%++
Net investment income................................. 3.66%++
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN MONEY MARKET FUND -- CLASS Y SHARES
(Photo of currency)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED TEN MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST ENDED OCTOBER
1997 31, AUGUST 31, 31,
(UNAUDITED) 1996 1995 1994# 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income.................................. 0.03 0.05 0.05 0.03 0.03
Less distributions to shareholders from net investment
income............................................... (0.03) (0.05) (0.05) (0.03) (0.03)
Net asset value, end of period......................... $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+.......................................... 2.6% 5.3% 5.4% 2.9% 3.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............. $793,325 $671,185 $282,668 $273,115 $299,418
Ratios to average net assets:
Expenses**........................................... 0.44%++ 0.45% 0.53% 0.32%++ 0.39%
Net investment income**.............................. 5.10%++ 5.16% 5.26% 3.46%++ 3.19%
<CAPTION>
YEAR ENDED
OCTOBER 31,
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................... $1.00
Net investment income.................................. 0.04
Less distributions to shareholders from net investment
income............................................... (0.04)
Net asset value, end of period......................... $1.00
TOTAL RETURN+.......................................... 4.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............. $357,917
Ratios to average net assets:
Expenses**........................................... 0.36%
Net investment income**.............................. 4.18%
</TABLE>
# The Fund changed its fiscal year end from October 31 to August 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED TEN MONTHS ENDED
FEBRUARY 28, YEAR ENDED ENDED OCTOBER
1997 AUGUST 31, AUGUST 31, 31,
(UNAUDITED) 1996 1995 1994# 1993
<S> <C> <C> <C> <C> <C>
Expenses............................................................ 0.53%++ 0.59% 0.73% 0.71%++ 0.71%
Net investment income............................................... 5.00%++ 5.02% 5.06% 3.07%++ 2.87%
<CAPTION>
YEAR ENDED
OCTOBER 31,
1992
<S> <C>
Expenses............................................................ 0.72%
Net investment income............................................... 3.82%
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
A REPORT FROM YOUR
PORTFOLIO MANAGER
DIANE BEAVER
We are pleased to present the Semiannual Report for Evergreen
Pennsylvania Tax-Free Money Market Fund for the six-month period
ended February 28, 1997. The Fund's total return (Class Y,
no-load shares) for the six-month period was 1.54%* as compared
with 1.52% for the average of the 15 Pennsylvania Tax-Free Money [Photo]
Market funds tracked by Lipper Analytical Services** during that
time. The six-month total return at net asset value for the
Fund's Class A shares was 1.49%*. At February 28, the seven-day
current, effective and tax-equivalent yields*** were 3.03%,
3.08% and 4.95%, respectively for the Fund's Class Y shares and
2.88%, 2.93% and 4.71%, respectively, for the Fund's Class A
shares.
As the fourth quarter of 1996 progressed, talk of a
Fed-induced rate hike circulated but never transpired, in part due to economic
data that supported a low inflation environment. Although the Federal Reserve
Board has neither raised nor lowered interest rates in well over a year, Fed
Chairman, Alan Greenspan, has twice shaken the financial markets with his
comments. In December, Mr. Greenspan expressed his concern that "irrational
exuberance" may have driven the stock markets to overpriced levels. The
financial markets were again jolted in February when Greenspan suggested raising
interest rates as a "pre-emptive strike" against inflation. In both instances,
interest rates rose. Despite the rhetoric, the Federal Reserve Board had not
interfered with interest rates, economic indicators portray a healthy economy
promoting strong corporate earnings growth with little inflationary pressure.
The seasonal back-up in interest rates, which usually occurs in December as a
result of year-end redemptions, never materialized. Likewise, the "January
effect" of large cash inflows such as coupon payments and maturities, which
causes rates to decline, did not occur. Although strategic adjustments in
maturity and asset allocation are more of a challenge in a state-specific fund
due to lack of supply and liquidity, the Fund will continue to look for yield
opportunities such as those found in smaller instruments where yield can be
enhanced. At February 28, the Fund's weighted average maturity was 54 days and
total net assets stood at $73.2 million.
Thank you for your investment in the Evergreen Pennsylvania Tax-Free Money
Market Fund.
FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAIN DISTRIBUTIONS, IF ANY.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE
A PORTION OF ITS ADVISORY FEE AND ABSORB A PORTION OF THE FUND'S OTHER
EXPENSES. HAD FEE NOT BEEN WAIVED OR EXPENSES ABSORBED, PERFORMANCE AND
YIELDS WOULD HAVE BEEN LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF
ITS AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES.
DURING THE PERIOD UNDER REVIEW, SUCH PAYMENTS TOTALLED .09 OF 1% OF THE
FUND'S DAILY NET ASSETS OF ITS CLASS A SHARES.
** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE
DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER AND
THE FUND'S RANKINGS MAY BE DIFFERENT.
*** TAX-EQUIVALENT YIELDS ASSUME A 36% FEDERAL TAX BRACKET AND A 2.8%
PENNSYLVANIA STATE TAX BRACKET. TAX-EQUIVALENT YIELDS WOULD BE LOWER FOR
INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX
BRACKETS. SOME INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX
FOR CERTAIN INVESTORS.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
13
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
(Photo of building)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 100.6%
PENNSYLVANIA -- 99.4%
$ 1,500 Allegheny Cnty. Higher Ed.
Bldg. Auth. RB, Allegheny
Cnty. Cmnty. College,
Prerefunded @ 100, (Ins. by
MBIA),
6.65%, 11/1/97........................ $ 1,529,905
1,000 Allegheny Cnty. Hosp. Dev.
Auth. RB Allegheny Gen. Hosp.,
Ser. 1995B, (LOC: Morgan Gty. Tr.
Co. of NY),
3.30%, VRDN........................... 1,000,000
1,200 Allegheny Health Ed. & Resh.
Corp., Ser. A-ACES, (LOC: PNC
Bk., Pittsburgh),
3.30%, VRDN........................... 1,200,000
1,100 Allegheny Health Ed. & Resh.
Corp., Ser. C-ACES, (LOC: PNC
Bk., Pittsburgh),
3.30%, VRDN........................... 1,100,000
Allegheny Cnty. IDA Envir.
RRB, US Steel Corp., TECP,
(LOC: The Long-Term Cr. Bk.
of Japan):
1,500 3.35%, 3/5/97......................... 1,500,000
1,300 3.35%, 3/11/97........................ 1,300,000
2,000 3.40%, 4/8/97......................... 2,000,000
300 Beaver Cnty. IDA-PCRR
Duquesne Light Co., Beaver
Vly., Ser. A, (LOC: Barclays
Bk. PLC),
3.25%, VRDN........................... 300,000
500 Berks Cnty. Muni. Auth. RB,
Pooled Fin. Prog.,
Prerefunded @100,
7.00%, 9/1/97......................... 508,344
240 Big Spring School Dist.
Cumberland Cnty. GO Bds.,
Ser. 1992, (Ins. by FGIC),
4.35%, 3/1/97......................... 240,000
250 Brandywine Heights Area Dist.
GO Bds., (Ins. by MBIA),
4.40%, 4/1/97......................... 250,044
1,000 Bucks Cnty. IDA Environmental
Impt., RB, USX Corp., ARB,
(LOC: Wachovia Bk. N.C.),
3.65%, 3/3/97......................... 1,000,000
100 Bucks Cnty. IDA-RRB, SHV Real
Estate, Inc., Ser. 1984, (LOC:
ABN-AMRO Bk.),
3.25%, VRDN........................... 100,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PENNSYLVANIA -- CONTINUED
$ 1,000 Cnty. of Chester Hlth. & Ed.
Fac. Auth. RB, Barclays
Friends, Ser. A, (LOC: Bk. of
Ireland),
3.30%, VRDN........................... $ 1,000,000
435 Coudersport School Dist. GO
Bds., Ins. by FSA,
3.75%, 9/1/97......................... 435,000
Delaware Cnty. IDA Solid Waste
RB, Scott Paper Co., 1984,
3.30%, VRDN:
700 Ser. C................................ 700,000
400 Ser. D................................ 400,000
1,000 Delaware Cnty. IDA-PCRR,
Philadelphia Electric Co.,
Ser. 1988B -- TECP, (SPA: FGIC),
3.40%, 4/7/97......................... 1,000,000
Delaware Vly. Regl. Fin. Auth.
Local Govt. RB:
1,000 Ser. 1985A, (LOC: Midland Bk.
PLC),
3.40%, VRDN........................... 1,000,000
250 Ser. 1986A, (Ins. by AMBAC),
3.80%, 4/15/97........................ 250,000
500 Downingtown Area School Dist.
GO Bds., Ser. 1986A,
4.00%, 3/1/97......................... 500,000
445 East Hempfield Township GO
Bds., (Ins. by AMBAC),
4.25%, 11/1/97........................ 446,322
Emmaus Gen. Auth. Local Govt.
RB Ser. 1989, Bd. Pool Pgm., VRDN:
4,300 Subsrs. B-12, (LOC: Midland
Bk. PLC),
3.40%............................... 4,300,000
2,000 Subsrs. C-8, (LOC: Midland Bk.
PLC),
3.40%............................... 2,000,000
1,400 Subsrs. D-11, (LOC: Midland
Bk. PLC),
3.40%............................... 1,400,000
400 Subsrs. E-8, (LOC: Canadian
Imperial Bk. of Commerce),
3.35%............................... 400,000
425 Subsrs. E-9, (LOC: Midland Bk.
PLC),
3.40%............................... 425,000
</TABLE>
14
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
<C> <S> <C>
Emmaus Gen. Auth. Local Govt.
RB Ser. 1989, Bd. Pool Pgm.,
VRDN:
$ 2,000 Subsrs. F-5, (LOC: Midland Bk.
PLC),
3.40%................................. $ 2,000,000
300 Geisinger Auth. Health Sys.
RB, Montour Cnty., Ser. B,
7.10%, 7/1/97......................... 302,920
400 Health Care Facs. Auth. of
Sayre RB, VHA of PA, Inc.,
Capital Asset Fin. Prog., Ser. A,
(SPA: Mellon Bk. PLC),
3.30%, VRDN........................... 400,000
475 Lancaster Higher Ed. Auth.
College RB, Franklin &
Marshall College, Ser. 1995,
3.45%, VRDN........................... 475,000
500 Lancaster School Dist. GO
Bds., (Ins. by FGIC),
4.00%, 2/15/98........................ 500,650
200 Lehigh Cnty. IDA-PCRB, Ser.
1985A, (LOC: Rabobank Nederland),
3.25%, VRDN........................... 200,000
470 Lehigh Cnty. Auth. Wtr. RB,
Ser. 1984, (SPA: ABN-Amro Bk.),
3.25%, VRDN........................... 470,000
200 Mars Area School Dist. GO
Bds., Ser. C, (Ins. by FGIC),
4.30%, 3/1/97......................... 200,000
660 Montgomery Cnty. GO Bds., Ser. A,
4.00%, 7/15/97........................ 660,419
Montgomery Cnty. IDA-PCRR,
PECO Energy Co., Ser. 1994A --
TECP, (LOC: Deutsche Bk. AG, NY):
2,000 3.30%, 4/7/97......................... 2,000,000
1,000 3.50%, 3/5/97......................... 1,000,000
2,000 New Castle Area Hosp. Auth.
RB, Jameson Mem. Hosp., (SPA:
PNC Bk.),
3.30%, VRDN........................... 2,000,000
1,000 North Penn Water Auth. RB,
Prerefunded @ 102, (Ins. by FGIC),
6.90%, 11/1/97........................ 1,035,738
1,000 Northeastern Hosp. & Ed. Auth.
Rev., Health Care Rev. Wyoming
Vly., Ser. A, (LOC: Industrial
Bk. of Japan Ltd., NY),
3.25%, VRDN........................... 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PENNSYLVANIA -- CONTINUED
$ 2,800 Northeastern Pwr. Co., Ser. 1985,
(LOC: Sumitomo Bk., Ltd.),
3.50%, 3/3/97......................... $ 2,800,000
500 Penn Manor School Dist. GO
Bds., Series A, (Ins. by FGIC),
5.50%, 6/1/97......................... 501,838
1,000 Pennsylvania Higher Ed. Fac.
Auth. RB:
Allegheny Delaware Vly., Ser. D,
(LOC: PNC),
3.35%, VRDN........................... 1,000,000
2,300 Carnegie Mellon Univ., Ser. B,
(SPA: Union Bk. of Switzerland
& Morgan Gty.),
3.45%, VRDN........................... 2,300,000
2,000 Allegheny College, (LOC:
Mellon Bk. PLC),
3.35%, VRDN........................... 2,000,000
565 LaSalle Univ., Ser. 1996, (Ins.
by MBIA),
4.00%, 5/1/97......................... 565,273
2,000 The Univ. of Pennsylvania
Health Svs., (SPA: Credit
Suisse, NY),
3.20%, VRDN........................... 2,000,000
500 The Univ. of Pennsylvania
Health Svs., Ser. 1994B-ACES,
3.20%, VRDN........................... 500,000
2,900 Pennsylvania TRANS,
4.50%, 6/30/97........................ 2,908,307
2,000 Pennsylvania State Ser. 1997A,
3.30%, 4/22/97........................ 2,000,000
1,500 Philadelphia Gas Wks. RB, Ser.10,
(Ins. by BIG),
6.90%, 7/1/97......................... 1,516,308
3,000 Philadelphia Hosp. & Higher
Ed. Facs. Auth. RB, Children's
Hosp. of Philadelphia, Ser. B,
(SPA: Morgan Guaranty),
3.45%, VRDN........................... 3,000,000
700 Philadelphia Municipal Auth.
Municipal Svs. Building Lease
Rental Bds., Ser. 1990, (Ins.
by FSA),
6.80%, 3/15/97........................ 700,798
3,500 Philadelphia TRANS, Ser. A,
4.50%, 6/30/97........................ 3,506,130
500 Pittsburgh School Dist. GO
Bds., Ser. C, (Ins. by FGIC),
5.50%, 8/1/97......................... 503,254
</TABLE>
15
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
<C> <S> <C>
$ 665 Pottstown Borough Auth. Swr.
RB, (Ins. by AMBAC),
4.00% 11/1/97......................... $ 666,500
400 Presbyterian Univ. Hosp.,
Ser. 1988B3-ACES, (LOC: PNC Bk.,
Pittsburgh),
3.35%, VRDN........................... 400,000
5 Presbyterian Univ. Hosp., Ser.
B2-ACES, (LOC: PNC Bk.,
Pittsburgh),
3.35%, VRDN........................... 5,000
4,200 Schuylkill Cnty. IDA Res.
Recovery RB
Gilberton Pwr., (LOC: Mellon
Bk. PLC),
3.35%, VRDN........................... 4,200,000
2,000 The Toledo Edison Co.
Mansfield, Ser. 1992E-TECP,
(LOC: Toronto Dominion Bk.),
3.70%, 12/4/97........................ 2,000,000
1,000 University Pittsburgh Higher
Ed. RB, Univ. Capital., Ser. A
Prerefunded @ 102,
8.375%, 6/1/97........................ 1,031,708
160 Upper Merion Township GO Bds.,
3.80%, 11/1/97........................ 160,000
72,794,458
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PUERTO RICO -- 1.2%
$ 875 Puerto Rico Indl., Med. &
Environmental Pollution
Control Facs. Fin. Auth. RB,
Merck & Co., Inc.,
Ser. 1983A-ARB,
4.00%, 12/1/97........................ $ 875,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(COST $73,669,458).................. 73,669,458
</TABLE>
<TABLE>
<C> <S> <C> <C>
SHARES
(000)
MUTUAL FUND SHARES -- 0.1%
(COST $100,000)
100 Federated Pennsylvania
Municipal Cash Trust........... 100,000
TOTAL INVESTMENTS --
(COST $73,769,458)........... 100.7% 73,769,458
OTHER ASSETS AND
LIABILITIES -- (NET)......... (0.7) (523,462)
NET ASSETS --.................. 100.0% $73,245,996
</TABLE>
16
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
Summary of Abbreviations:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corp.
ARB -- Adjustable Rate Bonds
COP -- Certificates of Participation
EDA -- Economic Development Authority
EDRB -- Economic Development Revenue Bond
FGIC -- Financial Guaranty Insurance Co.
FSA -- Financial Security Assurance Inc.
GO -- General Obligations
IDA -- Industrial Development Authority
LIQ -- Liquidity Provider
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
MFHR -- Multifamily Housing Revenue
MHRB -- Multifamily Housing Revenue Bond
PCRB -- Pollution Control Revenue Bond
PCRR -- Pollution Control Revenue Refunding Bonds
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
SPA -- Securities Purchase Agreement
TECP -- Tax Exempt Commercial Paper
TRANS -- Tax Revenue Anticipation Notes
Adjustable Rate Bonds are putable back to the issuer or other
parties not affiliated with the issuer at par on the interest reset
dates. Interest rates are determined and set by the issuer
quarterly, semi-annually or annually depending upon the terms of the
security. Interest rates presented for these securities are those in
effect at February 28, 1997. These securities represent 3% of
total investments at February 28, 1997.
Variable Rate Demand Notes are payable on demand on no more
than seven calendar days notice given by the Fund to the issuer or
other parties not affiliated with the issuer. Interest rates are
determined and reset by the issuer daily, weekly or monthly
depending upon the terms of the security. Interest rates
presented for these securities are those in effect at February 28,
1997. These securities represent 54% of total investments at
February 28, 1996.
Certain obligations held in the portfolio have credit
enhancements or liquidity features that may, under certain
circumstances, provide for repayment of principal and interest on the
obligation upon demand date, interest rate reset date or final
maturity. These enhancements include: letters of credit; liquidity
guarantees; standby bond purchase agreements; tender option
purchase agreements; and third party insurance (i.e. AMBAC,
FGIC and MBIA). Adjustable rate bonds and variable rate
demand notes held in the portfolio may be considered derivative
securities within the standards imposed by the Securities and
Exchange Commission under Rule 2a-7 which were designed to
minimize both credit and market risk.
