UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
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.
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.
It is proposed that this filing will become effective thirty days after
filing pursuant to Rule 488 under the Securities Act of 1933.
<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 Comparison of Investment Objectives
and Policies; Summary; 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
<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]
May, 1997
Dear Shareholder:
We are pleased to announce that the combination of the Evergreen and Keystone
organizations 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 greater operating efficiencies and
lower overall fees and expenses.
The enclosed Prospectus/Proxy Statement contains our 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 lower
management fees and operating expenses and greater efficiencies than two
separate funds. This reorganization is not expected to affect the total value of
your investment.
SUMMARY OF BENEFITS
o Lower management fees and operating expenses
o Potential for greater operating efficiencies
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 any 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-xxx-xxxx.
Albert H. Elfner, III George S. Bissell
CHAIRMAN CHAIRMAN OF THE BOARD
Keystone Investment Management Company Keystone Funds
<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 [__________] 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
May [ ___ ], 1997 SECRETARY
19290
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on
the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
Custodial or Estate Accounts
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr., Executor
19290
2
<PAGE>
SUBJECT TO COMPLETION, APRIL 14, 1997
PRELIMINARY COPY
PROSPECTUS/PROXY STATEMENT DATED MAY [ ___ ], 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 [________] 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 [ __ ], 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
1-800-807-2940.
The Prospectus of EMMF dated October 31, 1996, pertaining to the Fund's Class A
and Class B shares and the Prospectus of EMMF dated ____, pertaining to Class C
shares are incorporated herein by reference, insofar as they relate 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 ("FIRST UNION") OR ANY OF ITS
SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION 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.
19290
<PAGE>
TABLE OF CONTENTS
PAGE
COMPARISON OF FEES AND EXPENSES..........................................
SUMMARY ................................................................
Proposed Plan of Reorganization.................................
Tax Consequences................................................
Investment Objectives and Policies of EMMF and KLT..............
Comparative Performance Information of Each Fund................
Management of the Funds.........................................
Investment Advisers and Sub-Adviser.............................
Distribution of Shares..........................................
Purchase and Redemption Procedures..............................
Exchange Privileges.............................................
Dividend Policy.................................................
RISKS ................................................................
REASONS FOR THE REORGANIZATION...........................................
Agreement and Plan of Reorganization............................
Federal Income Tax Consequences.................................
Pro forma Capitalization........................................
Shareholder Information.........................................
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES ........................
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS..........................
Form of Organization............................................
Capitalization..................................................
Shareholder Liability...........................................
Shareholder Meetings and Voting Rights..........................
Liquidation or Dissolution......................................
Liability and Indemnification of Trustees.......................
Rights of Inspection............................................
ADDITIONAL INFORMATION...................................................
VOTING INFORMATION CONCERNING THE MEETING ...............................
FINANCIAL STATEMENTS AND EXPERTS.........................................
LEGAL MATTERS............................................................
OTHER BUSINESS...........................................................
19290
<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 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
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>
SHAREHOLDER TRANSACTION
EXPENSES
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 (AFTER WAIVERS) (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 0.30% 2 1.00% 2 1.00% 2 0.06% 1.00% 1.00% 0.30% 2 1.00% 2 1.00% 2
Other Expenses 0.11% 0.11% 0.11% 0.42% 0.41% 0.44% 0.11% 0.11% 0.11%
------ ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses 3 0.75% 1.45% 1.45% 0.98% 1.91% 1.94% 0.75% 1.45% 1.45%
(after reimbursement)
- ------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</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 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. For Class B and Class C shares of EMMF, 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 B shares
respectively. Absemt such fee waiver, it is expected that estimated expenses
for Class C shares would total 1.45%
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, pro forma
as a result of the Reorganization, would bear directly and indirectly, compared
to 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
than 5%.
<TABLE>
<CAPTION>
EMMF KLT EMMF PRO FORMA
---- --- --------------
One Three Five Ten One Three Five Ten One Three Five Ten
Year Years Years Years Year Years Years Years Year Years Years Years
- ---------------------- ------ ------- ------ ------- ------ ------- ------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $8 $24 $42 $93 $10 $31 $54 $120 $8 $24 $42 $93
Class B (assuming
redemption at end of
period) $65 $76 $99 $146 $69 $90 $123 $188 $65 $76 $99 $146
Class B (assuming no
redemption at end of
period) $15 $46 $79 $146 $19 $60 $103 $188 $15 $46 $79 $146
Class C (assuming
redemption at end of
period) $25 $46 --- --- $30 $61 $105 $226 $25 $46 --- ---
Class C (assuming no $15 $46 --- --- $20 $61 $105 $226 $15 $46 --- ---
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, FOR CLASS A AND B SHARES, THE
PROSPECTUS OF EMMF DATED ____, FOR CLASS C SHARES 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 [__________] 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 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 the Trust 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.
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 [__________] liabilities of KLT.
19290
<PAGE>
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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------
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 N/A N/A N/A 3.63% N/A N/A
Ten Years 5.10%(3) 3.05%(3) N/A 5.13% 2.42%(3) 2.86%(3)
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.
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 Annual Report.
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
EVERGREEN MONEY MARKET FUND. 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 and EAMC manage the Evergreen family of mutual funds
with assets of approximately $19 billion as of February 28, 1997. For further
information regarding EAMC, FUNB and First Union, see "Management of the Funds
- -- Investment Advisers" in the Prospectuses 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 Investment Management Company ("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 The BISYS Group, Inc., 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(es) and Statement of Additional Information of each Fund.
CLASS A SHARES. Class A shares are sold at net asset value and, as indicated
below, are subject to distribution-related fees.