** Rule 144A security which are restricted in resale to qualified
institutions and are considered liquid.
See accompanying notes to financial statements.
17
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (amortized cost $73,769,458)............... $73,769,458
Cash............................................................ 1,543
Interest receivable............................................ 511,583
Receivable for Fund shares sold................................. 75,000
Prepaid expenses................................................ 9,902
Total assets.............................................. 74,367,486
LIABILITIES:
Payable for investment securities purchased..................... 947,345
Dividends payable............................................... 87,431
Accrued advisory fee............................................ 15,228
Distribution fee payable........................................ 8,297
Accrued expenses................................................ 63,189
Total liabilities......................................... 1,121,490
NET ASSETS......................................................... $73,245,996
NET ASSETS CONSIST OF:
Paid-in capital................................................. $73,256,123
Undistributed net investment income............................. 90
Accumulated net realized loss on investment transactions........ (10,217)
Net assets................................................ $73,245,996
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($34,138,308)(34,139,945 shares of beneficial
interest outstanding)....................................... $ 1.00
Class Y Shares ($39,107,688)(39,116,178 shares of beneficial
interest outstanding)....................................... $ 1.00
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
(Photo of building)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $1,268,443
EXPENSES:
Advisory fee.......................................... $141,458
Distribution fee -- Class A Shares.................... 41,509
Custodian fee......................................... 24,518
Administration fee.................................... 15,535
Professional fees..................................... 15,182
Transfer agent fee.................................... 14,224
Reports and notices to shareholders................... 6,668
Registration and filing fees.......................... 5,993
Insurance............................................. 5,705
Trustees' fees and expenses........................... 1,180
Other................................................. 796
272,768
Less advisory and distribution fee waivers............ (83,065)
Net expenses.................................... 189,703
Net investment income.................................... 1,078,740
Net realized loss on investments......................... --
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $1,078,740
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
FEBRUARY 28, ENDED
1997 AUGUST 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income...................................................................... . $ 1,078,740 $ 1,091,227
Net realized loss on investment transactions................................................ -- (378)
Net increase in net assets resulting from operations..................................... 1,078,740 1,090,849
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.............................................................................. (414,887) (242,309)
Class Y Shares.............................................................................. (667,563) (848,918)
Total distributions to shareholders...................................................... (1,082,450) (1,091,227)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 71,827,918 61,460,030
Proceeds from reinvestment of distributions................................................. 540,006 621,908
Payments for shares redeemed................................................................ (69,633,636) (79,296,671)
Net increase (decrease) resulting from Fund share transactions........................... 2,734,288 (17,214,733)
Net increase (decrease) in net assets.................................................... 2,730,578 (17,215,111)
NET ASSETS:
Beginning of period......................................................................... 70,515,418 87,730,529
End of period (including undistributed net investment income of $90 and $3,800 at February
28, 1997 and August 31, 1996, respectively)............................................... $ 73,245,996 $ 70,515,418
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
EVERGREEN PENNSYLVANIA TAX-FREE
(Photo of building) MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
SIX MONTHS MARCH 1, AUGUST 22, SIX MONTHS MARCH 1,
ENDED 1996 1995* ENDED 1996
FEBRUARY 28, THROUGH THROUGH FEBRUARY 28, THROUGH YEAR ENDED
1997 AUGUST 31, FEBRUARY 29, 1997 AUGUST 31, FEBRUARY 29, FEBRUARY 28,
(UNAUDITED) 1996# 1996 (UNAUDITED) 1996# 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment
income................. 0.01 0.01 0.02 0.02 0.01 0.03 0.03
Less distributions to
shareholders from net
investment income...... (0.01) (0.01) (0.02) (0.02) (0.01) (0.03) (0.03)
Net asset value, end of
period................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+............ 1.5% 1.5% 1.7% 1.5% 1.5% 3.5% 2.8%
RATIOS & SUPPLEMENTAL
DATA:
Net assets, end of period
(000's omitted)........ $34,138 $22,196 $4,333 $39,108 $48,319 $83,398 $43,539
Ratios to average net
assets:
Expenses**............. 0.59%++ 0.55%++ 0.47%++ 0.50%++ 0.50%++ 0.37% 0.33%
Net investment
income**............... 2.99%++ 2.97%++ 3.14%++ 3.09%++ 2.92%++ 3.42% 3.09%
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1994 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period.... $1.00 $1.00
Net investment
income................. 0.02 0.03
Less distributions to
shareholders from net
investment income...... (0.02) (0.03)
Net asset value, end of
period................. $1.00 $1.00
TOTAL RETURN+............ 2.1% 2.7%
RATIOS & SUPPLEMENTAL
DATA:
Net assets, end of period
(000's omitted)........ $14,383 $15,999
Ratios to average net
assets:
Expenses**............. 0.47% 0.35%
Net investment
income**............... 2.10% 2.62%
</TABLE>
# The Fund changed its fiscal year end from February 28 to August 31.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
* Commencement of class operations.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the adviser, the annualized ratios of
expenses and net investment income to average net assets would have been the
following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
SIX MONTHS MARCH 1, AUGUST 22, SIX MONTHS MARCH 1,
ENDED 1996 1995* ENDED 1996
FEBRUARY 28, THROUGH THROUGH FEBRUARY 28, THROUGH YEAR ENDED
1997 AUGUST 31, FEBRUARY 29, 1997 AUGUST 31, FEBRUARY 29, FEBRUARY 28,
(UNAUDITED) 1996# 1996 (UNAUDITED) 1996# 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses................. 0.95%++ 0.96%++ 1.08%++ 0.65%++ 0.66%++ 0.73% 1.05%
Net investment income.... 2.63%++ 2.56%++ 2.53%++ 2.94%++ 2.76%++ 3.06% 2.37%
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1994 1993
<S> <C> <C>
Expenses................. 1.26% 1.07%
Net investment income.... 1.31% 1.90%
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
We are pleased to present the Evergreen Tax Exempt Money
Market Fund Semiannual Report. Despite the presidential election
last November, the Federal Reserve and Chairman, Alan Greenspan
commanded the spotlight for fixed income markets. At the end of
the period under review, the Fed did not raise short-term
interest rates, thereby, in the view of some participants, [Photo]
gambling that the economy would slow. Since much of the economic
data released during the six-month period supported a consumer
pullback, the debt markets enjoyed a rally and the stock market
roared to new highs. Just as the economic, fiscal and political
scenario and financial market backdrop couldn't look better,
some statements made by Fed Chairman Alan Greenspan in a speech
in December prompted the market to re-think the gamble. Traders
and investors had fully priced in continued non-inflationary slow
growth without a glimmer of a risk premium and the phrase
"irrational exuberance" caught their attention. This added some
uncertainty and volatility into the market through the end of February.
Despite the mixed news on the strength of the economy, the municipal market
generally experienced strong demand, perhaps because of the absence of tax
reform and credit scares. Retail investors', insurance companies' and mutual
funds' preference to buy and hold securities through 1996 also contributed to
stability in municipal markets.
We began the six-month period with an aggressive approach to the market,
allowing the Fund's weighted average portfolio maturity to fluctuate in the
55-day to 60-day range. The strategy was based on a technical weakness in the
market due to supply combined with our belief that the Federal Board was not
going to tighten monetary policy. We purchased short-term bonds and municipal
notes as well as tax exempt commercial paper. At the close of the period,
economic statistics started to indicate that the economy was indeed growing and
concerns that the Federal Reserve Board may begin to tighten monetary policy
began to creep into the market. We changed our strategy to a neutral one,
allowing the Fund's weighted average maturity to decline to the 40-day range.
As of February 28, over 60% of the Fund's net assets were invested in tax
exempt variable rate demand notes. These short-term securities pay interest at
current market levels and return their entire face value when redeemed, which
helps afford the Fund a great deal of liquidity and price stability.
In the coming months, we will maintain a neutral approach to the market while
positioning the Fund for the upcoming period of supply imbalances in the
short-term municipal market. We anticipate taking advantage of attractively
priced short-term municipal notes as opportunities become available. Diversity
and credit quality are paramount to the Fund, and we will seek to offer an
attractive tax exempt yield to our shareholders.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES. SOME INCOME MAY BE
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
22
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 100.2%
ALABAMA -- 1.5%
Alabama IDA-IDRB,
$ 2,290 Air-Dro Cylinders, Inc., (LOC:
Southtrust Bk. of Alabama, N.A.),
3.79%, VRDN........................ $ 2,290,000
3,590 Automation Technologies Ind., Inc.,
(LOC: Columbus Bk. & Tr. Co.),
3.70%, VRDN........................ 3,590,000
Coml. Dev. Auth. of the City
of Birmingham RB,
3.60%, VRDN:
1,140 Avondale Comm. Park,
Phase II,
(LOC: Amsouth Bk., N.A.)......... 1,140,000
665 Southside Business Ctr.,
(LOC: Amsouth Bk., N.A).......... 665,000
1,100 IDB of the City of Livingston
IDRB, Toin Corp. U.S.A., Ser.
1987, (LOC: Indl. Bk. of Japan,
Ltd. NY),
3.75%, VRDN........................ 1,100,000
3,235 IDB of Mobile Cnty. RB,
Sherman Intl. Corp., Ser.
1994A, (LOC: Columbus Bk. & Tr.
Co.),
3.70%, VRDN........................ 3,235,000
2,140 IDB of the City of Pell IDRB,
Reh Kinder/Gorbel, (LOC: Key
Bk. of NY),
3.60%, VRDN........................ 2,140,000
3,000 IDB of the City of Prattville
IDRB, Kuhnash Ppty./Arkay
Plastics, (LOC: PNC Bank),
3.60%, VRDN........................ 3,000,000
17,160,000
ALASKA -- 2.1%
20,465 Alaska State Dept. Admin. COP,
Ser. PT-94, (LIQ: Credit Suisse
& Ins. by Cap. Mkt. Assurance),
3.45%, VRDN........................ 20,465,000
4,025 North Slope Boro. Capital
Appreciation Bds. GO, Ser.
1996 B, (Ins. by MBIA),
zero coupon (4.00% YTM),
6/30/97............................ 3,972,789
24,437,789
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ARIZONA -- 0.8%
$ 7,400 IDA of the City of Glendale
RB, Thunderbird Gardens, (LOC:
Sumitomo Trust & Bk. Co. Ltd., NY),
3.70%, VRDN........................ $ 7,400,000
200 IDA of the Cnty. of Maricopa,
McLane Co., Inc., Ser. 1984,
(LOC: Vly. Natl. Bk.),
3.80%, VRDN........................ 200,000
1,800 Maricopa Cnty. School Dist.
#006 TRANS, Ser. 1996A,
4.25%, 7/31/97..................... 1,801,812
9,401,812
ARKANSAS -- 0.3%
City of Jonesboro Residential
Housing & Hlth. Care Fac. Brd.
Hosp. RRB, St. Bernards Regnl.
Medical Ctr., (Ins. by AMBAC)
4.10%, 7/1/97:
425 Ser. 1996A....................... 425,000
605 Ser. 1996B....................... 605,000
2,800 Fayetteville Public Facilities
Brd. RB, Charter Vista Hosp.,
(LOC: Bank of Tokyo),
3.50%, 3/4/97...................... 2,800,000
3,830,000
CALIFORNIA -- 7.6%
6,000 California Higher Ed. Loan
Auth. Inc., Ser. A-1, (Gtd. by
SLMA),
3.95%, 7/1/97...................... 6,000,000
2,975 California TRANS, Ser. A,
4.50%, 6/30/97..................... 2,980,185
1,900 Glenn Cnty. IDA RB, Land
O'Lakes, Inc., Ser. 1995, (LOC:
Sanwa Bk., Ltd.),
3.70%, VRDN........................ 1,900,000
4,250 Hsg. Auth. of the City of
Paramount MFHR, Century Place
Apt., Ser. 1989A, (LOC: Heller
Finl. Inc.),**
3.95%, VRDN........................ 4,250,000
5,000 Hsg. Auth. of the City of
Santa Ana MFHR, Villa Verde
Apt., Ser. 1985B, (LOC: Mercury
Svgs. & Ln.) Coll: U.S. Treas.
Bills,
3.55%, VRDN........................ 5,000,000
</TABLE>
23
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
CALIFORNIA -- CONTINUED
<C> <S> <C>
$ 2,500 IDA of the City of Simi Vly.
IDRB, Wambold Furniture, Ser.
1984, (LOC: Wells Fargo Bk.,
N.A.),
3.75%, VRDN........................ $ 2,500,000
4,200 North Cnty. School Fin. Auth.
TRANS, Orange Cnty., Ser. 1996,
4.75%, 7/1/97...................... 4,208,080
Pitney Bowes Cr. Corp.
Leasetops Trs., 3.50%, VRDN:
22,846 Bart Telesystem Lease, (LOC:
ABN-Amro Bk., N.V.),**........... 22,845,645
12,831 San Diego Regl. Comm. Sys.
Lease, Ser. 1996A, (LOC:
Landesbank Hessen)............... 12,831,200
15,375 San Bernardino Cnty. COP, Ser.
1995, (Ins. by MBIA),
3.55%, VRDN........................ 15,375,000
6,000 South Coast Local Ed. Agy.
Pooled TRANS Prog., Ser.
1996A,
4.75%, 6/30/97..................... 6,013,185
5,000 Stanislaus Cnty. Office of
Ed., 1996 TRANS,
4.50%, 6/30/97..................... 5,007,961
88,911,256
COLORADO -- 4.8%
6,055 Arapahoe Cnty. MFHR Ref.,
Stratford Sta., Ser. 1994,
(LOC: Heller Finl., Inc.),
3.70%, VRDN........................ 6,055,000
5,080 Colorado Hsg. Fin. Auth. RB
MERLOTS, Ser. C-ARB,
4.20%, 8/1/97...................... 5,080,000
3,000 Dove Valley Metropolitan Dist.
Arapahoe Cnty. GO Bds., Ser.
1996C, (LOC: Dai-Ichi Kangyo
Bk., Ltd.),
4.15%, 11/1/97..................... 3,000,000
23,700 Eagle Tax Exempt Trust, Nevada
State Colorado River
Commission, (LIQ: Citibank, N.A.),
3.40%, VRDN........................ 23,700,000
15,000 El Paso Cnty. School Dist.
#011 TRANS,
4.25%, 6/30/97..................... 15,014,520
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
COLORADO -- CONTINUED
$ 2,680 Parkview Met. Dist. Arapahoe
Cnty. GO Bds., Ser. 1993,
(LOC: Cent Bk./Bk. Western,
N.A.),
3.55%, VRDN........................ $ 2,680,000
55,529,520
DELAWARE -- 1.1%
5,100 Delaware Economic Dev. Auth.
RB, Delmarva P&L CO, (Gtd. by
Delmarva P&L),
3.60%, VRDN........................ 5,100,000
3,000 Delaware EDA-IDRB, Arlon,
Inc., Ser. 1989, (LOC: Bk. of
Amer., IL),
3.70%, VRDN........................ 3,000,000
2,640 Delaware Hsg. Auth. RB
MERLOTS, Ser. G ARB, (Ins. by
FGIC),
4.20%, 6/1/97...................... 2,640,000
2,480 New Castle Cnty. EDRB, Toys R
Us, (LOC: Bankers Tr. Co., NY),
3.55%, VRDN........................ 2,480,000
13,220,000
DISTRICT OF COLUMBIA -- 5.1%
Dist. of Columbia GO Gen. Fd.
Recovery Bd., 3.50%, VRDN:
8,700 Ser. B, (LOC: Union Bk. of
Switzerland)..................... 8,700,000
2,800 Ser. B-2, (LOC: Westdeutsche
Landesbank)...................... 2,800,000
5,000 Ser. B-3, (LOC: Landesbank
Hessen).......................... 5,000,000
5,120 Dist. of Columbia GO RB,
Puttable Floating Opt.
Tax-Exmp. Rcpt., Ser. PA-64,
Ser. 1993C, (LIQ: Merrill Lynch
Cap. Svs., Inc.),
3.65%, VRDN........................ 5,120,000
Dist. of Columbia GO RFB,
3.55%, VRDN:
14,300 Ser. 1992A-1, (LOC: Natl.
Westminster Bk.)................. 14,300,000
3,600 Ser. 1992A-2, (LOC: Bk. of
Nova Scotia)..................... 3,600,000
7,900 Ser. 1992A-4, (LOC: Toronto
Dominion Bk.).................... 7,900,000
1,400 Ser. 1992A-5, (LOC: Bk. of
Nova Scotia)..................... 1,400,000
</TABLE>
24
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
DISTRICT OF COLUMBIA -- CONTINUED
<C> <S> <C>
$ 6,000 District of Columbia, Ser. A-3,
(LOC: Toronto Dominion Bk.),
3.55%, VRDN........................ $ 6,000,000
5,000 District of Columbia Hsg. Fin.
Agy. Mortgage RB, Ser. 1996 C,
(Invest. Agreement: Trinity
Funding Corp.),
3.90%, 12/1/97..................... 5,000,000
59,820,000
FLORIDA -- 1.2%
3,500 Escambia Cnty. Indl. Dev. RB,
Daws Manufacturing Co., Inc.,
(LOC: Amsouth Bk., Birmingham),
3.50%, VRDN........................ 3,500,000
1,010 Florida COP, Consolidated
Equipment Fin. Prog.,
6.05%, 5/15/97..................... 1,014,512
2,800 Orange Cnty. Hsg. Fin. Auth.