CLASS B SHARES. Class B shares are sold 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 also subject to
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 shares, 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. Additional information regarding the Classes of
shares of each Fund is included in its respective Prospectus(es) 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(es) 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 as next determined after receipt of a redemption request on each day the
New York Stock Exchange ("NYSE") is open for trading. Additional information
concerning purchases and redemptions of shares, including how each Fund's net
asset value is determined, is contained in the each Fund's Prospectus(es). 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 sahreholders 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 the Funds' Prospectus(es) and Statements of Additional Information.
DIVIDEND POLICY
Each Fund declares its investment company taxable income and long-term capital
gains, if any, daily. Each Fund pays its dividends and distributions monthly.
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(es) 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 (a "RIC") 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 above), 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 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 dilute of shareholder
interests; (iii) expense ratios, fees and expenses of KLT and EMMF; (iv) the
comparative performance records of each Fund; (v) compatibility of their
investment objectives and policies; (vi) service 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 [__________] 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 EMMF 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 [__________] 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. 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(es) 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 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 [__________] 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
[__________] 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
[__________] 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.
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.
<TABLE>
<CAPTION>
CAPITALIZATION OF EMMF AND KLT
- ----------------------------------------------------------------------------------------------------
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:
Evergreen Money
Class of Shares Market Fund KLT
- ---------------------- -------------------------- --------------------------
Class A
Class B
Class C
Class Y
All Classes
- ---------------------- -------------------------- --------------------------
As of the Record Date, the officers and Trustees of KLT beneficially owned as a
group less than 1% of the outstanding shares of KLT. To the KLT's knowledge, the
following persons owned beneficially or of record more than 5% of KLT's total
outstanding shares as of the Record Date:
Percentage of Total
Percentage of Shares Outstanding
Number of Class (Before (After
Name and Address Class Shares Reorganization) Reorganization)
- ---------------- ------- ------------ ---------------- -------------------
As of the Record Date, 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 the Record Date:
Percentage of Total
Percentage of Shares Outstanding
Number of Class (Before (After
Name and Address Class Shares Reorganization) Reorganization)
- ----------------- ------ ---------- ----------------- ---------------------
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectuses and Statements of Additional
Information of the Funds. The investment objectives, policies and restrictions
of EMMF can be found in the Prospectuses of EMMF under the caption "Investment
Objectives and Policies." EMMF's Prospectuses also offer 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 the 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 Securities 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(es) 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(es) and Statement of Additional Information
of each Fund.
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
Declarations of Trust under which each Fund has been established permit 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 Declarations of Trust under which the Funds were
established disclaim shareholder liability for acts or obligations of the series
and require that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Funds or the Trustees.
The Declarations of Trust provide for indemnification out of the 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.
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
EVERGREEN MONEY MARKET FUND. Information concerning the operation and management
of the Evergreen Money Market Fund is incorporated herein by reference from the
Fund's Prospectus(es) dated October 31, 1996, for Class A and B, and ___, for
Class C, copies of which are enclosed, and Statement of Additional Information
dated October 31, 1996. 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 1-800-807-2940.
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 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 given by 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.
It is expected that the cost of retaining CIC to assist in the proxy
solicitation process will not exceed $[ ], which cost will be borne by FUNB.
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.
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), have been incorporated by reference into this Prospectus/Proxy
Statement. The financial statements as of June 30, 1996, 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 [ __ ] , 1997
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
day of , 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 [_____]
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 [_____] 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 [_____] 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 [_____] 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 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. [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 Fudn shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Libilitis and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.]
In addition, for purposes of calculating upon completion of the Reorganization
the maximum amount permitted to be charged to the Acquiring Fund under the
applicable rules of the National Association of Securities Dealers, Inc. 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 existing Aggregate NASD Cap 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.
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,
MA 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 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 the sole investment series of a Massachusetts
business trust duly organized, validly existing, and in good standing
under the laws of The Commonwealth of Massachusetts.
(b) The Selling Fund is the sole investment series of a registered
investment company classified as a management company of the open-end
type, and its registration with the Securities and Exchange Commission
(the "Commission") as an investment company under the Investment
Company Act of 1940, 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) 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.
(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 its Declaration of
Trust or By-Laws or of any material agreement, indenture, instrument,
contract, lease, or other undertaking to which the Acquiring Fund is a
party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against the Acquiring
Fund or any of its properties or assets, which, if adversely
determined, would materially and adversely affect its financial
condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the
basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(f) The financial statements of the Acquiring Fund at 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.
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.
(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 the sole investment series of a Massachusetts
business trust duly organized, validly existing and in good standing
under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) The Selling Fund is the sole investment series of a Massachusetts
business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission
as an investment company under the 1940 Act is in full force and
effect.
(c) This Agreement has been duly authorized, executed and delivered by the
Selling Fund, and, assuming 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
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
[_____] 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
[__________] liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund
of {_____] 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) consisting of a reading of any
unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of
appropriate officials of the Selling Fund responsible for financial and
accounting matters, nothing came to their attention that caused them to
believe that such unaudited pro forma financial statements do not
comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(c) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy
Statement has been obtained from and is consistent with the accounting
records of the Selling Fund;
(d) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and
Prospectus and Proxy Statement were prepared based on the valuation of
the Selling Fund's assets in accordance with the Evergreen Money Market
Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information pursuant to
procedures customarily utilized by the Acquiring Fund in valuing its
own assets; and
(e) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the data utilized in the
calculations of the projected expense 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) consisting of a reading of any
unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of
appropriate officials of the Evergreen Money Market Trust responsible
for financial and accounting matters, nothing came to their attention
that caused them to believe that such unaudited pro forma financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder;
(c) 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
(d) 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.
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, 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.
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 on behalf 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 Money Market Fund
By:______________________________
Name:____________________________
Title:___________________________
KEYSTONE LIQUID TRUST
By:______________________________
Name:____________________________
Title:___________________________
<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 (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 -- 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
Income from investment operations:
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. Contingent deferred sales
charge is not reflected. 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>
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>
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;
(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 __________, 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 ____________, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1996
THE EVERGREEN MONEY MARKET FUNDS
2500 Westchester Avenue, Purchase, New York 10577
800-807-2940
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 October 31, 1996 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 and Class B 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....................................... 9
Management........................................................ 9
Investment Advisers............................................... 15
Distribution Plans................................................ 19
Allocation of Brokerage........................................... 22
Additional Tax Information........................................ 23
Net Asset Value................................................... 25
Purchase of Shares................................................ 26
Performance Information........................................... 32
Financial Statements.............................................. 34
Appendix A - Description of Bond, Municipal Note and Commercial Paper Ratings
Appendix B - Special Considerations Relating to Investment In Pennsylvania
Municipal Issuers
1
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 Prospectus 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
2
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
3
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
4
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.
5
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
6
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 United States Government having a value
at all times not less than 100% of the current market value of the loaned
securities, including accrued interest, provided that the aggregate amount of
such loans shall not exceed 30% of the Fund's total assets (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
7
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
8
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 (69), 2 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 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), 209 Harris Drive, Norfolk, NE-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.
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
1995; President, Primary Physician Care from 1990 to 1995.
Michael S. Scofield (53), 212 S. Tryon Street Suite 1280, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
9
Robert J. Jeffries (73), 2118 New Bedford Drive, Sun City Center, FL-Trustee
Emeritus. Corporate consultant since 1967.
John J. Pileggi (37), 237 Park Avenue, Suite 910, New York, NY-President and
Treasurer. Senior Managing Director, Furman Selz LLC since 1992, Managing
Director from 1984 to 1992.
Joan V. Fiore (40), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing
Director and Counsel, Furman Selz LLC since 1991; Staff Attorney, Securities and
Exchange Commission from 1986 to 1991.
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 Furman Selz LLC.
Furman Selz LLC is an affiliate of Evergreen Funds Distributor, Inc., 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 - $4,000**
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
10
- ---------------------------
* The annual retainer and the per meeting fee paid by Evergreen Investment Trust
to each Trustee are allocated among its fourteen series.
** Allocated among 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 and Evergreen Money Market Trust for the fiscal year ended August 31, 1996
and by Evergreen Tax Free Trust for the period January 19, 1996 (the date of
their election as Trustees) through August 31, 1996.
Total
Aggregate Compensation From Trust 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 $4,108 $4,038 0 $ 611 $33,050
Foster Bam 4,108 4,038 0 611 33,050
James S. Howell 4,466 4,287 25,779 606 62,825
Gerald M. 4,018 3,963 22,166 606 56,300
McDonnell
Thomas L. 4,190 4,053 22,706 606 57,425
McVerry
11
William Walt 3,968 3,927 21,987 606 55,925
Pettit
Russell A. 3,968 3,927 21,987 606 58,575
Salton, III, M.D.
Michael S. 3,968 3,927 21,987 606 58,575
Scofield
Robert Jeffries* 2,648 2,686 0 311 21,813
- --------------------
* 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 August 31, 1996.
Name of % of
Name and Address* Fund/Class No. of Shares Class/Fund
- ------------------ ---------- ------------- ----------
First Union National Bank of FL Money Market/A 441,116,098 25.13% /16.73%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
First Union National Bank of NC Money Market/A 189,391,713 10.70% / 7.18%
Cap Account
Attn: Shelia Bryendon CMG 1164
One First Union Center
301 S. College Street
Charlotte, NC 28202-6000
First Union National Bank of NJ Money Market/A 105,731,878 6.02% / 4.01%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
First Union National Bank Money Market/A 212,302,903 12.09% / 8.05%
Trust Accounts
Attn Ginny Batten CMG 1151-2
401 Tryon Street 3rd Fl.
Charlotte NC 28288
First Union National Bank Money Market/Y 176,135,042 26.22% / 6.68%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union Insurance Group Money Market/Y 35,800,000 5.33% / 1.36%
Attn Harry Laderer
301 S. Tryon Street
Charlotte, NC 28288-0001
12
First Union National Bank of FL Tax-Exempt/A 194,707,088 29.47% / 15.23%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
First Union National Bank of NC Tax-Exempt/A 148,212,559 22.43% / 11.60%
Cap Account
Attn: Shelia Bryendon CMG 1164
One First Union Center
301 S. College Street
Charlotte, NC 28288-0001
First Union National Bank of GA Tax-Exempt/A 38,452,170 5.82% / 3.01%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
First Union National Bank Tax-Exempt/A 58,110,478 8.80% /14.55%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-151
301 S. Tryon Street
Charlotte, NC 28288
First Union National Bank Tax-Exempt/Y 105,527,990 17.09% /8.26%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-151
301 S. Tryon Street
Charlotte, NC 28288
St Joe Forest Prod Specl Acct Tax-Exempt/Y 71,030,564 11.50%/5.56%
Attn Susan Bacher Treas Mgr.
301 S. Tryon Street
Charlotte, NC 28288
St Joe Industries Inc. Special Tax-Exempt/Y 64,548,439 10.45%/5.05%
Attn David Childers III
301 S. Tryon Street
Charlotte, NC 28288
First Union National Bank of FL Treasury/A 441,570,610 16.03% / 13.11%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
First Union National Bank of NC Treasury/A 270,046,253 10.36% / 8.02%
Attn: Cap Account Dept.
One First Union Center
301 S. College Street
Charlotte, NC 28202-6000
First Union National Bank of VA Treasury/A 152,550,548 5.85% / 4.53%
Attn: Cap Account Dept.