MHRB, Oakwood, Ser. E, (LOC:
Fleet Bk., N.A.),
4.15%, 10/1/97..................... 2,800,000
1,005 Palm Beach Cnty. Hsg. RB,
Meridian Hsg., Ser. 1985, (LOC:
Bk. of California, N.A.),
4.21%, VRDN........................ 1,005,000
5,875 Palm Beach Cnty. School Brd.,
MSTR Ser. 1996B, (LIQ: Norwest
Bk., MN & Ins. by AMBAC),
3.50%, VRDN........................ 5,875,000
14,194,512
GEORGIA -- 1.2%
1,000 Albany Dougherty Cnty. Hosp.
RB, Ser. 1984A, (Gtd. By Merck
& Co.),
3.80%, VRDN........................ 1,000,000
5,000 Albany Dougherty Payroll, (Gtd.
By Merck & Co.),
3.55%, VRDN........................ 5,000,000
6,000 Dev. Auth. of Polk Cnty. RB,
Kimoto Tech. Inc., Ser. 1985,
(LOC: Indl. Bk. of Japan, Ltd.),
3.75%, VRDN........................ 6,000,000
2,200 Hsg. Auth. of Columbus MHRB
Ref., Quail Ridge, Ser. 1988,
(LOC: Columbus Bk. & Tr. Co.),
3.70%, VRDN........................ 2,200,000
14,200,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ILLINOIS -- 10.8%
$ 9,670 City of Aurora MHRB, Fox Valley
Vlg. Apts, Ser. 1993, (LOC:
Sumitomo Bk., Ltd.),
3.65% VRDN......................... $ 9,670,000
2,900 City of Chicago GO Bds., MSTR
SAK-13, Ser. 1984, (LIQ:
Societe Generale & Ins. by
AMBAC),
3.55%, VRDN........................ 2,900,000
1,000 City of Chicago, Cook Cnty.
RB, CSX Beckett Aviation, Ser.
1984, (LOC: Barclay's Bk. PLC),
3.54%, 3/14/97..................... 1,000,000
29,000 City of Oakbrook Terrace
Multifamily Hsg. Mtg. RB,
Renaissance, Ser. 1985A, (LOC:
Bayerische Landesbank,
Girozentrale),
4.90%, 11/3/97..................... 29,000,000
4,000 City of Peoria Solid Waste
Disposal RB, PMP Fermentation
Products, Inc., Ser. 1996,
(LOC: Sanwa Bk., Ltd.),
3.75% VRDN......................... 4,000,000
5,900 City of West Chicago IDRB,
Acme Printing Inc., Ser. 1989,
(LOC: Bk. of Tokyo, Ltd.),
3.925%, VRDN....................... 5,900,000
3,400 Illinois Dev. Fin. Auth. EDRB,
MTI Corp., (LOC: Indl. Bk. of
Japan, Ltd.),
4.05%, VRDN........................ 3,400,000
3,040 Illinois Dev. Fin. Auth. IDRB,
Uhlich Children's Home, (LOC:
American Natl. Bk. & Tr.,
Chicago),
3.60%, VRDN........................ 3,040,000
1,200 Illinois Dev. Fin. Auth. PCRB,
Diamond Star Motor, (LOC: Bk.
of Tokyo),
3.55%, VRDN........................ 1,200,000
Illinois Dev. Fin. Auth. RB,
Gen. Accident Ins. Co., Ser.
1985 ARB, (Gtd. by Gen.
Accident Ins. Co. of America):
6,800 3.70%, 9/1/97.................... 6,800,000
6,800 3.80%, 3/1/97.................... 6,800,000
</TABLE>
25
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- CONTINUED
<C> <S> <C>
$ 8,705 LaSalle Natl. Bk. Leasetops
Trs., Ser. 1995A, (LOC: LaSalle
Natl. Bk.),**
3.50%, VRDN........................ $ 8,705,128
16,640 Vlg. of Hazel Crest Retirement
Ctr. RB, Waterford Estates,
Ser. 1992A, (LOC: Sumitomo Bk.),
3.65%, VRDN........................ 16,640,000
10,000 Vlg. of Schaumburg MFHR,
Treehouse II Apt., Ser. 1989,
(LOC: Sumitomo Bk.),
3.65%, VRDN........................ 10,000,000
2,000 Vlg. of Skokie EDRB, Skokie
Fashion Square Assn., Ser.
1984, (LOC: LaSalle Natl. Bk.),
3.625%, VRDN....................... 2,000,000
15,210 Vlg. of Vernon Hills MFHR,
Hawthorn Lakes, Ser. 1991,
(LIQ: Fuji Bk., Ltd. & Ins. by
FSA), 3.80%, VRDN.................. 15,210,000
126,265,128
INDIANA -- 2.5%
6,500 Avilla Economic Development
RB, Pent Assemblies Inc., Ser.
1996, (LOC: Fort Wayne Natl. Bk.),
4.30%, 8/1/97...................... 6,500,000
15,580 City of Fort Wayne PCRB, Gen.
Mtrs. Corp., (Gtd. by Gen.
Mtrs. Corp.),
3.45%, VRDN........................ 15,580,000
City of New Albany EDRB,
(LOC: PNC Bk.) 3.60%, VRDN:
2,000 Bert R. Huncilman & Son. Inc.,
Ser. 1996A....................... 2,000,000
2,000 Gordon L. & Jeffery
Huncilman-Partner., Ser.
1996B............................ 2,000,000
2,000 City of South Bend MFHR, Maple Lane
Assn., Ser. 1987, (LOC: Society Bk.
of Cleveland),
3.60%, VRDN........................ 2,000,000
925 Decatur Indl. EDA-RB,
Silberline Mfg. Co. Inc., (LOC:
Corestates Capital Mkt., Inc.),
4.20%, 6/1/97...................... 925,000
29,005,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
IOWA -- 0.4%
$ 5,000 City of Council Bluffs RB
Catholic Hlth. Corp., Mercy
Hosp., Council Bluffs, Ser.
1985, (LOC: Fuji Bk., Ltd., LA),
4.00%, 4/1/97...................... $ 5,000,000
KANSAS -- 0.5%
1,000 City of Fredonia RB, Systech
Envir. Corp., Ser. 1989, (LOC:
Banque Natl. de Paris, NY),
3.65%, VRDN........................ 1,000,000
540 City of Manhattan Tax
Increment RRB, Central
Business Distr. Tax Increment
Redev., Ser. 1996A,
4.10%, 12/1/97..................... 540,000
1,800 City of Praire Vlg. MFHR, J.C.
Nichol's Co., Ser. 1985, (Gtd.
by Bankers Life Ins. Co.),
3.90%, VRDN........................ 1,800,000
City of Salina RB (Salina
Central Mall L.P.), Ser. 1984,
(LOC: Boatmen's Bancshares,
Inc.),
3.50%, VRDN:
1,200 Dillard's........................ 1,200,000
1,105 Penny's.......................... 1,105,000
5,645,000
KENTUCKY -- 1.8%
20,300 Cnty. of Ohio PCRB, Big Rivers
Elec. Corp., Ser. 1985, (LOC:
Chemical Bk.),
3.90%, VRDN........................ 20,300,000
856 Jefferson Cnty. IDRB, Belknap
Inc., (LOC: Chemical Bk.),
3.65%, VRDN........................ 856,000
21,156,000
LOUISIANA -- 2.1%
7,000 Ascension Parish RB, Basf
Corp., (Gtd. by BASF Corp.),
3.55%, VRDN........................ 7,000,000
3,050 IDB of the Parish
of Bossier, Inc., H. J. Wilson
Co., Inc., Ser. 1982, (LOC:
First Natl. Bk. of Chicago),
4.00%, 12/1/97..................... 3,050,000
</TABLE>
26
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
LOUISIANA -- CONTINUED
<C> <S> <C>
$15,000 Louisiana HFA
Mortgage RB, Ser. 1996D-4,
4.10%, 9/15/97..................... $ 15,000,000
25,050,000
MARYLAND -- 0.2%
2,035 Community Dev. Admin. State of
Maryland Dept. of Hsg. & Comm.
Dev., Single Family Prog.,
Ser. 1987 Fourth ARB, (LOC:
First Natl. Bk. of Boston),
3.75%, 4/1/97...................... 2,035,000
MASSACHUSETTS -- 0.2%
360 City of Lowell Indl. RB, Oak
Realty Tr., Ser. 1985, (LOC:
First Natl. Bk. of Boston),
4.21%, VRDN........................ 360,000
500 Massachusetts Indl. Finl.
Agy., Copley Pharmac, (LOC:
First Natl. Bk. of Boston),
4.46%, VRDN........................ 500,000
600 Massachusetts Indl. Finl.
Auth. IDRB, Leavy Realty &
Jencoat Metal, Ser. 1994, (LOC:
First Natl. Bk. of Boston),
4.21%, VRDN........................ 600,000
700 Massachusetts Indl. Finl.
Auth. Indl. RB, Portland
Causeway Rlty., Ser. 1988,
(LOC: Citibank, N.A.),
4.21%, VRDN........................ 700,000
2,160,000
MICHIGAN -- 1.4%
2,000 Economic Dev. Corp. of the
Twp. of Van Buren Economic RB,
Daikin Clutch USA, Inc., Ser.
1987, (LOC: Sanwa Bk., Ltd.),
3.75%, VRDN........................ 2,000,000
4,645 Sault. Ste. Marie Tribe Bldg.
Auth. RB, Ser. 1996A ARB, (LOC:
First of Amer. Bk., N.A.),
4.22%, 6/1/97...................... 4,645,000
10,000 School Dist. of the City of
Detroit Wayne Cnty. GO Bds.,
State School Aid Nts., Ser. 1996,
4.50%, 5/1/97...................... 10,008,902
16,653,902
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MINNESOTA -- 9.1%
$50,000 Capital Investors Tax Exempt
Fund Ltd., Partnership, Ser.
1996-5,
3.60%, VRDN........................ $ 50,000,000
14,905 City of Eden Prairie MFHR,
Park at City West Apt., Ser.
1990, (LOC: Sumitomo Bank),
3.65%, VRDN........................ 14,905,000
2,300 City of Robbinsdale IDR,
Unicare Homes, Inc., Ser.
1984, (LOC: Banque Paribas),
3.60%, VRDN........................ 2,300,000
4,420 Dakota & Washington Cnties.
Hsg. & Redev. Auth. MERLOTS,
Ser. J, (LOC: Corestates Bk.,
N.A.),
4.20%, 3/1/97...................... 4,420,000
4,220 Minneapolis GO (Sports Arena),
MSTR Ser. 1996A, (LIQ: Norwest
Bk.),
3.50%, VRDN........................ 4,220,000
800 Minneapolis/Saint Paul Hsg.
Fin. Brd. RB,
Minneapolis/Saint Paul Fam.
Hsg. Prog., Phase VI, (COLL:
GNMA),
4.20%, 8/1/97...................... 800,000
2,550 Minnesota Agric. & EDRB, Como
Partnership, Ser. 1996, (LOC:
First Bk. Natl. Assn.),
3.65%, VRDN........................ 2,550,000
1,510 Richfield Independent School
Dist. #280, MSTR Ser. 1994P,
(Ins. by FGIC),
3.50%, VRDN........................ 1,510,000
750 Southern Minnesota Muni. Pwr.
Agy. Supply Sys., MSTR Ser.
1996I, (LIQ: Norwest Bk., MN &
Ins. by FGIC),
3.50%, VRDN........................ 750,000
1,000 Spring Lake Park I.S.D. No.
16, MSTR Ser. 1996G, (LIQ:
Norwest Bk., MN & Ins. by
FGIC),
3.50%, VRDN........................ 1,000,000
24,200 St. Louis Park Hlth. Care Fac.
RB Fltg. Tr. Cert., (LIQ:
Norwest Bk., & Ins. by AMBAC),
3.50%, VRDN........................ 24,200,000
106,655,000
</TABLE>
27
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
MISSISSIPPI -- 0.3%
$ 3,000 Lee Cnty. IDRB, Hunter Douglas
Inc., Ser. 1985, (LOC: Bk. of
Amer. Natl. Tr. & Svg. Assn.),
3.95%, VRDN........................ $ 3,000,000
MISSOURI -- 1.5%
4,000 Boatmens St. Louis Grantor
Tr., Cert. Partn., Ser.
1996A-1, (LOC: Boatmens Natl.
Bk., St. Louis),
3.55%, VRDN........................ 4,000,000
8,375 City of St. Louis TRANS,
4.75%, 6/30/97..................... 8,395,268
4,330 Missouri Dev. Fin. Brd. IDRB,
Cook Composites & Polymers
Co., Ser. 1994, (LOC: Societe
Generale),
3.75%, VRDN........................ 4,330,000
825 School District of North Kansas
GO School Bldg. Bds.,
Missouri Direct Deposit Prog.,
Ser. 1996,
7.00%, 3/1/97...................... 825,000
17,550,268
MONTANA -- 0.1%
710 Butte Silver Bow City & Cnty.,
Copper City Assn., Ser. 1988,
(LOC: Bank of America),
3.55%, VRDN........................ 710,000
NEBRASKA -- 0.4%
4,200 Lancaster Cnty. IDRB, AS
Mid-Amer., Inc., Ser. 1994,
(LOC: Heller Finl., Inc.),
3.85%, VRDN........................ 4,200,000
NEVADA -- 0.4%
4,450 Nevada Housing Division RB,
Oakmont at Reno, (LOC: Banque
Paribas),
3.55%, VRDN........................ 4,450,000
NEW HAMPSHIRE -- 0.1%
1,500 New Hampshire Hsg. Fin. Auth.
MFHR, Nashua-Oxford, Ser.
1990, (Surety Bond: Contl. Cas.
Corp.),
3.50%, VRDN........................ 1,500,000
NEW JERSEY -- 3.2%
15,000 County of Essex TRANS, Ser. A,
4.50%, 9/17/97..................... 15,035,454
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
NEW JERSEY -- CONTINUED
$ 3,000 Jersey City Promissory Notes,
4.00%, 4/3/97...................... $ 3,000,973
4,220 Jersey City Refunding Notes,
4.125%, 1/16/98.................... 4,224,405
10,000 Jersey City TRANS, 4.75%,
9/26/97............................ 10,038,470
2,585 New Jersey EDA-EDRB, Wood
Hollow Assn. L.L.C., (LOC:
Corestates Bk.),
3.55%, VRDN........................ 2,585,000
2,800 Newark Healthcare Fac. RB, New
Community Urban Renewal, Ser.
1995, (COLL: GNMA),
3.40%, VRDN........................ 2,800,000
37,684,302
NEW MEXICO -- 0.5%
4,855 Cnty. of Sandoval MFHR,
Arrowhead Ridge Apt., Ser.
1996, (LIQ: FGIC),
4.65%, 7/1/97...................... 4,855,000
1,000 Rio Arriba Cnty. IDRB,
Franklin Industries, (LOC:
NationsBank),
3.60%, VRDN........................ 1,000,000
5,855,000
NEW YORK -- 3.2%
Battery Park City Auth. Hsg.
RB, Marina Towers Tender
Corp., (LOC: Sumitomo Bk.)
3.90%, VRDN:
8,560 Ser. A........................... 8,560,000
7,765 Ser. B........................... 7,765,000
6,400 City of New Rochelle NY School
Dist. TRANS,
4.25%, 6/30/97..................... 6,404,989
6,000 New York City GO, Ser. 1993B,
(Ins. by FGIC),
3.55%, VRDN........................ 6,000,000
2,500 New York City GO Subser. B5,
(Ins. by MBIA),
3.50%, VRDN........................ 2,500,000
6,000 New York City Mun. Wtr. Fin.
Auth. RB, Ser. 1995A, (Ins by
FGIC),
3.55%, VRDN........................ 6,000,000
37,229,989
</TABLE>
28
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
NORTH CAROLINA -- 0.6%
$ 3,600 Cabarrus Cnty. Indl. Fac.
PCRB, Oiles America Corp.,
Ser. 1989, (LOC: Indl. Bk. of
Japan, Ltd., NY),
4.05%, VRDN........................ $ 3,600,000
3,000 Guilford Cnty. Indl. Fac. &
Pollution Control Fing. Auth.
RB Sewage Disp., High Pt.
Chem., Ser. 1994, (LOC:
Sumitomo Bk., Ltd., NY),
3.65%, VRDN........................ 3,000,000
570 NCNB Pooled Tax-Empt. Tr. COP, Ser.
1990A,
(LOC: NationsBank of NC),**
4.125%, VRDN....................... 570,000
7,170,000
OHIO -- 1.0%
4,200 Cnty. of Summit IDA-IDRB,
Shin-Etsu Silicones of Amer.
Inc., Ser. 1994, (LOC: Bk of
Tokyo, Ltd. & Mitsubishi Bk.,
Ltd.),
3.70%, VRDN........................ 4,200,000
4,250 Dayton Ohio Airport Impt. Nts.,
4.50%, 3/25/97..................... 4,251,360
3,000 Ohio Hsg. Fin. Agy. MFHR, 10
Wilmington Place, Ser. 1991B,
(LIQ: Fuji Bk., Ltd. & Ins. by
FSA),
3.80%, VRDN........................ 3,000,000
11,451,360
OREGON -- 0.3%
Oregon EDRB Series CLVI,
(LOC: Bk. of California, N.A.)
3.75%, VRDN:
1,960 Pacific Coast Seafoods Co........ 1,960,000
1,210 Pacific Oyster Co................ 1,210,000
3,170,000
PENNSYLVANIA -- 7.9%
2,855 Chester Cnty. IDA Mfg. Fac.
RB, Devault Packing Co., Inc.,
Ser. 1995, (LOC: Meridian Bk.),
3.75%, VRDN........................ 2,855,000
10,000 City of Philadelphia GO Bds.,
Ser 1990, (LOC: Fuji Bk., Ltd.,
NY),
3.50%, 4/7/97...................... 10,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PENNSYLVANIA -- CONTINUED
$ 500 Elk Cnty. IDA-IDRB Ref.,
Stackpole Corp., Ser. 1989,
(LOC: First Natl. Bk. of
Boston),
4.21%, VRDN........................ $ 500,000
39,865 Emmaus General Auth. RB,
Pennsylvania Variable Rate Ln.