One First Union Center
Charlotte, NC 28288
13
First Union National Bank of NC Treasury/A 858,336,465 32.91% / 25.49%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank of NC Treasury/Y 685,143,280 90.15% / 20.34%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Dalick Feith & Pennsylvania/Y 2,849,082 5.89% / 4.04%
Rose Feith JT Ten
301 S. Tryon Street
Charlotte, NC 28288-0001
Johnathan B Detwiller Pennsylvania/Y 2,873,457 5.95%/ 4.07%
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Pennsylvania/Y 14,284,140 29.55%/20.25%
Trust Accounts
Attn Ginny Batten CMG 11512
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union Nation Bank of PA Pennsylvania/A 18,119,249 81.63%/25.69%
Attn Cap Account Dept.
One First Union Center
Charlotte NC 28288
Form Union National Bank of North Carolina and its affiliates act in
various capacities for numerous accounts. As a result of its ownership on August
31, 1996, of 90.15% of Class Y shares and 43.27% Class A shares of Treasury
Money Market Fund, 29.55% and 81.63%, respectively, of Class Y and Class A
shares of Pennsylvania Money Market Fund, 26.22% of Class Y and 54.04% of Class
A shares of Money Market Fund and 66.52% of Tax Exempt Money Market Fund, First
Union may be deemed to "control" those Funds as that term is defined in the 1940
Act.
14
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. 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.
On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were
acquired by First Union through certain of its subsidiaries. Evergreen Asset was
acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying
shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned
subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management
Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with
the succession of EAMC to the business of Evergreen Asset and its assumption of
the name "Evergreen Asset Management Corp.", Money Market and Tax Exempt entered
into a new investment advisory agreement with EAMC and into a distribution
agreement with Evergreen Funds Distributor, Inc. (the "Distributor"), an
affiliate of Furman Selz LLC. At that time, EAMC also entered into a new
sub-advisory agreement with Lieber pursuant to which Lieber provides certain
services to Evergreen Asset in connection with its duties as investment adviser.
The partnership interests in Lieber, a New York general partnership, were
acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned
subsidiaries of FUNB. The business of Lieber is being continued. The new
advisory and sub-advisory agreements were approved by the shareholders of Money
Market and Tax Exempt at their meeting held on June 23, 1994, and became
effective on June 30, 1994.
Prior to January 1, 1996, First Fidelity Bank, N.A. ("First Fidelity") acted as
investment adviser to Pennsylvania. On June 18, 1995, First Union entered into
an Agreement and Plan of Merger (the "Merger Agreement") with First Fidelity
Bancorporation ("FFB"), the corporate parent of First Fidelity which provided,
among other things, for the merger (the "Merger") of FFB with and into a
wholly-owned subsidiary of First Union. The Merger was consummated on January 1,
1996. As a result of the Merger, FUNB and its wholly-owned subsidiary, Evergreen
Asset succeeded to the investment advisory and administrative functions
currently performed by various units of First Fidelity.
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
15
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 Year Ended Year Ended Year Ended
8/31/96 8/31/95 8/31/94
Advisory Fee $8,346,173 $1,831,518 $1,245,513
Waiver (2,427,423) (732,723) (974,438)
----------- --------- ---------
Net Advisory Fee $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
Ended
8/31/96 8/31/95** 12/31/94
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
========= ========= =========
- --------------------
* The Fund changed its fiscal year from February 28 to August 31.
16
** 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 Advisery 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 and Class B 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 .20 of 1.00% of their average net assets for any
fiscal year for Institutional Class Shares and .45 of 10% for Insitutional
Service Class 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 February 8, 1996
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 February 8, 1996 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
17
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. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million average daily net assets of the Trust; .125% on the
next $250 million; .10% on the next $250 million and .075% on assets in excess
of $250 million. 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 $1,264,550, $601,034 and $462,002, respectively, in administrative
18
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.
On July 1, 1995, Evergreen Asset, in the case of each of the portfolios of
Evergreen Investment Trust, on January 19, 1996, in the case of Pennsylvania,
and on the date of this Statement of Additional Information in the case of
Institutional Treasury, Institutional Money Market and Institutional Tax Exempt,
commenced providing administrative services for a fee based on the average daily
net assets of each fund administered by Evergreen Asset for which Evergreen
Asset or FUNB also serve 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. Furman Selz LLC an affiliate of the Distributor, serves as
sub-administrator to Treasury, Institutional Treasury, Institutional Money
Market, Institutional Tax Exempt and Pennsylvania and is entitled to receive a
fee based on the average daily net assets of Treasury, Institutional Treasury,
Institutional Money Market, Institutional Tax Exempt and Pennsylvania at a rate
from the Fund calculated on the total assets of the mutual funds administered by
Evergreen Asset for which FUNB or Evergreen Asset also serve 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 mutual funds
administered by Evergreen Asset for which Evergreen Asset or FUNB serve as
investment adviser as of August 31, 1996 were approximately $15.7 billion.
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 Intitutional Treasury,
Institutional Money Market and Institutional Tax Exempt, and for Money Market,
its Class B shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B 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.
Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with
respect to each of its Class A, Institutional Service and Class B 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 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 Trustees who are not
"interested persons" of each Trust (as defined in the 1940 Act) are committed to
the discretion of such disinterested Trustees then in office.
19
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.
Money Market commenced offering Class A and Class B shares and Tax Exempt
commenced offering Class A shares, on January 3, 1995. Each Plan with respect to
such Funds became effective on December 30, 1994 and was initially approved by
the sole shareholder of each Class of shares of each Fund with respect to which
a Plan was adopted on that date and by the unanimous vote of the Trustees of
each Trust, including the disinterested Trustees voting separately, at a meeting
called for that purpose and held on December 13, 1994. 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 Class A and Class
B shares were also approved at the December 13, 1994 meeting by the unanimous
vote of the Trustees, including 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 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.
Prior to July 8, 1995, Federated Securities Corp., a subsidiary of Federated
Investors, served as the distributor for Treasury as well as other portfolios of
Evergreen Investment Trust. The Distribution Agreement between Treasury and the
Distributor pursuant to which distribution fees are paid under the Plan by
Treasury with respect to its Class A shares was approved on June 15, 1995 by the
unanimous vote of the Trustees including the disinterested Trustees voting
separately. In the case of Pennsylvania, FFB Funds Distributor, Inc. served as
distributor prior to January 19, 1996. The Distribution Agreement between
Pennsylvania and the Distributor pursuant to which distribution fees are paid
under the Plan by Pennsylvania with respect to its Class A shares was approved
on January 19, 1996 by the unanimous vote of the Trustees including the
disinterested Trustees voting separately.
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
20
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 and Class B 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, and Class B 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, and Class B 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,
and Class B 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.
All material amendments to any Plan or Distribution Agreement must be approved
by a vote of the Trustees of a Trust or the holders of the Fund's outstanding
voting securities, voting separately by Class, and in either case, by a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of voting on such approval; and any Plan or Distribution Agreement
may not be amended in order to increase materially the costs that a particular
Class of shares of a Fund may bear pursuant to the Plan or Distribution
Agreement without the approval of a majority of the holders of the outstanding
voting shares of the Class affected. Any Plan or Distribution Agreement may be
terminated (a) by a Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
Class or by a majority vote of the Trustees who are not "interested persons" as
defined in the 1940 Act, or (b) by the Distributor. To terminate any
Distribution Agreement, any party must give the other parties 60 days' written
notice; to terminate a Plan only, the Fund need give no notice to the
Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
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
21
Class A shares.
Money Market. For the fiscal year ended August 31, 1996, $3,910,297 on behalf of
Class A shares and $68,566 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.
Information pertaining to such fees for Institutional Money Market,
Institutional Tax Exempt and Institutional Treasury has not been included
because these Funds have not completed a full year of operation.
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. 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
22
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 other than Institutional Money Market, Institutional Tax Exempt and
Institutional Treasury has qualified and intends to continue to qualify, and
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
intend 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.
23
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.
24
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
25
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, are only available to investors having certain relationships with
the Adviser of its affiliates, are offered without any front-end or contingent
sales charges. Shares of each Fund are offered on a continuous basis through (i)
investment dealers that are members of the National Association of Securities
Dealers, Inc. and have entered into selected dealer agreements with the
Distributor ("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered into selected
agent agreements with the Distributor ("selected agents"), or (iii) the
Distributor. 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 or Class B 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
26
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 shares, which should only be purchased by investors
choosing the deferred sales charge alternative and who contemplate an exchange
into Class B shares of other Evergreen funds;
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, which are sold to institutional investors; and
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury:
Institutional shares, which are sold to institutional investors who are clients
of the Adviser or its affiliates or who have a significant business relationship
with the Adviser or its affiliates.
The three classes of shares each represent an interest in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except that (I) only Class A and Class B shares are subject to a Rule 12b-1
distribution fee, (II) Class B shares bear the expense of the deferred sales
charge, (III) Class B shares bear the expense
27
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 and Class B shareholders an amendment to the Rule
12b-1 Plan that would materially increase the amount to be paid thereunder with
respect to the Class A shares, the Class A shareholders and the Class B
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 shares purchased for
Class B shares of another Evergreen mutual 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 shares.
The Trustees have determined that currently no conflict of interest exists
between or among the Class A, Class B 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 seven
years of purchase will be subject to a contingent deferred sales charge at the
rates set forth in the Prospectus charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the time of
redemption. Accordingly, no sales charge will be imposed on increases in net
28
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 seven years
or Class B shares acquired pursuant to reinvestment of dividends or
distributions and third of Class B shares held longest during the seven-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
29
conversion of Class B shares to Class A shares may be suspended if such an
opinion is no longer available at the time such conversion is to occur. In that
event, no further conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending eight years after the end of
the calendar month in which the shareholder's purchase order was accepted.
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. On
December 14, 1992, The Salem Funds changed its name to First Union Funds. 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, 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.
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.
30
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.
An order has been received from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in each Fund. In the event a Fund were to issue additional classes of
shares other than those described herein, no further relief from the Securities
and Exchange Commission would be required.
Distributor
Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New
York, New York 10169, serves as each Fund's principal underwriter, and as such
may solicit orders from the public to purchase shares of any Fund. 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 Auditors
Price Waterhouse LLP has been selected to be the independent auditors of Money
Market, Tax Exempt, Institutional Money Market, Institutional Treasury and
31
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.
32
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 August
30, 1996 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 4.83% 4.95%
Class B 4.12% 4.20%
Class Y 5.12% 5.25%
Tax Exempt
Class A 3.03% 3.08% 4.81%
Class Y 3.33% 3.38% 5.29%
Treasury
Class A 4.66% 4.77%
Class Y 4.96% 5.08%
Pennsylvania
Class A 3.07% 5.02% 8.07%
Class Y 3.15% 5.14% 8.26%
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.
33
FINANCIAL STATEMENTS
The financial statements of Money Market, Tax Exempt, Treasury and Pennsylvania
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 and Tax Exempt) or KPMG Peat Marwick
LLP (in the case of Pennsylvania and Treasury) are incorporated by reference in
this Statement of Additional Information. The Annual Reports to Shareholders for
each Fund, which contain the referenced statements, are available upon request
and without charge. The initial audited Statements of Assets and Liabilities of
Institutional Money Market, Institutional Tax Exempt and Institutional Treasury
as of September 6, 1996 and the reports thereon of Price Waterhouse LLP
appearing therein are included in this Statement of Additional Information.