Prog., (Ins by FSA),
3.40%, VRDN........................ 39,865,000
855 Fayette Cnty. Hosp. Auth. RB,
Uniontown Hosp., Ser. 1996,
(Ins. by Connie Lee),
4.25%, 6/15/97..................... 855,337
650 Lawrence Cnty. IDA-PCRB,
Calgon Carbon, Ser. 1983A,
(Gtd. by Merck & Co.),
3.80%, VRDN........................ 650,000
1,990 Monroe Cnty. IDA-RB, United
Steel, Ser. A, (LOC: Corestates
Bk., N.A.),
3.75%, VRDN........................ 1,990,000
1,500 Montgomery Cnty. IDA-RB,
Laneko Engineering Co., Ser.
1995, (LOC: Meridian Bk.),
3.75%, VRDN........................ 1,500,000
3,200 Pennsylvania Higher Ed. Fac.
Auth. RB, Carnegie Mellon
Univ., Ser. 1995D,
3.45%, VRDN........................ 3,200,000
1,235 Pennsylvania Econ. Dev. Fin.
Auth. RB, C.F. Martin & Co.,
Inc., Ser. H, (LOC: Meridian
Bk.),
3.75%, VRDN........................ 1,235,000
3,880 Pennsylvania Hsg. Fin. Agy.
MERLOTS, Ser. I, (LIQ:
Corestates Bk., N.A.),
4.125%, 4/1/97..................... 3,880,000
8,100 Philadelphia Hosp. & Higher
Ed. Fac. Auth. RB., Children
Hosp., Ser. A, (SPA: Morgan
Guaranty, NY),
3.45%, VRDN........................ 8,100,000
920 Reading School Dist. GO, Ser.
1997, 3.95%, 1/15/98............... 920,736
9,400 School Dist. of Philadelphia
TRANS, Ser. 1996,
4.50%, 6/30/97..................... 9,415,002
</TABLE>
29
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
<C> <S> <C>
$ 2,000 Schuylkill Cnty. IDA-RB,
Craftex Mills, Inc., (LOC:
Corestates Bk.),
3.75%, 3/5/97...................... $ 2,000,000
2,010 West Cornwall Twp. Muni. Auth.
RB, Lebanon Vly. Brethren
Home, Ser. 1995, (LOC: Meridian
Bk.),
3.50%, VRDN........................ 2,010,000
3,040 Westmoreland Cnty. IDA-IDRB,
White Consolidated Ind., Inc.,
(LOC: Chemical Bk.),
3.96%, 6/1/97...................... 3,041,936
92,018,011
RHODE ISLAND -- 0.3%
3,000 Rhode Island Solid Waste Mgmt.
Corp. Landfill Lease Nts.,
Ser. 1995A,
4.50%, 8/1/97...................... 3,004,225
SOUTH CAROLINA -- 0.9%
3,500 Darlington Cnty. IDA-IDRB,
B.F. Shaw, Inc., Ser. 1995,
(LOC: Mercantile Bk. of St.
Louis N.A.),
3.90%, VRDN........................ 3,500,000
2,225 Lexington Cnty. RB, Charter
Rivers Hosp., (LOC: Bk. of
Tokyo),
3.50%, VRDN........................ 2,225,000
250 South Carolina Jobs EDA Hosp.
Facs. RB, Beloit Corp., (LOC:
Cr. Coml. de France),
3.60%, VRDN........................ 250,000
South Carolina Jobs EDA-EDRB,
(LOC: Cr. Coml. de France):
600 Ridge Pallets, Ser. B
3.70%............................ 600,000
2,700 Roller Bearing Co., Ser. 1994A,
4.10%............................ 2,700,000
750 Tuttle Co., Inc., Ser. A,
3.70%............................ 750,000
10,025,000
SOUTH DAKOTA -- 0.5%
5,285 Rapid City EDRB, Civic
Center Assoc., (LOC: Bayerische
Vereinsbank AG),
3.65%, VRDN........................ 5,285,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
TENNESSEE -- 3.2%
$ 1,000 IDB of Blount Cnty. IDRB,
Advance Crystal, Inc., Ser.
1988, (LOC: Indl. Bk. of Japan,
Ltd.),
3.75%, VRDN........................ $ 1,000,000
IDB of Met. Govt. of
Nashville, Ser. 1989, (LOC:
Sumitomo Bk.),
3.65%, VRDN:
8,995 Beechwood........................ 8,995,000
4,680 Belle Valley..................... 4,680,000
6,710 Graybrook Apts................... 6,710,000
3,200 IDB of the City Chattanooga
RRB, Radisson Read House, Ser.
1995, (LOC: Heller Finl. Inc.),
4.15%, VRDN........................ 3,200,000
5,000 IDB of the City of Morristown
IDRB, Camvac Intl., Inc., Ser.
1983, (LOC: ABN-Amro Bk.),
3.625%, VRDN....................... 5,000,000
500 Monroe Cnty. Indl. Dev. Brd.
IDRB, Amer. Transit Corp.,
(LOC: Bk. of New York),
3.60%, VRDN........................ 500,000
3,405 Shelby Cnty. Hlth. Edl. & Hsg.
Fac. Brd., Methodist Hlth.
Sys., Ser. C, (LIQ: Sanwa Bk.,
Ltd & Ins. by MBIA),
4.05%, 8/1/97...................... 3,405,000
4,285 Smyrna Hsg. Assn. MFHR,
Imperial Gardens Apts., Ser.
1989, (LOC: Sumitomo Bk.),
3.65%, VRDN........................ 4,285,000
37,775,000
TEXAS -- 5.5%
2,500 Brazos River Harbor Navigation
Dist. RB, BASF Corp., (Gtd. by
Basf Corp.),
3.55%, VRDN........................ 2,500,000
5,985 Galveston Hsg. Fin. Corp. MFHR
Ref., Vlg. by the Sea Apt.,
Ser. 1993, (LOC: Sumitomo Bk.),
3.75%, VRDN........................ 5,985,000
3,400 Gulf Coast Waste Disposal
Auth. RB, Amoco Oil Co., (Gtd.
by Amoco Oil),
3.55%, VRDN........................ 3,400,000
</TABLE>
30
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
TEXAS -- CONTINUED
<C> <S> <C>
$ 2,600 Harris Cnty. Hsg. Fin. Corp.,
MFHR, Methodist Hosp., Ser.
1994, (LOC: Morgan Guaranty,
NY),
3.45%, VRDN........................ $ 2,600,000
7,000 Matagorda Cnty. Nav. Dist. #1
CDC Certificates, Ser. 97D,
(LIQ: Caisse Depots & Ins. by
FGIC),
3.50%, VRDN........................ 7,000,000
7,905 NCNB Pooled Tax-Empt. Tr. COP, Ser.
1990B, (LOC: NationsBank of Texas),
4.125%, VRDN....................... 7,905,000
4,000 Port of Corpus Christi Auth.
Nueces Cnty. RRB, Union
Pacific Corp., Ser. 1989 TECP,
(Gtd. by Union Pacific Corp.),
3.85%, 5/21/97..................... 4,000,000
4,800 Southwest Higher Ed. Auth. RB,
Southern Methodist Univ., (LOC:
Morgan Guaranty, NY),
3.45%, VRDN........................ 4,800,000
4,380 Tarrant Cnty. Hsg. Fin. Corp.
MFHR Ref., Lincoln Meadows,
Ser. 1988 ARB, (Surety: Contl.
Cas. Corp.),
4.10%, 12/1/97..................... 4,379,636
15,000 Texas TRANS, 4.75%, 8/29/97........ 15,055,196
6,000 Tyler Health Fac. Dev. Corp.
RB, East Texas Med. Ctr. Regl.
Hlth., Ser. 1993C TECP, (LOC:
Banque Paribas),
3.50%, 3/12/97..................... 6,000,000
63,624,832
UTAH -- 4.8%
2,800 Summit Cnty. IDRB, Hornes'
Kimball Junction L.P., Ser.
1985, (LOC: West One Tr.),
3.80%, VRDN........................ 2,800,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
UTAH -- CONTINUED
Tooele Cnty. Hazardous Waste
Treatment RB, Union Pacific
Corp., Ser. A TECP, (Gtd. by
Union Pacific Corp.):
$ 7,000 3.80%, 3/10/97................... $ 7,000,000
6,290 3.80%, 4/10/97................... 6,290,000
10,000 3.80%, 4/24/97................... 10,000,000
15,400 3.80%, 4/28/97................... 15,400,000
15,000 3.85%, 4/7/97.................... 15,000,000
56,490,000
VERMONT -- 0.2%
2,000 Burlington Wastwater Revenue
TRANS,
5.60%, 1/30/98..................... 2,028,545
VIRGINIA -- 0.9%
2,900 Henrico Cnty. IDA RB,
(LOC: Tokai Bk., Ltd.),
3.95%, VRDN........................ 2,900,000
3,000 Richmond Cnty. Indl. Fac.
PCRB, Cogentrix of Richmond,
(LOC: Banque Paribas),
3.90%, VRDN........................ 3,000,000
3,500 Richmond IDA-RB, Cogentrix of
Richmond, (LOC: Banque Paribas),
3.90%, VRDN........................ 3,500,000
1,000 Rockingham Cnty. Indl. Dev.
PCRB, Merck & Co., Inc., Ser.
1983A, (Gtd. by Merck & Co.),
3.55%, VRDN........................ 1,000,000
10,400,000
WASHINGTON -- 1.8%
2,200 Klickitat Cnty. Pub. Corp. RB,
Mercer Ranches, Ser. 1996,
(LOC: U.S. Bk. of Washington,
N.A.),
3.80%, VRDN........................ 2,200,000
2,000 Pierce Cnty. Econ. Dev. Corp.,
McFarland Cascade, (LOC: U.S.
Bk. of Washington, N.A.),
3.80%, VRDN........................ 2,000,000
</TABLE>
31
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
WASHINGTON -- CONTINUED
<C> <S> <C>
$ 410 Pierce Cnty. Econ. Dev. Corp.
IDRB, Pickering Industries,
Ser. 1990, (LOC: Indl. Bk. of
Japan, Ltd.),
3.50%, VRDN........................ $ 410,000
Pilchuck Dev. Pub. Corp. IDRB,
(LOC: Bk. of California, N.A.),
VRDN:
1,455 Canyon Park Assn., 3.65%,........ 1,455,000
1,047 Hillside Assn., 3.65%,........... 1,047,000
1,312 Omni Assn., 3.65%,............... 1,312,000
8,450 Romac Industries, Inc., Ser.
1995,
3.70%,........................... 8,450,000
Washington Pub. Pwr. Sup. Sys.
Nuclear RRB No. 1:
1,000 7.10%, 7/1/97.................... 1,010,070
1,635 Ser. A, 4.50%, 7/1/97............ 1,637,631
1,525 Washington Pub. Pwr. Sup. Sys.
Nuclear RRB No. 2, Ser. A,
4.50%, 7/1/97...................... 1,527,449
21,049,150
WISCONSIN -- 2.3%
27,230 Southeast Pro. Baseball Park
Dist. Sales Tax RB, Ser. 1996,
(Invest. Agreement: Bayrland),
4.10%, 12/15/97.................... 27,230,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
OTHER -- 5.6%
Puttable Floating Opt.
Tax-Empt., (LIQ: Credit
Suisse),
3.55%, VRDN:
$51,780 IBM Grantor Trust, Ser.
1996C............................ $ 51,780,000
10,370 KOCH Fin. Corp................... 10,370,000
3,340 Puttable Floating Opt.
Tax-Empt. PPT-5W, (LIQ: Credit
Suisse),
3.55%, VRDN........................ 3,340,000
65,490,000
TOTAL SHORT-TERM MUNICIPAL
SECURITIES
(COST $1,168,720,601).............. 1,168,720,601
<CAPTION>
SHARES
(000)
<C> <S> <C>
MUTUAL FUND SHARES -- 0.0%
(COST $300,000)
300 Federated Tax-Free Obligation
Fund............................. 300,000
TOTAL INVESTMENTS --
(COST $1,169,020,601).... 100.2 % 1,169,020,601
OTHER ASSETS AND
LIABILITIES, NET......... (0.2) (2,452,126)
NET ASSETS --.............. 100.0 % $1,166,568,475
</TABLE>
32
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
Summary of Abbreviations:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corp.
ARB -- Adjustable Rate Bonds
COLL -- Collateral
COP -- Certificates of Participation
EDA -- Economic Development Authority
EDRB -- Economic Development Revenue Bond
FGIC -- Financial Guaranty Insurance Co.
FSA -- Financial Security Assurance Inc.
GNMA -- Government National Mortgage Association
GO -- General Obligations
HFA -- Housing Finance Agency
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
LIQ -- Liquidity Provider
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
MERLOTS -- Municipal Exempt Receipts Liquidity Option
Tenders
MFHR -- Multifamily Housing Revenue
MSTR -- Municipal Securities Trust Receipt
PCRB -- Pollution Control Revenue Bond
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
SLMA -- Student Loan Marketing Association
SPA -- Securities Purchase Agreement
TECP -- Tax Exempt Commercial Paper
TRANS -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
YTM -- Yield To Maturity
Adjustable Rate Bonds are putable back to the issuer or other
parties not affiliated with the issuer at par on the interest reset
dates. Interest rates are determined and set by the issuer
quarterly, semi-annually or annually depending upon the terms of the
security. Interest rates presented for these securities are those in
effect at February 28, 1997. These securities represent 2% of
total investments at February 28, 1997.
Variable Rate Demand Notes are payable on demand on no more
than seven calendar days notice given by the Fund to the issuer or
other parties not affiliated with the issuer. Interest rates are
determined and reset by the issuer daily, weekly or monthly
depending upon the terms of the security. Interest rates
presented for these securities are those in effect at February 28,
1997. These securities represent 66% of total investments at
February 28, 1996.
Certain obligations held in the portfolio have credit
enhancements or liquidity features that may, under certain
circumstances, provide for repayment of principal and interest on the
obligation upon demand date, interest rate reset date or final
maturity. These enhancements include: letters of credit; liquidity
guarantees; standby bond purchase agreements; tender option
purchase agreements; and third party insurance (i.e. AMBAC,
FGIC and MBIA). Adjustable rate bonds and variable rate
demand notes held in the portfolio may be considered derivative
securities within the standards imposed by the Securities and
Exchange Commission under Rule 2a-7 which were designed to
minimize both credit and market risk.
** Rule 144A securities which are restricted in resale to
qualified institutions and are considered liquid.
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $1,169,020,601)....................................................... $1,169,020,601
Cash........................................................................................................ 394,307
Interest receivable......................................................................................... 7,498,626
Receivable for Fund shares sold............................................................................. 544,063
Prepaid expenses and other assets........................................................................... 55,690
Total assets.......................................................................................... 1,177,513,287
LIABILITIES:
Payable for investments securities purchased................................................................ 8,025,581
Dividends payable........................................................................................... 1,488,403
Accrued advisory fee........................................................................................ 418,469
Payable for Fund shares redeemed............................................................................ 331,387
Distribution fee payable.................................................................................... 326,010
Accrued expenses............................................................................................ 354,962
Total liabilities..................................................................................... 10,944,812
NET ASSETS..................................................................................................... $1,166,568,475
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $1,166,826,346
Accumulated net realized loss on investment transactions.................................................... (257,871)
Net assets............................................................................................ $1,166,568,475
</TABLE>
<TABLE>
<S> <C>
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($689,576,557)(689,695,276 shares of beneficial interest outstanding)..................................... $1.00
Class Y Shares ($476,991,918)(477,092,273 shares of beneficial interest outstanding)..................................... $1.00
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $22,596,170
EXPENSES:
Advisory fee................................................................................... $2,892,482
Distribution fee -- Class A Shares............................................................. 965,960
Custodian fee.................................................................................. 135,426
Transfer agent fee............................................................................. 91,314
Reports and notices to shareholders............................................................ 53,351
Registration and filing fees................................................................... 37,198
Interest expense............................................................................... 28,513
Professional fees.............................................................................. 23,109
Insurance...................................................................................... 9,341
Trustees' fees and expenses.................................................................... 7,250
Other.......................................................................................... 11,094
4,255,038
Less advisory fee waiver....................................................................... (283,470)
Net expenses................................................................................ 3,971,568
Net investment income............................................................................. 18,624,602
Net realized gain on investments.................................................................. 9
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $18,624,611
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1997 AUGUST 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 18,624,602 $ 36,638,019
Net realized gain (loss) on investment transactions.................................. 9 (6,227)
Net increase in net assets resulting from operations.............................. 18,624,611 36,631,792
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares....................................................................... (9,787,172) (19,837,670)
Class Y Shares....................................................................... (8,837,430) (16,800,349)
Total distributions to shareholders from net investment income.................... (18,624,602) (36,638,019)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................ 1,266,527,489 2,572,408,736
Proceeds from shares issued from aquisition of FFB Tax-Free Money Market Fund........ -- 103,129,021
Proceeds from reinvestment of distributions.......................................... 8,133,007 16,202,992
Payments for shares redeemed......................................................... (1,385,441,253) (2,390,799,129)
Net increase (decrease) resulting from Fund share transactions................. (110,780,757) 300,941,620
Net increase (decrease) in net assets.......................................... (110,780,748) 300,935,393
NET ASSETS:
Beginning of period.................................................................. 1,277,349,223 976,413,830
End of period........................................................................ $1,166,568,475 $ 1,277,349,223
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
(Photo of coins)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
SIX MONTHS JANUARY 5, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 28, YEAR ENDED THROUGH FEBRUARY 28,
1997 AUGUST 31, AUGUST 31, 1997 YEAR ENDED AUGUST 31,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income.............. 0.01 0.03 0.02 0.02 0.03 0.04 0.02 0.03
Less distributions to shareholders
from net investment income....... (0.01) (0.03) (0.02) (0.02) (0.03) (0.04) (0.02) (0.03)
Net asset value, end of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+...................... 1.5% 3.2% 2.2% 1.7% 3.5% 3.6% 2.5% 2.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).................. $689,577 $660,516 $ 554,924 $476,992 $ 616,833 $421,490 $402,419 $401,376
Ratios to average net assets:
Expenses**....................... .82%++ .79% .78%++ .52%++ .49% .50% .34% .34%
Net investment income**.......... 3.06%++ 3.14% 3.28%++ 3.37%++ 3.44% 3.53% 2.47% 2.58%
<CAPTION>
CLASS Y SHARES
YEAR ENDED AUGUST 31, 1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................... $1.00
Net investment income.............. 0.04
Less distributions to shareholders
from net investment income....... (0.04)
Net asset value, end of period..... $1.00
TOTAL RETURN+...................... 3.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).................. $416,924
Ratios to average net assets:
Expenses**....................... .32%
Net investment income**.......... 3.72%
</TABLE>
# The Fund changed its fiscal year end from February 28 to August 31.
+ Total return is calculated on the net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
* Commencement of class operations.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the adviser, the annualized ratios of
expenses and net investment income to average net assets would have been the
following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
SIX MONTHS JANUARY 5, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 28, YEAR ENDED THROUGH FEBRUARY 28,
1997 AUGUST 31, AUGUST 31, 1997 YEAR ENDED AUGUST 31,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses...................................... .87%++ .90% .90%++ .56%++ .60% .63% .64% .63%
Net investment income......................... 3.01%++ 3.03% 3.16%++ 3.32%++ 3.33% 3.40% 2.17% 2.29%
<CAPTION>
CLASS Y SHARES
YEAR ENDED AUGUST 31, 1992
<S> <C>
Expenses...................................... .63%
Net investment income......................... 3.41%
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
A REPORT FROM YOUR
PORTFOLIO MANAGER
KELLIE ALLEN
We are pleased to present the Semiannual Report for the
Evergreen Treasury Money Market Fund for the six-month period
ended February 28, 1997. The total return for the Fund's Class A
shares for the six months was 2.34%*. This return was ahead of
the Lipper average of 97 U.S. Treasury Money Market funds
tracked by Lipper Analytical Services during that period**. The
seven-day current and effective yields as of February 28, for
the Fund's Class A shares were 4.61% and 4.72%, respectively.