EVERGREEN INSTITUTI0NAL MONEY MARKET FUNDS
STATEMENT OF ASSETS AND LIABILITIES
September 6, 1996
Institutional
Institutional Treasury
Assets: Money Market Money Market
Fund Fund
Cash $ 10 $ 10
Deferred organizational expenses 13,700 13,700
------ -------
Total assets 13,710 13,710
------ ------
------ ------
Liabilities:
Organizational expenses payable 13,700 13,700
Net assets:
Paid-in Capital 10 10
--- --
Net assets 10 10
-- --
-- --
Net asset value per share based on (10
shares of beneficial interest issued
and outstanding, respectively,
unlimited share authorized of
$.0001 par value) $1.00 $1.00
See accompanying notes to financial statements.
EVERGREEN INSTITUTIONAL MONEY MARKET FUNDS
34
NOTES TO FINANCIAL STATEMENTS
September 6, 1996
Note 1 - Organization
The Evergreen Institutional Money Market Fund ("Money Market") and the
Evergreen Institutional Treasury Money Market Fund ("Treasury"), collectively
(the "Funds"), are newly organized separate investment series of Evergreen
Money Market Trust, an open end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"). Money Market
and Treasury are part of the Evergreen Institutional Money Market Funds. The
Funds have had no operations other than the sale of 10 shares of beneficial
interest of Money Market and Treasury to Evergreen Funds Distributors, Inc.
("EFD"), an affiliate of Furman Selz LLC ("Furman Selz").
Note 2 - Investment Advisory and Administration Agreements
Each Fund has agreed to enter into an investment advisory agreement with the
Capital Management Group of First Union Bank of North Carolina ("First Union"),
pursuant to which First Union will manage each Fund's investments. In
consideration of First Union performing its obligations, the Funds will pay to
First Union an investment advisory fee accrued daily and payable monthly, at an
annual rate of .15 of 1% of its daily net assets.
Each Fund has agreed to enter into an administrative services agreement with
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary
of First Union, to provide administrative services and to supervise each Fund's
daily business affairs. Each Fund will pay Evergreen Asset an administration
fee accrued daily and payable monthly, at a rate based on the aggregate average
daily net assets of all of the Funds administered by Evergreen Asset for which
either Evergreen Asset or First Union serves as investment adviser. The fee is
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. As of September 6, 1996, the net assets for which
either Evergreen Asset or First Union served as investment adviser totaled
approximately $16.2 billion.
Furman Selz will serve as sub-administrator and will pay the cost of
compensation of the officers of the Funds. Each Fund will pay Furman Selz a fee
based on the aggregate average daily net assets of all of the Funds administered
by Evergreen Asset for which either Evergreen Asset or First Union serves as
investment adviser. The fee is calculated daily and payable monthly at the
following annual rates: .010% on the first $7 billion, .0075% on the next
$3 billion, .005% on the next $15 billion and .004% on assets in excess of
$25 billion.
EVERGREEN INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS
September 6, 1996
Note 3 - Organizational Costs
First Union has agreed to advance all of the costs incurred and to be incurred
in connection with the organization and initial registration of the Funds and
35
the Funds have agreed to reimburse First Union for such costs. These costs have
been deferred and will be amortized by each Fund over a period of benefit not to
exceed 60 months from the date each Fund commences operations.
Note 4 - Distribution Plans
In connection with distribution plans pursuant to Rule 12b-1 of the Act, each
Fund has agreed to enter into a distribution agreement (the "Agreements") with
EFD whereby each Fund will compensate EFD for its services at a rate which may
not exceed an annual rate of .20 of 1% of a Fund's aggregate average daily net
assets. The Agreements provides that EFD will use these fees (i) to compensate
broker-dealers or other persons for distributing shares of the Fund, (ii) to
otherwise promote the sale of shares of the Fund, (iii) to compensate
broker-dealers, depository institutions and other financial intermediaries for
providing administrative, accounting and other services with respect to the
Fund's shareholders.
EVERGREEN INSTITUTIONAL MONEY MARKET FUNDS
STATEMENT OF ASSETS AND LIABILITIES
September 6, 1996
Institutional
Tax Exempt
Assets: Money Market
Fund
Cash $ 10
Deferred organizational expenses 13,700
-------
Total assets 13,710
-------
-------
Liabilities:
Organizational expenses payable 13,700
36
Net assets:
Paid-in Capital 10
--
Net assets 10
--
--
Net asset value per share based on 10
shares of beneficial interest and
outstanding (unlimited shares
authorized of $.0001 par value) $1.00
See accompanying notes to financial statements.
EVERGREEN INSTITUTIONAL MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENT
September 6, 1996
Note 1 - Organization
The Evergreen Institutional Tax Exempt Market Fund (the "Fund") is a newly
organized separate investment series of The Evergreen Municipal Trust, an open
end management investment company registered under the Investment Company Act of
1940, as amended (the "Act"). The Fund is part of the Evergreen Institutional
Money Market Funds. The Fund has had no operations other than the sale of 10
shares of beneficial interest Evergreen Funds Distributors, Inc. (EFD) an
affiliate of Furman Selz LLC ("Furman Selz").
Note 2 - Investment Advisory and Administration Agreements
The Fund has agreed to enter into an investment advisory agreement with the
Capital Management Group of First Union Bank of North Carolina ("First Union"),
pursuant to which First Union will manage the Fund's investments. In
consideration of First Union performing its obligations, the Fund will pay to
First Union an investment advisory fee accrued daily and payable monthly, at an
annual rate of .15 of 1% of its' daily net assets.
The Fund has agreed to enter into an administrative services agreement with
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary
of First Union, to provide administrative services and to supervise the Fund's
daily business affairs. The Fund will pay Evergreen Asset an administration
fee accrued daily and payable monthly, at a rate based on the aggregate average
daily net assets of all of the Funds administered by Evergreen Asset for which
either Evergreen Asset or First Union serves as investment adviser. The fee is
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. As of September 6, 1996, the net assets for which
either Evergreen Asset or First Union served as investment adviser totaled
approximately $16.2 billion.
Furman Selz will serve as sub-administrator and will pay the cost of
compensation of the officers of the Fund. The Fund will pay Furman Selz a fee
based on the aggregate average daily net assets of all of the Funds administered
by Evergreen Asset for which either Evergreen Asset or First Union serves as
investment adviser. The fee is calculated daily and payable monthly at the
37
following annual rates: .010% on the first $7 billion, .0075% on the next
$3 billion, .005% on the next $15 billion and .004% on assets in excess of
$25 billion.
Note 3 - Organizational Costs
First Union has agreed to advance all of the costs incurred and to be incurred
in connection with the organization and initial registration of the Fund and
the Fund has agreed to reimburse First Union for such costs. These costs have
been deferred and will be amortized by each Fund over a period of benefit not to
exceed 60 months from the date the Fund commences operations.
Note 4 - Distribution Plan
In connection with distribution plan pursuant to Rule 12b-1 of the Act, the Fund
has agreed to enter into a distribution agreement (the "Agreement") with EFD
whereby the Fund will compensate EFD for its services at a rate which may not
exceed an annual rate of .20 of 1% of the Fund's aggregate average daily net
assets. The Agreement provide that EFD will use this fee (i) to compensate
broker-dealers or other persons for distributing shares of the Fund, (ii) to
otherwise promote the sale of shares of the Fund, (iii) to compensate
broker-dealers, depository institutions and other financial intermediaries for
providing administrative, accounting and other services with respect to the
Fund's shareholders.
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 obligors 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.
38
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.
39
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.
40
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 Inc.: 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.
41
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. Protection 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
42
risk factors larger and subject to more variation.
Fitch Investors Service Inc.: 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
The following information as to certain Pennsylvania considerations is given to
investors in view of the Evergreen Pennsylvania Tax Free Money Market Fund's
policy of investing primarily in securities of Pennsylvania issuers. Such
information is derived from sources that are generally available to investors
and is believed by the Adviser to be accurate. Such information constitutes only
a brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Pennsylvania issuers.
Employment. The industries traditionally strong in Pennsylvania, such as coal,
steel and railway, have declined and account for a decreasing share of total
employment. Service industries (including trade, health care, government and
finance) have grown, however, contributing increasing shares to the
Commonwealth's gross product and exceeding the manufacturing sector in each year
since 1985 as the largest single source of employment.
While the level of Pennsylvania's population increased 2.3% from 1985 through
1993, nonagricultural employment increased by 8.0% from 1983 through 1993. In
contrast, increases in U.S. nonagricultural employment have been greater for the
same period, with U.S. employment increasing by 13% from 1985 through 1993.
Trends in the unemployment rates of Pennsylvania and the U.S. have been similar
from 1985 through 1993. From 1986 to 1990, Pennsylvania's unemployment rate was
lower than the U.S. rate. For example, Pennsylvania's unemployment rate for 1989
and 1990 was 4.5% and 5.4%, respectively, while the unemployment rate for the
U.S. was 5.3% and 5.5% for the same years. In 1991, 1992 and 1993,
Pennsylvania's unemployment rate was 6.9%, 7.5% and 6.8% for the same years.
Commonwealth Debt. Debt service on general obligation bonds of Pennsylvania,
except those issued for highway purposes or the benefit of other special revenue
funds, is payable from Pennsylvania's general fund, the recipient of all
Commonwealth revenues that are not required to be deposited in other funds.
As of June 30, 1994, the Commonwealth had $5,076 million of long-term bonds
outstanding, with debt for capital projects constituting the largest dollar
amount. Although Pennsylvania's Constitution permits the issuance of an
aggregate amount of capital project debt equal to 1.75 times the average annual
tax revenues of the preceding five fiscal years, the General Assembly may
authorize and historically has authorized a smaller amount. This constitutional
limit does not apply to other types of Pennsylvania debt such as electorate
approved debt or debt issued to rehabilitate areas affected by disaster.
However, the former may be incurred only after the enactment of legislation
calling for a referendum and usually specifying the purpose and amount of such
debt, followed by electoral approval. Similarly, debt issued to rehabilitate a
43
disaster area must be authorized by legislation which sets the debt limits.
These statutory and constitutional limitations imposed on bonds are also
applicable to bond anticipation notes.
Pennsylvania cannot use tax anticipation notes or any other form of debt to fund
budget deficits between fiscal years. All year-end deficits must be funded
within the succeeding fiscal year's budget. Moreover, the principal amount of
tax anticipation notes issued and outstanding for the account of a fund during a
fiscal year may not exceed 20 percent of that fund's estimated revenues for that
fiscal year.
Moral Obligations. The debt of the Pennsylvania Housing Finance Agency ("PHFA"),
a state agency which provides housing for lower and moderate income families,
and certain obligations of The Hospitals and Higher Education Facilities
Authority of Philadelphia (the "Hospitals Authority") are the only debt bearing
Pennsylvania's moral obligation. PHFA's bonds, but not its notes, are partially
secured by a capital reserve fund required to be maintained by PHFA in an amount
equal to the maximum annual debt service on its outstanding bonds in any
succeeding calendar year. If there is a potential deficiency in the capital
reserve fund or if funds are necessary to avoid default on interest, principal
or sinking fund payments on bonds or notes of PHFA, the Governor must place in
Pennsylvania's budget for the next succeeding year an amount sufficient to make
up any such deficiency or to avoid any such default. The budget which the
General Assembly adopts may or may not include such amount. PHFA is not
permitted to borrow additional funds as long as any deficiency exists in the
capital reserve fund.