The past six months have proven to be a roller coaster ride [Photo]
for fixed income investors. The bond market rallied throughout
the second half of calendar 1996 as interest rates declined, but
was stifled as rates jumped in December then steadily increased
throughout the first two months of 1997. The yield on the benchmark thirty-year
treasury bond began the six-month period at 7.1%, declined, then rebounded and
settled at 6.8% on February 28. Short-term rates also fluctuated rather
dramatically during the six-month period. The yield on the three-month treasury
bill began the fiscal year at 5.3%, declined steadily through mid-December, then
climbed sharply to finish at 5.2% on February 28.
In the final week of February, Federal Reserve Chairman, Alan Greenspan,
rocked the financial markets in an appearance before Congress. Mr. Greenspan,
while acknowledging that inflation remains in check, suggested that the best
course of action may be to raise rates as a preventative measure to curb
inflation before it actually appears. The Federal Reserve Board had neither
raised nor lowered interest rates in well over a year. As of February 28, the
yield on two-year treasury notes stood at 6.09%, 84 basis points above the Fed
Funds rate.
The Fund invests exclusively in short-term U.S. Government obligations which
are fully guaranteed as to principal and interest by the U.S. Government. Within
the Fund, we continue to maintain a maturity at the longer end of our normal
range in an attempt to lock in higher, more attractive rates. The Fund also
utilizes reverse repurchase agreements to help enhance the portfolio's return.
This process, relatively risk-free, provides the Fund an opportunity gain a
couple of basis points as a reward, which can help it to outperform similar
funds. The Fund's longer-term performance continues to be impressive as its
five-year average annual compound return ended March 31, 1997, ranked number one
among the 49 Treasury money market funds tracked by Lipper during that time**.
The Fund's one-year total return ended March 31, ranked number four out of the
96 Treasury money market funds tracked by Lipper during that time.
Thank you for your investment in the Evergreen Treasury Money Market Fund.
FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAIN DISTRIBUTIONS, IF ANY.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, PERFORMANCE AND YIELDS
WOULD HAVE BEEN LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
THE FUND MAY INCUR 12B-1 EXPENSES UP TO AN ANNUAL MAXIMUM OF .35 OF 1% OF ITS
AVERAGE DAILY NET ASSETS OF ITS CLASS A SHARES. FOR THE FORESEEABLE FUTURE,
HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS TO .30 OF 1% OF THE FUND'S
DAILY NET ASSETS OF ITS CLASS A SHARES.
** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES
NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER AND THE
FUND'S RANKINGS MAY BE DIFFERENT.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE. YIELDS FLUCTUATE.
38
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
STATEMENT OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
U.S. TREASURY BILLS -- 3.4%
(COST $99,358,750)
$100,000 5.130%, 4/17/97.................... $ 99,358,750
U.S. TREASURY NOTES -- 27.9%
25,000 6.125%, 3/31/97.................... 25,120,850
50,000 6.875%, 4/30/97++.................. 50,353,066
50,000 6.500%, 4/30/97++.................. 50,055,643
70,000 8.500%, 5/15/97++.................. 70,365,276
150,000 6.375%, 6/30/97++.................. 150,532,859
110,000 6.000%, 8/31/97.................... 109,999,538
135,000 5.750%, 9/30/97.................... 135,140,293
50,000 5.750%, 10/31/97................... 50,037,723
175,000 5.250% 12/31/97.................... 174,566,568
TOTAL U.S. TREASURY NOTES
(COST $816,171,816)................ 816,171,816
REPURCHASE AGREEMENTS* -- 80.4%
120,000 Barclays Bank, PLC,
5.350%, dated 2/28/97, due 3/03/97
(1)................................ 120,000,000
120,000 Daiwa Securities Co., Ltd.,
5.360%, dated 2/28/97, due 3/03/97
(2)................................ 120,000,000
150,000 Dean Witter Reynolds, Inc.,
5.350%, dated 2/24/97, due 3/03/97
(3)................................ 150,000,000
120,000 Donaldson, Lufkin & Jenrette
Securities Corp.,
5.350%, dated 2/28/97, due 3/03/97
(4)................................ 120,000,000
100,000 Dresdner Bank AG,
5.350%, dated 2/24/97, due 3/03/97
(5)................................ 100,000,000
102,062 Dresdner Bank AG,
5.250%, dated 2/03/97, due 4/30/97
(6)**+............................. 102,062,500
151,500 Dresdner Bank AG,
5.330%, dated 2/04/97, due 6/30/97
(7)**+............................. 151,500,000
120,000 First Boston Corp.,
5.350%, dated 2/28/97, due 3/03/97
(8)................................ 120,000,000
120,000 Goldman, Sachs Group L.P.,
5.350%, dated 2/28/97, due 3/03/97
(9)................................ 120,000,000
120,000 HSBC Securities, Inc.,
5.350%, dated 2/28/97, due 3/3/97
(10)............................... 120,000,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
$130,000 Lehman Brothers Inc.,
5.370%, dated 2/28/97, due 3/03/97
(11)............................... $ 130,000,000
120,000 Merrill Lynch, Pierce, Fenner
& Smith,
5.350%, dated 2/28/97, due 3/03/97
(12)............................... 120,000,000
120,000 Morgan Guaranty Trust Co.
of New York,
5.375%, dated 2/28/97, due 3/03/97
(13)............................... 120,000,000
120,000 Morgan Stanley Co.,
5.300%, dated 2/28/97, due 3/03/97
(14)............................... 120,000,000
50,000 NationsBank, Charlotte, NC,
5.350%, dated 2/28/97, due 3/03/97
(15)............................... 50,000,000
200,000 Nikko Securities Co.
International, Inc.,
5.360%, dated 2/24/97, due 3/03/97
(16)............................... 200,000,000
150,000 Smith Barney Shearson, Inc.,
5.280%, dated 2/20/97, due 3/06/97
(17)............................... 150,000,000
72,100 Smith Barney Shearson, Inc.,
5.330%, dated 2/20/97, due 5/15/97
(18)**+............................ 72,100,000
50,000 State Street Bank & Trust Co.,
5.100%, dated 2/28/97, due 3/03/97
(19)............................... 50,000,000
120,000 Union Bank Switzerland,
5.370%, dated 2/28/97, due 3/03/97
(20)............................... 120,000,000
TOTAL REPURCHASE AGREEMENTS
(COST $2,355,662,500).............. 2,355,662,500
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
<C> <S> <C> <C>
MUTUAL FUND SHARES -- 2.7%
(COST $79,540,717)
79,540 Fidelity U.S. Treasury, Inc.
Portfolio................... 79,540,717
TOTAL INVESTMENTS --
(COST $3,350,733,783)..... 114.4% 3,350,733,783
OTHER ASSETS AND
LIABILITIES -- NET........ (14.4) (422,364,779)
NET ASSETS.................. 100.0% $2,928,369,004
</TABLE>
39
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
STATEMENT OF INVESTMENTS -- (CONTINUED)
FEBRUARY 28, 1997
(UNAUDITED)
* Collateralized by:
(1) $35,364,000 U.S. Treasury Notes, 6.00% to 6.50%, 12/31/97 to 5/15/05; value
including accrued interest -- $35,858,189 and $78,736,000 U.S. Treasury
Bonds, 6.625% to 6.875%, 8/15/25 to 2/15/27; value including accrued
interest -- $77,342,181 and $39,800,000 U.S. Treasury Strips, 5/15/12 to
8/15/24; value including accrued interest -- $9,200,121.
(2) $104,613,000 U.S. Treasury Bonds, 11/15/08 to 11/15/22; value including
accrued interest -- $122,400,222.
(3) $14,513,000 U.S. Treasury Notes, 5.875% to 8.875%, 7/31/97 to 11/15/01;
value including accrued interest -- $15,532,303 and $40,149,000 U.S.
Treasury Bills, 7/3/97 to 1/8/98; value including accrued
interest -- $38,906,229 and $341,077,033 U.S. Treasury Strips, 5/15/97 to
8/15/26; value including accrued interest -- $98,561,942.
(4) $8,010,000 U.S. Treasury Notes, 5.75%, 8/15/03; value including accrued
interest -- $7,724,915 and $282,041,000 U.S. Treasury Strips, 5/15/97 to
2/15/25; value including accrued interest -- $114,675,597.
(5) $500,000 U.S. Treasury Notes, 6.875%, 7/3/99; value including accrued
interest -- $510,629 and $103,014,000 U.S. Treasury Bills, 3/6/97 to
6/26/97; value including accrued interest -- $101,489,538.
(6) $1,715,000 U.S. Treasury Notes, 5.25%, 12/31/97; value including accrued
interest -- $1,724,856 and $107,037,087 GNMA, 5.50% to 6.50%; value
including accrued interest -- $102,330,270.
(7) $152,875,000 U.S. Treasury Notes, 5.25% to 6.625%, 12/31/97 to 6/30/01;
value including accrued interest -- $154,741,951.
(8) $123,190,000 U.S. Treasury Notes, 2/28/98 to 8/15/03; value including
accrued interest -- $122,646,400.
(9) $137,751,000 U.S. Treasury Bills, 6.00%, 02/15/26; value including accrued
interest -- $122,400,124.
(10) $127,303,835 GNMA, 5.50% to 7.125%; value including
interest -- $122,402,557.
(11) $249,009,000 U.S. Treasury Strips, 5/15/05 to 11/15/08; value including
accrued interest -- $132,602,012.
(12) $60,486,000 U.S. Treasury Bills, 10.375% to 14.00%, 11/15/11 to 8/15/13;
value including accrued interest -- $91,040,470 and $205,105,000 U.S.
Treasury Strips, 6.00% to 8.75%, 8/15/20 to 8/15/26; value including
accrued interest -- $31,364,202.
(13) $123,139,000 U.S. Treasury Notes, 6.25%, 2/28/02; value including accrued
interest -- $122,400,659.
(14) $108,632,000 U.S. Treasury Bills, 8.125%, 8/15/19; value including accrued
interest -- $123,326,067.
(15) $51,000,000 U.S. Treasury Notes, 6.00%, 9/30/98; value including accrued
interest -- $51,023,904.
(16) $200,645,000 U.S. Treasury Notes, 5.50% to 8.75%, 6/30/97 to 12/31/00;
value including accrued interest -- $204,341,172.
(17) & (18) $226,089,367 GNMA, 4.50% to 8.50%, 1/1/00 to 2/20/27; value
including accrued interest -- $220,209,709 and $21,771,000 U.S. Treasury
Strips, 11/15/14; value including accrued interest -- $6,339,998.
(19) $50,000,000 U.S. Treasury Bills, 7.50%, 11/15/16; value including accrued
interest -- $49,989,386.
(20) $193,243,000 U.S. Treasury Strips, 5/15/02 to 5/15/05; value including
accrued interest -- $122,402,760.
** Repurchase agreements are puttable back to the issuer on no more than seven
calendar days notice given by the Fund.
+ Represents investment of cash collateral received from securities on loan.
++ Securities on loan (See Note 3).
See accompanying notes to financial statements.
40
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in repurchase agreements........................................................................ $2,355,662,500
Investments in securities................................................................................... 995,071,283
Investments at value (identified cost $3,350,733,783).................................................... 3,350,733,783
Cash........................................................................................................ 28
Interest receivable......................................................................................... 14,047,611
Receivable for Fund shares sold............................................................................. 262,629
Prepaid expenses and other assets........................................................................... 79,363
Total assets.......................................................................................... 3,365,123,414
LIABILITIES:
Securities on loan.......................................................................................... 326,686,987
Payable for investments purchased........................................................................... 99,358,750
Dividends payable........................................................................................... 8,210,392
Accrued expenses............................................................................................ 1,639,593
Accrued advisory fee........................................................................................ 771,366
Payable for Fund shares redeemed............................................................................ 2,393
Administration fee payable.................................................................................. 84,929
Total liabilities..................................................................................... 436,754,410
NET ASSETS..................................................................................................... $2,928,369,004
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $2,928,319,364
Accumulated net realized gain on investment transactions.................................................... 49,640
Net assets............................................................................................ $2,928,369,004
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($2,298,842,953)(2,298,816,515 shares of beneficial interest outstanding)..................... $ 1.00
Class Y Shares ($629,526,051)(629,519,400 shares of beneficial interest outstanding)......................... $ 1.00
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest..................................................................................... $87,318,975
EXPENSES:
Advisory fee................................................................................. $ 5,686,866
Distribution fee -- Class A Shares........................................................... 3,745,455
Administration fee........................................................................... 723,741
Custodian fee................................................................................ 258,368
Transfer agent fee........................................................................... 75,860
Reports and notices to shareholders.......................................................... 55,295
Trustees' fees and expenses.................................................................. 28,363
Registration and filing fees................................................................. 18,433
Professional fees............................................................................ 16,914
Insurance.................................................................................... 10,514
Other........................................................................................ 11,197
10,631,006
Less advisory fee waiver..................................................................... (210,020)
Net expenses.............................................................................. 10,420,986
Net investment income........................................................................... 76,897,989
Net realized gain on investments................................................................ --
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $76,897,989
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
(Photo of eagle)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1997 AUGUST 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................... $ 76,897,989 $ 121,967,383
Net realized gain (loss) on investment transactions................................. -- 161,674
Net increase in net assets resulting from operations............................. 76,897,989 122,129,057
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares...................................................................... (58,225,400) (101,441,299)
Class Y Shares...................................................................... (18,672,589) (20,526,084)
Total distributions to shareholders from net investment income................... (76,897,989) (121,967,383)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold........................................................... 4,033,715,063 6,442,829,718
Proceeds from shares issued from acquisition
of FFB U.S. Treasury Fund........................................................ -- 1,070,672,333
Proceeds from shares issued from acquisition
of FFB U.S. Government Fund...................................................... -- 327,532,054
Proceeds from shares issued from acquisition
of FFB 100% U.S. Treasury Fund................................................... -- 28,227,573
Proceeds from reinvestment of distributions......................................... 10,668,847 17,972,077
Payments for shares redeemed........................................................ (4,483,678,594) (5,974,992,600)
Net increase (decrease) resulting from Fund share transactions................... (439,294,684) 1,912,241,155
Net increase (decrease) in net assets............................................ (439,294,684) 1,912,402,829
NET ASSETS:
Beginning of period................................................................. 3,367,663,688 1,455,260,859
End of period....................................................................... $ 2,928,369,004 $ 3,367,663,688
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
CLASS A SHARES
(Photo of eagle)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS EIGHT
ENDED MONTHS
FEBRUARY 28, YEAR ENDED ENDED YEAR ENDED
1997 AUGUST 31, AUGUST 31, DECEMBER 31,
(UNAUDITED) 1996 1995# 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income......................................... 0.02 0.05 0.03 0.04 0.03
Less distributions to shareholders from net investment
income...................................................... (0.02) (0.05) (0.03) (0.04) (0.03)
Net asset value, end of period................................ $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+................................................. 2.3% 5.0% 3.6% 3.8% 2.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)....................... $2,299 $2,608 $1,178 $755 $261
Ratios to average net assets:
Expenses**.................................................. 0.71%++ 0.69% 0.63%++ 0.50% 0.48%
Net investment income**..................................... 4.66%++ 4.76% 5.30%++ 3.91% 2.70%
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $1.00
Net investment income......................................... 0.03
Less distributions to shareholders from net investment
income...................................................... (0.03)
Net asset value, end of period................................ $1.00
TOTAL RETURN+................................................. 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)....................... $209
Ratios to average net assets:
Expenses**.................................................. 0.48%
Net investment income**..................................... 3.22%
</TABLE>
# The Fund changed its fiscal year end from December 31 to August 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
SIX MONTHS EIGHT
ENDED MONTHS
FEBRUARY 28, YEAR ENDED ENDED YEAR ENDED
1997 AUGUST 31, AUGUST 31, DECEMBER 31,
(UNAUDITED) 1996 1995# 1994 1993
<S> <C> <C> <C> <C> <C>
Expenses......................................................... 0.72%++ 0.77% 0.79%++ 0.78% 0.82%
Net investment income............................................ 4.65%++ 4.68% 5.14%++ 3.63% 2.36%
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
<S> <C>
Expenses......................................................... 0.82%
Net investment income............................................ 2.88%
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN TREASURY MONEY MARKET FUND
CLASS Y SHARES
(Photo of eagle)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS EIGHT
ENDED MONTHS
FEBRUARY 28, YEAR ENDED ENDED YEAR ENDED
1997 AUGUST 31, AUGUST 31, DECEMBER 31,
(UNAUDITED) 1996 1995# 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period......................... $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income........................................ 0.02 0.05 0.04 0.04 0.03
Less distributions to shareholders from net investment
income..................................................... (0.02) (0.05) (0.04) (0.04) (0.03)
Net asset value, end of period............................... $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN+................................................ 2.5% 5.3% 3.8% 4.1% 3.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)...................... $630 $760 $277 $163 $366
Ratios to average net assets:
Expenses**................................................. 0.41%++ 0.39% 0.33%++ 0.20% 0.18%
Net investment income**.................................... 4.96%++ 5.12% 5.60%++ 3.78% 3.00%
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period......................... $1.00
Net investment income........................................ 0.04
Less distributions to shareholders from net investment
income..................................................... (0.04)
Net asset value, end of period............................... $1.00
TOTAL RETURN+................................................ 3.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)...................... $286
Ratios to average net assets:
Expenses**................................................. 0.17%
Net investment income**.................................... 3.61%
</TABLE>
# The Fund changed its fiscal year end from December 31 to August 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
SIX MONTHS EIGHT
ENDED MONTHS
FEBRUARY 28, YEAR ENDED ENDED YEAR ENDED
1997 AUGUST 31, AUGUST 31, DECEMBER 31,
(UNAUDITED) 1996 1995# 1994 1993
<S> <C> <C> <C> <C> <C>
Expenses........................................................ 0.43%++ 0.47% 0.49%++ 0.48% 0.52%
Net investment income........................................... 4.95%++ 5.04% 5.44%++ 3.50% 2.66%
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
<S> <C>
Expenses........................................................ 0.52%
Net investment income........................................... 3.26%
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Money Market Funds (the "Funds") are separate series of
open-end management companies registered under the Investment Company Act of
1940, as amended (the "Act"). The Evergreen Money Market Funds consist of
Evergreen Money Market Fund ("Money Market"), Evergreen Pennsylvania Tax-Free
Money Market Fund ("Pennsylvania"), Evergreen Tax Exempt Money Market Fund ("Tax
Exempt") and Evergreen Treasury Money Market Fund ("Treasury"), known
collectively as the Funds. Money Market is the sole series of Evergreen Money
Market Trust, Pennsylvania is a series of Evergreen Tax-Free Trust, Tax Exempt
is a series of Evergreen Municipal Trust and Treasury is a series of Evergreen
Investment Trust.
The investment objective of Money Market and Pennsylvania is to achieve as
high a level of current income as is consistent with preserving capital and
providing liquidity. The investment objective of Tax Exempt is to achieve as
high a level of current income exempt from Federal income tax, as is consistent
with preserving capital and providing liquidity. Treasury's investment objective
is to maintain stability of principal while earning current income.
NOTE 2 -- ACQUISITION INFORMATION
Effective January 1, 1996, First Union Corporation, the corporate parent of
First Union National Bank of North Carolina ("First Union"), the Funds' current
investment advisor, consummated a merger with First Fidelity Bancorporation.
Effective on the close of business January 19, 1996, the Funds noted below
acquired substantially all of the net assets of the following management
investment companies previously advised by a subsidiary of First Fidelity
Bancorporation through non-taxable exchanges. The net assets acquired, valued at
$1 per share, and class of shares exchanged are as follows:
<TABLE>
<CAPTION>
CLASS OF SHARES NET ASSETS
ACQUIRED FUND ACQUIRING FUND EXCHANGED ACQUIRED
<S> <C> <C> <C>
FFB Cash Management Fund Money Market Class A $ 592,358,361
FFB Lexicon Cash Management Fund Money Market Class Y 95,834,929
FFB Tax-Free Money Market Fund Tax Exempt Class A 103,129,021
FFB U.S. Treasury Fund Treasury Class A 1,070,672,333
FFB U.S. Government Fund Treasury Class A 327,532,054
FFB 100% U.S. Treasury Fund Treasury Class A 28,227,573
</TABLE>
The aggregate net assets of Money Market, Tax Exempt and Treasury
immediately after the acquisitions were $1,865,328,722, $1,141,961,188 and
$3,053,739,559, respectively.
Also, effective January 19, 1996, the FFB Pennsylvania Tax-Free Money
Market Fund was renamed Evergreen Pennsylvania Tax-Free Money Market Fund.
Shares of the FFB Pennsylvania Tax-Free Money Market Fund's class previously
known as the institutional class and service class were redesignated
Pennsylvania's Class Y Shares and Class A Shares, respectively. Pennsylvania
subsequently changed its fiscal year end to August 31.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Portfolio securities are valued at amortized cost
which approximates market value. The amortized cost method involves valuing a
security at cost on the date of purchase and thereafter assuming a straight-line
amortization of any discount or premium to maturity.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
46
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized or accreted into
interest income.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis, and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by each Funds'
Trustees.
LENDING SECURITIES -- In order to generate income and to offset expenses,
the Funds may lend portfolio securities to brokers, dealers and other financial
organizations. The Funds' investment adviser will monitor the creditworthiness
of such borrowers. Loans of securities may not exceed 30% of a Fund's total
assets and will be collateralized by cash, letters of credit or United States
Government securities that are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities, including
accrued interest. While such securities are on loan, the borrower will pay a
Fund any income accruing thereon, and the Fund may invest the collateral in
portfolio securities, thereby increasing its return. A fund will have the right
to call any such loan and obtain the securities loaned at any time on five days'
notice. Any gain or loss in the market price of the loaned securities which
occurs during the term of the loan would affect a Fund and its investors. A Fund
may pay reasonable fees in connection with such loans.
At February 28, 1997, Treasury had $321,306,844 in Treasury Notes on loan
and held $326,754,310 (including interest) in repurchase agreements as
collateral.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended February 28, 1997 for Treasury was $90,199,804 at a
weighted average interest rate of 5.14%. The maximum amount of borrowing during
the six months ended February 28, 1997 was $151,500,000.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis begin earning interest on the settlement date.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared daily and paid monthly. Dividends from net realized capital gains on
investments, if any, will be distributed at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from the amounts available for distribution under
generally accepted accounting principles. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable and other net income to its
shareholders. Accordingly, no provisions for Federal income or excise taxes are
necessary. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is each Fund's policy not to distribute such gains.
47
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
At August 31, 1996, the Funds had capital loss carryforwards in the
following amounts:
<TABLE>
<CAPTION>
EXPIRATION
2001 2002 2003 2004
<S> <C> <C> <C> <C>
Money Market.................. -- -- $516,766 --
Pennsylvania.................. $ 3,800 -- 6,039 $ 378
Tax Exempt.................... 177,088 $266 15,847 64,670
</TABLE>
Capital losses incurred after October 31 within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Money Market and Tax Exempt have incurred and elected to defer $34,087
and $9, respectively, of such capital losses from the prior fiscal year end to
the current fiscal year.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Net investment income (other than class
specific expenses) and realized and unrealized gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
of each class.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union is entitled to an annual fee
of .35 of 1% of Treasury's average daily net assets pursuant to the Fund's
investment advisory agreement. For the six months ended February 28, 1997, First
Union voluntarily waived $210,020 of its advisory fee.
For Pennsylvania, First Union is entitled to an annual advisory fee based
on the Fund's net assets in accordance with the following schedule:
<TABLE>
<CAPTION>
ADVISORY FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.40% on the first $500 million
0.36% on the next $500 million
0.32% on the next $500 million
0.28% in excess of $1.5 billion
</TABLE>
For the six months ended February 28, 1997, First Union voluntarily waived
$54,465 of its advisory fee for Pennsylvania. First Union can modify or
terminate voluntary fee waivers at any time.
Pursuant to an agreement with Money Market and Tax Exempt's investment
adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned
subsidiary of First Union, Evergreen Asset is entitled to an annual fee based on
Money Market and Tax Exempt's average daily net assets in accordance with the
following schedule:
<TABLE>
<CAPTION>
ADVISORY FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.50% on the first $1 billion
0.45% in excess of $1 billion
</TABLE>
Evergreen Asset has agreed to reimburse Money Market and Tax Exempt to the
extent that either Fund's operating expenses (including the investment advisory
fee but excluding interest, taxes, brokerage commissions, 12b-1 distribution and
shareholder services fees and extraordinary expenses) exceeds 1.00% of its
average daily net assets for any fiscal year. For the six months ended February
28, 1997, the expenses of Money Market and Tax Exempt did not exceed this limit.
For the
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
six months ended February 28, 1997, Evergreen Asset voluntarily waived
$1,255,415 and $283,470 of its advisory fee for Money Market and Tax Exempt,
respectively. Evergreen Asset can modify or terminate these voluntary waivers at
any time.
Lieber & Company, an affiliate of First Union is the investment sub-adviser
for Money Market and Tax Exempt. Lieber & Company is reimbursed by Evergreen
Asset at no additional expense to the Funds.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnished Money Market and Tax
Exempt with administrative services as part of their advisory agreements and
accordingly, these Funds did not pay a separate administration fee. Furman Selz
LLC ("Furman Selz") was each Fund's sub-administrator through December 31, 1996.
Effective January 1, 1997, the BISYS Group Inc. ("BISYS") acquired Furman Selz'
mutual fund unit and accordingly, BISYS became sub-administrator for each Fund.
For Money Market and Tax Exempt, the sub-administration fee is paid by Evergreen
Asset and is not a fund expense.
For Pennsylvania and Treasury, Evergreen Asset served as administrator and
Furman Selz was each Fund's sub-administrator through December 31, 1996.
Effective January 1, 1997, BISYS became sub-administrator. The administrator and
sub-administrator to the Funds are each entitled an annual fee based on the
average daily net assets of the Funds administered by Evergreen Asset or
Evergreen Keystone Investment Services ("EKIS"), a subsidiary of First Union,
for which First Union or its investment advisory subsidiaries is also the
investment adviser. These fees are calculated at the following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
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
in excess of $30 billion
0.010%
</TABLE>
<TABLE>
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
in excess of $25 billion
0.0040%
</TABLE>
Effective March 11, 1997, EKIS began providing the administrative services
to the funds that were formerly provided by Evergreen Asset. The administrative
fees are unchanged from those charged by Evergreen Asset.
As sub-administrator, Furman Selz/BISYS provided the officers of the Funds.
At February 28, 1997, assets for which EKIS was the administrator for which
either Evergreen Asset or First Union was investment adviser totaled
approximately $29 billion.
State Street Bank & Trust Company ("State Street") serves as transfer
agent, dividend disbursing agent and shareholder servicing agent for each of the
Funds. For certain accounts, First Union has been sub-contracted by State Street
to maintain shareholder sub-account records, take Fund purchase and redemption
orders and answer inquiries. First Union was entitled to a monthly fee which
totaled $6,782, $60, $2,019 and $1,031 for the six months ended February 28,
1997 for Money Market, Pennsylvania, Tax Exempt and Treasury, respectively.
PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A Shares
and Class B Shares (Money Market only) Distribution Plans (the "Plans") pursuant
to Rule 12b-1 under the Act . Under the terms of the Plans, the Funds may incur
distribution-related and shareholder servicing expenses which may not exceed .75
of 1% for Class A Shares for Money Market and Tax Exempt and .35 of 1% for Class
A Shares for Pennsylvania and Treasury. The payments for Class A Shares for
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Money Market, Tax Exempt and Treasury were voluntarily limited to .30 of 1% and
for Pennsylvania were limited to .09 of 1% of average daily net assets for the
six-months ended February 28, 1997. Money Market may incur distribution-related
and shareholder servicing expenses, which may not exceed an annual fee of 1% for
its Class B Shares.
In connection with their Plans, the Funds have entered into distribution
agreements with Evergreen Keystone Distributor, Inc. (formerly, Evergreen Funds
Distributor, Inc.) ("EKD"), a wholly owned subsidiary of BISYS whereby each Fund
will compensate EKD for its services at a rate which may not exceed .30 of 1% of
its Class A average daily net assets and 1% of its Class B average daily net
assets (Money Market only). A portion of Money Market's Class B Plan, up to .25
of 1% of average daily net assets may constitute a shareholder service fee. EKD
has entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of First Union, whereby EKD will compensate FUBS
for certain services provided to shareholders and/or maintenance of shareholder
accounts relating to Money Market's Class B shares.
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
Money Market and Tax Exempt have an unlimited number of $0.0001 par value
shares of beneficial interest authorized. Pennsylvania and Treasury have an
unlimited number of $.001 par value shares of beneficial interest authorized.
The shares are divided into classes which are designated Class Y, Class A and
Class B Shares (Money Market only). Class Y shares are available only to
investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other funds
managed by First Union and its affiliates as of December 30, 1994. The classes
have identical voting, dividend, liquidation and other rights, except that Class
A and Class B shares bear distribution expenses (see Note 4) and have exclusive
voting rights with respect to their distribution plans.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest (valued at $1.00 per share)
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
MONEY MARKET 1997 1996
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 2,013,783,946 3,360,065,151
Shares issued from acquisition of FFB Cash Management Fund................................... -- 592,362,245
Shares issued from reinvestment of distributions............................................. 9,207,708 13,630,468
Shares redeemed.............................................................................. (1,861,861,977) (2,895,924,591)
Net increase................................................................................. 161,129,677 1,070,133,273
CLASS B
Shares sold.................................................................................. 6,906,195 13,107,126
Shares issued from reinvestment of distributions............................................. 184,749 307,330
Shares redeemed.............................................................................. (5,975,312) (11,123,113)
Net increase................................................................................. 1,115,632 2,291,343
CLASS Y
Shares sold.................................................................................. 2,317,326,138 2,902,529,372
Shares issued from acquisition of FFB Lexicon Cash Management Fund........................... -- 95,834,876
Shares issued from reinvestment of distributions............................................. 9,757,700 14,304,225
Shares redeemed.............................................................................. (2,204,927,189) (2,624,143,977)
Net increase................................................................................. 122,156,649 388,524,496
Total net increase resulting from Fund share transactions.................................... 284,401,958 1,460,949,112
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
FEBRUARY 28, AUGUST 31,
PENNSYLVANIA 1997 1996
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 46,555,951 40,205,338
Shares issued from reinvestment of distributions............................................. 83,686 35,417
Shares redeemed.............................................................................. (34,695,876) (22,377,383)
Net increase................................................................................. 11,943,761 17,863,372
CLASS Y
Shares sold.................................................................................. 25,271,967 21,254,692
Shares issued from reinvestment of distributions............................................. 456,320 586,491
Shares redeemed.............................................................................. (34,937,760) (56,919,288)
Net decrease................................................................................. (9,209,473) (35,078,105)
Total net increase (decrease) resulting from Fund share transactions......................... 2,734,288 (17,214,733)
</TABLE>
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
TAX EXEMPT 1997 1996
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 634,739,465 1,329,098,871
Shares issued from acquisition of FFB Tax-Free Money Market Fund............................. -- 103,102,728
Shares issued from reinvestment of distributions............................................. 1,666,950 3,435,421
Shares redeemed.............................................................................. (607,345,858) (1,330,067,450)
Net increase................................................................................. 29,060,557 105,569,570
CLASS Y
Shares sold.................................................................................. 631,788,024 1,243,309,865
Shares issued from reinvestment of distributions............................................. 6,466,057 12,767,571
Shares redeemed.............................................................................. (778,095,395) (1,060,731,679)
Net increase (decrease)...................................................................... (139,841,314) 195,345,757
Total net increase (decrease) resulting from Fund share transactions......................... (110,780,757) 300,915,327
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
TREASURY 1997 1996
<S> <C> <C>
CLASS A
Shares sold.................................................................................. 2,499,162,543 4,828,856,886
Shares issued from acquisition of FFB U.S. Treasury Fund..................................... -- 1,070,688,429
Shares issued from acquisition of FFB U.S. Government Fund................................... -- 327,554,031
Shares issued from acquisition of FFB 100% U.S. Treasury Fund................................ -- 28,227,628
Shares issued from reinvestment of distributions............................................. 9,220,141 16,836,594
Shares redeemed.............................................................................. (2,817,240,630) (4,842,442,130)
Net increase (decrease)...................................................................... (308,857,946) 1,429,721,438
CLASS Y
Shares sold.................................................................................. 1,534,552,520 1,613,972,832
Shares issued from reinvestment of distributions............................................. 1,448,706 1,135,483
Shares redeemed.............................................................................. (1,666,437,964) (1,132,550,470)
Net increase (decrease)...................................................................... (130,436,738) 482,557,845
Total net increase (decrease) resulting from Fund share transactions......................... (439,294,684) 1,912,279,283
</TABLE>
NOTE 6 -- DEFERRED TRUSTEE'S FEES
Each Trustee may defer any or all compensation related to performance of
duties as a Trustee of the Funds. Each Trustee's deferred balances are allocated
to deferral accounts which are included in the accrued expenses for each Fund.
The investment performance of the deferral accounts are based on the investment
performance of certain Evergreen Funds. Any gains earned or losses incurred in
the deferral accounts are reported to each Fund's Trustee's fees and expenses.
Trustees will
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 -- DEFERRED TRUSTEE'S FEES -- continued
be paid either in one lump sum or in quarterly installments for up to ten years
at their election, not earlier that either the year in which the Trustee ceases
to be a member of the Board of Trustees or January 1, 2000. As of February 28,
1997, the value of the Trustees deferral accounts was $29,732, $3,448, $14,406,
and $76,505 for Money Market, Pennsylvania, Tax Exempt and Treasury,
respectively.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Each Fund maintains a diversified portfolio of money market instruments
which are deemed, under Rule 2a-7 of the Act, to have a maturity of 397 days or
less and whose ratings are determined to be of eligible quality under Securities
and Exchange Commission rules. The ability of the issuers of the securities held
by the Pennsylvania and Tax Exempt to meet their obligations may be affected by
economic developments in a specific industry, state, region or country. Certain
instruments may be entitled to the benefit of standby letters of credit or other
guarantees of banks or other financial institutions.
NOTE 8 -- LINE OF CREDIT
A financing agreement was in place with all of the Evergreen Funds and
State Street Bank. Under this agreement, State Street provided an unsecured line
of credit facility, in the aggregate amount of $50 million, to be accessed by
the Evergreen Funds for temporary or emergency purposes only and is subject to
each participating Fund's borrowing restrictions. Effective October 31, 1996, a
new financing agreement was put in place with all of the Evergreen Funds and
State Street, Societe Generale and ABN Amro Bank N.V. (collectively, the
"Banks"). Under this agreement, the Banks provided an unsecured credit facility
in the aggregate amount of $225 million ($112.5 million committed and $112.5
million uncommitted) allocated evenly between the Banks. Borrowings under this
facility bear interest at .75% per annum above the Federal Funds rate. A
commitment fee of 0.10% per annum will be incurred on the unused portion of the
committed facility which would be allocated to all participating funds.
During the six months ended February 28, 1997, Tax Exempt had borrowings
outstanding for 3 days under the line of credit and incurred $28,513 in interest
charges related to these borrowings. The Fund's average amount of debt
outstanding during the six months ended February 28, 1997 aggregated $47,400,000
at a weighted average interest rate of 7.32%. The Funds had no outstanding
borrowings at February 28, 1997.
53
<PAGE>
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<PAGE>
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<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin*
Foster Bam*
James S. Howell, Chairman
Robert J. Jeffries*+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
George O. Martinez
Secretary
Sheryl Hirschfeld
Assistant Secretary
Stephen W. St. Clair
Assistant Treasurer
* Not a Trustee for Evergreen Treasury Money Market Fund.
+ Trustee Emeritus
<PAGE>
This brochure must be preceeded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully
before investing or sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Keystone Distributor, Inc.
Evergreen Keystone(SM) is a Service Mark of Evergreen Keystone Investment
Services, Inc. Copyright 1997.
48465 540710
4/97
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
AGREEMENT, made on this ___ day of ___________, 1995, by and
between the registered open-end investment companies listed in
Attachment A hereto (each a "Fund" and together, the "Funds"), and
___________ (the "Trustee").
WHEREAS, the Trustee is serving as a director/trustee of the
Funds for which he is entitled to receive trustees' fees; and
WHEREAS, the Funds and the Trustee desire to permit the
Trustee to defer receipt of trustees' fees payable by the Funds;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Trustee
hereby agree as follows:
1. DEFINITION OF TERMS AND CONDITIONS
1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Agreement shall
have the meanings specified below:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after
the death of the Trustee.
(b) "Board of Trustees" shall mean the Board of
Trustees or the Board of Directors of a Fund.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of trustees'
fees paid by a Fund to the Trustee during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Trustee's Compensation deferred under the provisions
of Section 3 of this Agreement.
(f) "Deferral Account" shall mean the account
maintained to reflect the Trustee's Compensation Deferrals made
pursuant to Section 3 hereof and any other credits or debits thereto.
(g) "Deferral-Year" shall mean each calendar year
during which the Trustee makes, or is entitled to make, Compensation
Deferrals under Section 3 hereof.
(h) "Valuation Date" shall mean the last business day
of each calendar year and any other day upon which a Fund makes a
valuation of the Deferred Account.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the
feminine, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Trustees and Directors. Where appearing in this Agreement,
"Trustee" shall also refer to "Director" and trustee emeritus and
director emeritus and "Board of Trustees" shall also refer to "Board of
Directors."
1.4 Headings. The headings and subheadings in this Agreement are
inserted for the convenience of reference only and are to be ignored in
any construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is
drafted, and shall be construed, as a separate agreement between the
Trustee and each of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Trustee may elect,
on a form provided by, and submitted to, the Secretary of a Fund, to
commence Compensation Deferrals under Section 3 hereof for the period
beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Secretary of the Fund.
2.2 Termination of Deferrals. The Trustee shall not be eligible to
make Compensation Deferrals after the earlier of the following dates:
(a) The date on which he ceases to serve as a Trustee of
the Fund; or
(b) The effective date of the termination of this
Agreement.
3. COMPENSATION DEFERRALS
3. Compensation Deferral Elections.
(a) Except as provided below, a deferral election on the form
described in Section 2.1 hereof, must be filed with the Secretary of a
Fund prior to the first day of the Deferral Year to which it applies.
The form shall set forth the amount of such Compensation Deferral (in
whole percentage amounts) . Such election shall continue in effect for
all subsequent Deferral Years unless it is canceled or modified as
provided below. Notwithstanding the foregoing, (i) any person who is
elected to the Board during a fiscal year of a Fund may elect before
becoming a Trustee or within 30 days after becoming a Trustee to defer
any unpaid portion of the retainer of such fiscal year and the fees for
any future meetings during such fiscal year by filing an election form
with the Secretary of the Fund, and (ii) Trustees may elect to defer any
unpaid portion of the retainer for the fiscal year in which Deferred
Compensation Agreements are first authorized by the Board and any unpaid
fees for any future meetings during such fiscal year by submitting an
election form to the Secretary of a Fund within 30 days of such
authorization.
(b) Compensation Deferrals shall be withheld from each
payment of Compensation by a Fund to the Trustee based upon the
percentage amount elected by the Trustee under Section 3.1 (a) hereof.
(c) The Trustee may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the
Secretary of a Fund a revised compensation Deferral election form.
Subject to the provisions of Section 4.2 hereof, such change will be
effective as of the first day of the Deferral Year following the date
such revision is submitted to the Secretary of the Fund.
3.2 Valuation of Deferral Account.
(a) A Fund shall establish a bookkeeping Deferral Account to
which will be credited an amount equal to the Trustee's Compensation
Deferrals under this Agreement. Compensation Deferrals shall be
allocated to the Deferral Account on the day such Compensation
Deferrals are withheld from the Trustee's Compensation and shall be
deemed invested pursuant to Section 3.3, below, as of the same day. The
Deferral Account shall be debited to reflect any distributions from
such Account. Such debits shall be allocated to the Deferral Account as
of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the
manner set forth under Section 3.3, below) attributable to the period
following the next preceding Valuation Date shall be credited to and/or
deducted from the Trustees Deferral Account.
3.3 Investment of Deferral Account Balance
(a) (1) The Trustee may select from various options made
available by the Funds the investment media in which all or part of his
Deferral Account shall be deemed to be invested. The investment media
available to the Trustee as of the date of this Agreement are listed in
Attachment B hereto.
(2) The Trustee shall make an investment designation on
a form provided by the Secretary of the Funds (Attachment C) which
shall remain effective until another valid designation has been made by
the Trustee as herein provided. The Trustee may amend his investment
designation daily by giving instructions to the Secretary of the Funds.
(3) Any changes to the investment media to be made
available to the Trustee, and any limitation on the maximum or minimum
percentages of the Trustee's Deferral Account that may be invested in
any particular medium, shall be communicated from time-to-time to the
Trustee by the Secretary of the Funds.
(b) Except as provided below, the Trustee's Deferral
Account shall be deemed to be invested in accordance with his
investment designations, provided such designations conform to the
provisions of this Section. If:
(1) the Trustee does not furnish the secretary of the
Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Trustee are unclear,
then the Trustee's election to make Compensation Deferrals hereunder
shall be held in abeyance and have no force and effect, and he shall be
deemed to have selected the Evergreen Money Market Fund until such time
as the Trustee shall provide the Secretary of the Funds with complete
investment instructions. In the event that any fund under which any
portion of the Trustee's Deferral Account is deemed to be invested
ceases to exist, such portion of the Deferral Account thereafter shall
be held in the successor to such Fund, subject to subsequent deemed
investment elections.
The use of the returns on the investment media to determine
the amount of the earnings credited to a Trustee's Deferral Account is
subject to regulatory approval. Until such approval is received, the
Compensation Deferrals of a Trustee Under this Agreement shall be
continuously credited with earnings in an amount determined by
multiplying the balance credited to the Deferral Account by an interest
rate equal to the yield on 90-day U.S. Treasury Bills.
The Secretary of the Funds shall provide an annual statement
to the Trustee showing such information as is appropriate, including the
aggregate amount in the Deferral Account, as of a reasonably current
date.
4. DISTRIBUTION FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Trustee's Deferral Account
may be paid in a lump sum or in installments as elected by the Trustee
commencing on or as soon as practicable after a date specified by the
Trustee, which may not be sooner than the earlier of the first business
day of January following (a) a date five years following the deferral
election, or (b) the year in which the Trustee ceases to be a member of
the Board of Trustees of the Funds. Notwithstanding the foregoing, in
the event of the liquidation, dissolution or winding up of a Fund or the
distribution of all or substantially all of a Fund's assets and property
relating to one or more series of its shares to the shareholders of such
series (for this purpose a sale, conveyance or transfer of a Fund's
assets to a trust, partnership, association or corporation in exchange
for cash shares or other securities with the transfer being made subject
to, or with the assumption by the transferee of, the liabilities of the
Fund shall not be deemed a termination of the Fund or such a
distribution), all unpaid amounts in the Deferral Account as of the
effective date thereof shall be paid in a lump sum on such effective
date. In addition, upon application by a Trustee and determination by
the Chairman of the Board of Trustees of the Funds that the Trustee has
suffered a severe and unanticipated financial hardship, the Secretary
shall distribute to the Trustee, in a single lump sum, an amount equal
to the lesser of the amount needed by the Trustee to meet the hardship
plus applicable income taxes payable upon such distribution, or the
balance of the Trustee's Deferral Account.
4.2 Death Prior to Complete Distribution of Deferral Account. Upon
the death of the Trustee (whether prior to or after the commencement of
the distribution of the amounts credited to his Deferral Account), the
balance of such Account shall be distributed to his Beneficiary in a
lump sum as soon as practicable after the Trustee's death.
4.3 Designation of Beneficiary. For purposes of Section 4.3 hereof,
the Trustee's Beneficiary shall be the person or persons so designated
by the Trustee in a written instrument submitted to the Secretary of the
Funds. In the event the Trustee fails to properly designate a
Beneficiary, his Beneficiary shall be the person or persons in the first
of the following classes of successive preference Beneficiaries
Surviving at the death of the Trustee: the Trustees (1) surviving
spouse, or (2) estate.
5. AMENDMENT AND TERMINATION
5.1 The Board of Trustees may at any time in its sole discretion
amend or terminate this Plan; provided however, that no Such amendment
or termination shall adversely affect the right of Trustees to receive
amounts previously credited to their Deferral Accounts.
6. MISCELLANEOUS
6.1 Rights of Creditors.
(a) This Agreement is an unfunded and non-qualified deferred
compensation arrangement. Neither the Trustee nor other persons shall
have any interest in any specific asset or assets of a Fund by reason of
any Deferral Account hereunder, nor any rights to receive distribution
of his Deferral Account except as and to the extent expressly provided
hereunder. A Fund shall not be required to purchase, hold or dispose of
any investments pursuant to this Agreement; however, if in order to
cover its obligations hereunder the Fund elects to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Fund, subject to the claims of its
general creditors and no person other than the Fund shall by virtue of
the provisions of this Agreement have any interest in such assets other
than an interest as a general creditor.
(b) The rights of the Trustee and the Beneficiaries to the amounts
held in the Deferral Account are unsecured and shall be subject to the
creditors of the Funds. With respect to the payment of amounts held
under the Deferral Account, the Trustee and his Beneficiaries have the
status of unsecured creditors of the Funds. This Agreement is executed
on behalf of the Fund by an officer of a Fund as such and not
individually. Any obligation of a Fund hereunder shall be an unsecured
obligation of the Fund and not of any other person.
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as
they deem necessary to perform their duties under this Agreement. The
Funds shall bear the cost of such services and all other expenses they
incur in connection with the administration of this Agreement.
6.3 Incapacity. If a Fund shall receive evidence satisfactory to
it that the Trustee or any Beneficiary entitled to receive any benefit
under this Agreement is, at the time when such benefit becomes payable,
a Minor, or is physically or mentally incompetent to give a valid
release therefor, and that another person or an institution is then
maintaining or has custody of the Trustee or Beneficiary and that no
guardian, committee or other representative of the estate of the Trustee
or Beneficiary shall have been duly appointed, the Fund may make payment
of such benefit otherwise payable to the Trustee or Beneficiary to such
other person or institution, including a custodian under a Uniform Gifts
to Minors Act, or corresponding legislation (who shall be a guardian of
the minor or a trust company), and the release of such other person or
institution shall be a valid and complete discharge for the payment of
such benefit.
6.4 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts
and execute any and all documents and papers which are necessary or
desirable for carrying out this Agreement or any of its provisions.
6.5 Governing Law. This Agreement is made and entered into in the
State of North Carolina and all matters concerning its validity,
construction and administration shall be governed by the laws of the
State of North Carolina.
6.6 No Guarantee of Trusteeship. Nothing contained in this
Agreement shall be construed as a guaranty or right of any Trustee to be
continued as a Trustee of one or more of the Evergreen Funds (or of a
right of a Trustee to any specific level of Compensation) or as a
limitation of the right of any of the Evergreen Funds, by shareholder
action or otherwise, to remove any of its trustees.
6.7 Counsel. The Funds may consult with legal counsel with respect
to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any
question of law, and they shall be fully protected with respect to any
action taken or omitted by them in good faith pursuant to the advice of
legal counsel.
6.8 Spendthrift Provision. The Trustees' and Beneficiaries'
interests in the Deferral Account shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charges
and any attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void; nor shall any portion
of any such right hereunder be in any manner payable to any assignee,
receiver or trustee, or be liable for such person's debts, contracts,
liabilities, engagements or torts, Or be subject to any legal process to
levy upon or attach.
6.9 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or by nationally recognized overnight
delivery service, addressed to the Trustee at the home address set forth
in the Funds' records and to a Fund at its principal place of business,
provided that all notices to a Fund shall be directed to the attention
of the Secretary of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
6.10 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Trustee with respect to the
payment of non-qualified elective deferred compensation by the Funds to
the Trustee.
6.11 Interpretation of Agreement. Interpretation of, and
determinations related to, this Agreement made by the Funds in good
faith, including any determinations of the amounts of the Deferral
Account, shall be conclusive and binding upon all parties; and a Fund
shall not incur any liability to the Trustee for any such interpretation
or determination so made or for any other action taken by it in
connection with this Agreement in good faith.
6.12 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and
assigns and to the Trustees and his heirs, executors, administrators and
personal representatives.
6.13 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the
other provisions hereof and such other provisions shall remain in full
force and effect unaffected by such invalidity or unenforceability.
6.14 Execution of Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
EVERGREEN TRUST
EVERGREEN EQUITY TRUST
EVERGREEN INVESTMENT TRUST
EVERGREEN TOTAL RETURN FUND
EVERGREEN GROWTH AND INCOME FUND
THE EVERGREEN AMERICAN RETIREMENT
TRUST
EVERGREEN FOUNDATION TRUST
EVERGREEN MUNICIPAL TRUST
EVERGREEN MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND, INC.
By:
________________ ____________________
Witness John J. Pileggi
President
________________ ____________________
Witness Trustee
<PAGE>
ATTACHMENT A
EVERGREEN TRUSTS & FUNDS
1. EVERGREEN TRUST
a. Evergreen Fund
b. Evergreen Aggressive Growth Fund
2. EVERGREEN EQUITY TRUST
a. Evergreen Global Real Estate Equity Fund
b. Evergreen U.S. Real Estate Equity Fund
C. Evergreen Global Leaders Fund
3. EVERGREEN INVESTMENT TRUST
a. Evergreen International Equity Fund
b. Evergreen Emerging Markets Growth Fund
C. Evergreen Balanced Fund
d. Evergreen Value Fund
e. Evergreen Utility Fund
f. Evergreen U.S. Government Fund
g. Evergreen Fixed Income Fund
h. Evergreen Managed Bond Fund (Y Shares only)
i. Evergreen High Grade Tax Free Fund
J. Evergreen Florida Municipal Bond Fund
k. Evergreen Georgia Municipal Bond Fund
1. Evergreen North Carolina Municipal Bond Fund
M. Evergreen South Carolina Municipal Bond Fund
n. Evergreen Virginia Municipal Bond Fund
0. Evergreen Treasury Money Market
4. EVERGREEN TOTAL RETURN FUND
5. EVERGREEN GROWTH AND INCOME FUND
6. THE EVERGREEN AMERICAN RETIREMENT TRUST
a. Evergreen American Retirement Fund
b. Evergreen Small Cap Equity Income Fund
7. EVERGREEN FOUNDATION TRUST
a. Evergreen Foundation Fund
b. Evergreen Tax Strategic Foundation Fund
8. EVERGREEN MUNICIPAL TRUST
a. Evergreen Short-intermediate municipal Fund
b. Evergreen Short-intermediate Municipal Fund-California
C. Evergreen Florida High Income Municipal Fund
d. Evergreen Tax Exempt Money Market Fund
9. EVERGREEN MONEY MARKET FUND
10. EVERGREEN LIMITED MARKET FUND, INC.
ATTACHMENT B
EVERGREEN TRUSTS & FUNDS
Available Fund Options
Evergreen International Equity Fund
Evergreen Aggressive Growth Fund
Evergreen Fund
Evergreen Foundation Fund
Evergreen Growth & Income
Evergreen Value
Evergreen Fixed Income
Evergreen Money Market Fund
<PAGE>
ATTACHMENT C
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
TO: The Secretary of The Evergreen Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of November __, 1995 by and between the
undersigned and The Evergreen Funds, I hereby make the following
elections:
Deferral of Compensation
Starting with Compensation to be paid to me with respect to
services provided by me to The Evergreen Funds after the date this
election form is provided to The Evergreen Funds, and for all periods
thereafter (unless subsequently amended by way of a new election form),
I hereby elect that ___ percent (__%) of my Compensation (as defined
under the Agreement) be deferred and that the Funds establish a
bookkeeping account credited with amounts equal to the amount so
deferred (the "Deferral Account"), The Deferral Account shall be
further credited with income equivalents as provided under the
Agreement. Each Compensation Deferral (as defined in the Agreement)
shall be deemed invested pursuant to Section 3.3 of the Agreement as of
the same day it would have been paid to me.
I wish the Compensation Deferral to be invested in the Funds
and percentages noted in Annex A to this Form.
I understand that the amounts held in the Deferral Account
shall remain the general assets of The Evergreen Funds and that, with
respect to the payment of such amounts, I am merely a general creditor
of The Evergreen Funds. I may not sell, encumber, pledge, assign or
otherwise alienate the amounts held under the Deferral Account.
<PAGE>
Distribution from Deferral Account
I hereby elect that distributions from my Deferral Account be
paid:
______ in a lump sum or
______ in quarterly installments for ___ years (specify a
number of years not to exceed ten); commencing on the first business
day of January following:
______ the year in which I cease to be a member of the
Board of Trustees of the Funds, or
______ a calendar year but not a year earlier than 2000.
I hereby agree that the terms of the Agreement are incorporated
herein and are made a part hereof. Dated as of the day and year first
above written.
WITNESS: TRUSTEE:
__________________ __________________
RECEIVED:
THE EVERGREEN FUNDS
By:____________________
Name:__________________
Title:_________________
Date:__________________
<PAGE>
ANNEX A
I desire that my deferred Compensation be invested as follows:
Evergreen International Equity Fund %_____
Evergreen Aggressive Growth Fund %_____
Evergreen Fund %_____
Evergreen Foundation Fund %_____
Evergreen Growth & Income Fund %_____
Evergreen Value %_____
Evergreen Fixed Income %_____
Evergreen Money Market Fund %_____
______________________
100% of Deferred
Compensation Amount
<PAGE>
ATTACHMENT D
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
DESIGNATION OF BENEFICIARY
You may designate one or more beneficiaries to receive any
amount remaining in your Deferral Account at your death. If your
Designated Beneficiary survives you, but dies before receiving the full
amount of the Deferral Account to which he or she is entitled, the
remainder will be paid to the Designated Beneficiary's estate, unless
you specifically elect otherwise in your Designation of Beneficiary
form.
You may indicate the names not only of one or more primary
Designated Beneficiaries but also the names of secondary beneficiaries
who would receive amounts in your Deferral Account in the event the
primary beneficiary or beneficiaries are not alive at your death. In
the case of each Designated Beneficiary, give his or her name, address,
relationship to you, and the percentage of your Deferral Account he or
she is to receive. You may change your Designated Beneficiaries at any
time, without their consent, by filing a new Designation of Beneficiary
form with the Secretary of the Funds.
******************************************
As a participant in the Evergreen Funds' Deferred Compensation
Plan (the "Plan"), I hereby designate the person or persons listed
below to receive any amount remaining in my Deferral Account in the
event of my death. This designation of beneficiary shall become
effective upon its delivery to the Secretary of the Funds prior to my
death, and revokes any designation(s) of beneficiary previously made by
me. I reserve the right to revoke this designation of beneficiary at
any time without notice to any beneficiary.
I hereby name the following as primary Designated Beneficiaries
under the Plan:
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
In the event that one or more of my primary Designated
Beneficiaries predeceases mer his or her share shall be allocated among
the Surviving primary Designated Beneficiaries. I name the following as
secondary Designated Beneficiaries under the Plan, in the event that no
primary Designated Beneficiary survives me:
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
In the event that no primary Designated Beneficiary
survives me and one or more of the secondary Designated Beneficiaries
predeceases me, his or her share shall be allocated among the
surviving secondary Designated Beneficiaries.
___________________ _____________________
(witness) (Signature of Trustee)
Date: Date:
May 20, 1997
The Evergreen Money Market Fund
2500 Westchester Avenue
Purchase, New York 10577
Keystone Liquid Trust
200 Berkeley Street
Boston, Massachusetts 02116
Re: Acquisition of Assets of Keystone Liquid Trust
Ladies and Gentlemen:
You have asked for our opinion as to certain tax consequences of the
proposed acquisition of assets of Keystone Liquid Trust ("Selling Fund"), a
Massachusetts business trust, by The Evergreen Money Market Fund ("Acquiring
Fund"), a portfolio of The Evergreen Money Market Trust, a Massachusetts
business trust, in exchange for voting shares of Acquiring Fund (the
"Reorganization").
In rendering our opinion, we have reviewed and relied upon the form of
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
The Evergreen Money Market Trust on behalf of Acquiring Fund and Selling Fund
which is enclosed with the related Prospectus/Proxy Statement dated May 20,
1997. We have relied, without independent verification, upon the factual
statements made therein, and assume that there will be no change in material
facts disclosed therein between the date of this letter and the date of closing
of the Reorganization. We further assume that the Reorganization will be carried
out in accordance with the Reorganization Agreement. We have also relied upon
the following representations, each of which has been made to us by officers of
The Evergreen Money Market Trust on behalf of Acquiring Fund or of Selling Fund:
<PAGE>
The Evergreen Money Market Fund
Keystone Liquid Trust
May 20, 1997
Page 2
A. The Reorganization will be consummated substantially as described in
the Reorganization Agreement.
B. Acquiring Fund will acquire from Selling Fund at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets held by Selling Fund immediately prior to the Reorganization.
For purposes of this representation, assets of Selling Fund used to pay
reorganization expenses, cash retained to pay liabilities, and redemptions and
distributions (except for regular and normal distributions) made by Selling Fund
immediately preceding the transfer which are part of the plan of reorganization,
will be considered as assets held by Selling Fund immediately prior to the
transfer.
C. To the best of the knowledge of management of Selling Fund, there is
no plan or intention on the part of the shareholders of Selling Fund to sell,
exchange, or otherwise dispose of a number of Acquiring Fund shares received in
the Reorganization that would reduce the former Selling Fund shareholders'
ownership of Acquiring Fund shares to a number of shares having a value, as of
the date of the Reorganization (the "Closing Date"), of less than 50 percent of
the value of all of the formerly outstanding shares of Selling Fund as of the
same date. For purposes of this representation, Selling Fund shares exchanged
for cash or other property will be treated as outstanding Selling Fund shares on
the Closing Date. There are no dissenters' rights in the Reorganization, and no
cash will be exchanged for Selling Fund shares in lieu of fractional shares of
Acquiring Fund. Moreover, shares of Selling Fund and shares of Acquiring Fund
held by Selling Fund shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Reorganization will be considered in making this
representation.
D. Selling Fund has not redeemed and will not redeem the shares of any
of its shareholders in connection with the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its shares.
<PAGE>
The Evergreen Money Market Fund
Keystone Liquid Trust
May 20, 1997
Page 3
E. The management of Acquiring Fund has no plan or intention to redeem
or reacquire any of the Acquiring Fund shares to be received by Selling Fund
shareholders in connection with the Reorganization, except to the extent
necessary to comply with its legal obligation to redeem its shares.
F. The management of Acquiring Fund has no plan or intention to sell or
dispose of any of the assets of Selling Fund which will be acquired by Acquiring
Fund in the Reorganization, except for dispositions made in the ordinary course
of business, and to the extent necessary to enable Acquiring Fund to comply with
its legal obligation to redeem its shares.
G. Following the Reorganization, Acquiring Fund will continue the
historic business of Selling Fund in a substantially unchanged manner as part of
the regulated investment company business of Acquiring Fund, or will use a
significant portion of Selling Fund's historic business assets in a business.
H. There is no intercorporate indebtedness between Acquiring Fund and
Selling Fund.
I. Acquiring Fund does not own, directly or indirectly, and has not
owned in the last five years, directly or indirectly, any shares of Selling
Fund. Acquiring Fund will not acquire any shares of Selling Fund prior to the
Closing Date.
J. Acquiring Fund will not make any payment of cash or of property
other than shares to Selling Fund or to any shareholder of Selling Fund in
connection with the Reorganization.
K. Pursuant to the Reorganization Agreement, the shareholders of
Selling Fund will receive solely Acquiring Fund voting shares in exchange for
their voting shares of Selling Fund.
L. The fair market value of the Acquiring Fund shares to be received by
the Selling Fund shareholders will be approximately equal to the fair market
value of the Selling Fund shares surrendered in exchange therefor.
<PAGE>
The Evergreen Money Market Fund
Keystone Liquid Trust
May 20, 1997
Page 4
M. Subsequent to the transfer of Selling Fund's assets to Acquiring
Fund pursuant to the Reorganization Agreement, Selling Fund will distribute the
shares of Acquiring Fund, together with other assets it may have, in final
liquidation as expeditiously as possible.
N. Selling Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of ss. 368(a)(3)(A) of the Internal Revenue
Code of 1986, as amended (the "Code").
O. Selling Fund is treated as a corporation for federal income tax
purposes and at all times in its existence has qualified as a regulated
investment company, as defined in ss. 851 of the Code.
P. Acquiring Fund is treated as a corporation for federal income tax
purposes and at all times in its existence has qualified as a regulated
investment company, as defined in ss. 851 of the Code.
Q. The sum of the liabilities of Selling Fund to be assumed by
Acquiring Fund and the expenses of the Reorganization does not exceed twenty
percent of the fair market value of the assets of Selling Fund.
R. The foregoing representations are true on the date of this letter
and will be true on the date of closing of the Reorganization.
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, it is our opinion that for federal
income tax purposes:
1. The acquisition by Acquiring Fund of all of the assets of Selling
Fund solely in exchange for voting shares of Acquiring Fund and assumption of
certain identified liabilities of Selling Fund followed by the distribution by
Selling Fund of said Acquiring Fund shares to the shareholders of Selling Fund
in exchange for their Selling Fund shares will constitute a reorganization
within the meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund and
Selling Fund will each be "a party to a reorganization" within the meaning of
ss. 368(b) of the Code.
<PAGE>
The Evergreen Money Market Fund
Keystone Liquid Trust
May 20, 1997
Page 5
2. No gain or loss will be recognized to Selling Fund upon the transfer
of all of its assets to Acquiring Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain identified liabilities
of Selling Fund, or upon the distribution of such Acquiring Fund voting shares
to the shareholders of Selling Fund in exchange for all of their Selling Fund
shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Selling Fund (including any cash retained initially by
Selling Fund to pay liabilities but later transferred) solely in exchange for
Acquiring Fund voting shares and assumption by Acquiring Fund of certain
identified liabilities of Selling Fund.
4. The basis of the assets of Selling Fund acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Selling Fund
immediately prior to the transfer, and the holding period of the assets of
Selling Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Selling Fund.
5. The shareholders of Selling Fund will recognize no gain or loss upon
the exchange of all of their Selling Fund shares solely for Acquiring Fund
voting shares. Gain, if any, will be realized by Selling Fund shareholders who
in exchange for their Selling Fund shares receive other property or money in
addition to Acquiring Fund shares, and will be recognized, but not in excess of
the amount of cash and the value of such other property received. If the
exchange has the effect of the distribution of a dividend, then the amount of
gain recognized that is not in excess of the ratable share of undistributed
earnings and profits of Selling Fund will be treated as a dividend.
6. The basis of the Acquiring Fund voting shares to be received by the
Selling Fund shareholders will be the same as the basis of the Selling Fund
shares surrendered in exchange therefor.
7. The holding period of the Acquiring Fund voting shares to be
received by the Selling Fund shareholders will include the
<PAGE>
The Evergreen Money Market Fund
Keystone Liquid Trust
May 20, 1997
Page 6
period during which the Selling Fund shares surrendered in exchange therefor
were held, provided the Selling Fund shares were held as a capital asset on the
date of the exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of the Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in the
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus/Proxy
Statement (the "Prospectus/Proxy") and Statement of Additional Information
constituting parts of this Registration Statement on Form N-14 (the
"Registration Statement") of Evergreen Money Market Fund of our report dated
October 18, 1996 on the financial statements and financial highlights appearing
in the August 31, 1996 Annual Report to Shareholders of Evergreen Money Market
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 references 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 October 31, 1996, as amended May 20, 1997 for the
Evergreen Money Market Fund which are also incorporated by reference into the
Prospectus/Proxy.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
May 22, 1997
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Liquid Trust
We consent to the use of our report dated July 26, 1996 which is
incorporated by reference in the Form N-14 of Evergreen Money Market Trust dated
May 22, l997 and to the reference to our firm under the caption "FINANCIAL
STATEMENTS AND EXPERTS" in the prospectus/proxy statement.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachsuetts
May 20, 1997
- --------------------------------------------------------------------------------
KEYSTONE LIQUID TRUST
PROXY FOR THE MEETING OF SHAREHOLDERS TO BE HELD ON JULY 14, 1997
The undersigned, revoking all Proxies heretofore given, hereby appoints
George S. Bissell, Albert H. Elfner and Rosemary D. Van Antwerp or any one of
them as Proxies of the undersigned, with full power of substitution, to vote on
behalf of the undersigned all shares of Keystone Liquid Trust that the
undersigned is entitled to vote at the special meeting of shareholders of
Keystone Liquid Trust to be held at 3:00 p.m. on Monday, July 14, 1997, at the
offices of Keystone Investment Management Company, 26th Floor, 200 Berkeley
Street, Boston, Massachusetts 02116 and at any adjournments thereof, as fully as
the undersigned would be entitled to vote if personally present, as follows:
To approve an Agreement and Plan of Reorganization whereby Evergreen Money
Market Fund will (i) acquire all of the assets of Keystone Liquid Trust and (ii)
assume certain identified liabilities of Keystone Liquid Trust, substantially as
described in the accompanying Prospectus/Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- -------------------------------------------------------------------------------
<PAGE>
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF KEYSTONE LIQUID
TRUST.
THE BOARD OF TRUSTEES OF KEYSTONE LIQUID TRUST RECOMMENDS A VOTE FOR THE
PROPOSAL.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED OR FOR THE
PROPOSAL IF NO CHOICE IS INDICATED.
THE PROXIES ARE AUTHORIZED IN THEIR DISCRETION TO VOTE UPON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
NOTE: PLEASE SIGN EXACTLY AS YOUR
NAME(S) APPEAR ON THIS CARD.
Dated: ,
199
Signature(s):
Signature (of joint owner,
if any):
NOTE: When signing as
attorney, executor, administrator,
trustee, guardian, or as custodian
for a minor, please sign your name
and give your full title as such.
If signing on behalf of a
corporation, please sign full
corporate name and your name and
indicate your title. If you are a
partner signing for a partnership,
please sign the partnership name
and your name. Joint owners should
each sign this proxy. Please sign,
date and return.
- -------------------------------------------------------------------------------
(logo) Evergreen Keystone (logo)
Funds
May 20, 1997
Dear Shareholder:
We are pleased to announce that the combination of the Evergreen Keystone
organization is well underway, and with the combined power of Evergreen Keystone
we will be able to bring our investment and service capabilities to a new level.
One of the areas we are focusing on is merging funds with similar objectives to
maximize the potential for lower overall expenses and greater operating
efficiencies.
The enclosed Prospectus/Proxy Statement contains a proposal to combine the
Keystone Liquid Trust with the Evergreen Money Market Fund, a separate series of
the Evergreen Money Market Trust. This proposal is scheduled to be voted on at a
special meeting of shareholders of the Keystone Liquid Trust on July 14, 1997.
The reorganization has been structured as a tax-free transaction for
shareholders. We believe it will result in one combined fund with greater
efficiencies than two separate funds. This reorganization is not expected to
affect the total value of your investment.
SUMMARY OF BENEFITS
(Bullet) Potential for greater operating efficiencies
(Bullet) Eliminate redundancies in fund offerings
The Fund's Trustees have very carefully reviewed this proposed
reorganization and believe it is in the best interests of shareholders. They
recommend you vote FOR the proposal, which is described in detail in the
attached Prospectus/Proxy Statement.
VOTING INSTRUCTIONS
This package contains the materials you will need to vote. To vote, please
sign the attached proxy card and return it today in the postage-paid envelope.
It is extremely important that you vote, no matter how many shares you own. This
is an opportunity to voice your opinion on an important matter affecting your
investment.
If you have any questions regarding the proposed transaction or if you
would like additional information about the Evergreen Keystone family of mutual
funds, please telephone your financial adviser or Evergreen Keystone at
1-800-343-2898.
Sincerely,
<TABLE>
<S> <C>
/s/ Albert H. Elfner, III /s/ George S. Bissell
Albert H. Elfner, III George S. Bissell
CHAIRMAN CHAIRMAN OF THE BOARD
Keystone Investment Management Company Keystone Funds
</TABLE>