In fiscal 1976, the Commonwealth purchased $32.0 million principal amount of
notes from PHFA, issued for the purpose of redeeming all outstanding bond
anticipation notes and paying unfunded liabilities of PHFA. All such notes have
been redeemed by PHFA and the funds returned, with interest, to Pennsylvania. As
of December 31, 1994, PHFA had $2,300 million of bonds and notes outstanding.
The Hospitals Authority is a municipal authority organized by the City of
Philadelphia (the "City") to, inter alia, acquire and prepare various sites for
use as intermediate care facilities for the mentally retarded. In 1986 the
Hospitals Authority issued $20.4 million of bonds, which were refunded in 1993
by a $21.1 million bond issue of the Hospitals Authority (the "Hospitals
Authority Bonds") for such facilities for the City. The Hospitals Authority
Bonds are secured by leases with the City and a debt service reserve fund for
which the Pennsylvania Department of Public Welfare (the "Department") has
agreed with the Hospitals Authority to request in the Department's annual budget
submission to the Governor, an amount of funds sufficient to alleviate any
deficiency in the debt service reserve fund that may arise. The budget as
finally adopted may or may not include the amount requested. If funds are paid
to the Hospitals Authority, the Department will obtain certain rights in the
property financed with the Hospitals Authority Bonds in return for such payment.
In response to a delay in the availability of billable beds and the revenues
from these beds to pay debt service on the Hospitals Authority Bonds, PHFA
agreed in June 1989 to provide a $2.2 million low interest loan to the Hospitals
Authority. The loan enabled the Hospitals Authority to make all debt service
payments on the Hospitals Authority Bonds during 1990. Enough beds were
completed in 1991 to provide sufficient revenues to the Hospitals Authority to
meet its debt service payments and to begin repaying the loan from PHFA. As of
44
December 31, 1994, $1.64 million of the loan was outstanding.
Other Commonwealth Obligations; Pensions. Other obligations of Pennsylvania
include long-term agreements with public authorities to make lease payments that
are pledged as security for those authorities' revenue bonds and pension plans
covering state public school and other employees. The total unfunded accrued
liability under these pension plans for their fiscal years ended in 1994 was
$2,950 million.
Pennsylvania Agencies. Certain Pennsylvania-created agencies have statutory
authorization to incur debt for which legislation providing for state
appropriations to pay debt service thereon is not required. The debt of these
agencies is supported solely by assets of, or revenues derived from the various
projects financed and is not an obligation of Pennsylvania. Some of these
agencies, however, are indirectly dependent on Pennsylvania funds through
various state-assisted programs. There can be no assurance that in the future
assistance of the Commonwealth will be available to these agencies. These
entities are as follows: The Delaware River Joint Toll Bridge Commission,
Delaware River Port Authority, Pennsylvania Energy Development Authority,
Pennsylvania Higher Education Assistance Agency, Pennsylvania Infrastructure
Investment Authority, the Pennsylvania State Public School Building Authority,
the Pennsylvania Turnpike Commission, the Pennsylvania Higher Educational
Facilities Authority, the Pennsylvania Industrial Development Authority, the
Philadelphia Regional Port Authority and the Pennsylvania Economic Development
Financing Authority.
Debt of Political Subdivisions and their Authorities. The ability of
Pennsylvania's political subdivisions, such as counties, cites and school
districts, to engage in general obligation borrowing without electorate approval
is generally limited by their recent revenue collection experience, although
generally such subdivisions can levy real property taxes unlimited as to rate or
amount to repay general obligation borrowings.
Political subdivisions can issue revenue obligations which will not affect their
general obligation capacity, but only if such revenue obligations are either
limited as to repayment from a certain type of revenue other than tax revenues
or projected to be repaid solely from project revenues.
Industrial development and municipal authorities, although created by political
subdivisions, can only issue obligations payable solely from the revenues
derived from the financed project. If the user of the project is a political
subdivision, that subdivision's full faith and credit may back the repayment of
the obligations of the industrial development or municipal authority. Often the
user of the project is a nongovernmental entity, such as a not-for-profit
hospital or university, a public utility or an industrial corporation, and there
can be no assurance that it will meet its financial obligations or that the
pledge, if any, of property financed will be adequate. Factors affecting the
business of the user of the project, such as governmental efforts to control
health care costs (in the case of hospitals), declining enrollment and
reductions in governmental financial assistance (in the case of universities),
increasing capital and operational costs (in the case of public utilities) and
economic slowdowns (in the case of industrial corporations) may adversely affect
the ability of the project user to pay the debt service on revenue bonds issued
on its behalf.
45
Many factors affect the financial condition of the Commonwealth and its
counties, cities, school districts and other political subdivisions, such as
social, environmental and economic conditions, many of which are not within the
control of such entities. As is the case with many states and cities, many of
the programs of the Commonwealth and its political subdivisions, particularly
human services programs, depend in part upon federal reimbursements which have
been steadily declining. In recent years the Commonwealth and various of its
political subdivisions (including particularly the City of Philadelphia and the
City of Scranton) have encountered financial difficulty due to a slowdown in the
pace of economic activity in the Commonwealth and to other factors. The Fund is
unable to predict what effect, if any, such factors would have on the Fund's
investments.
<PAGE>
1
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.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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
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<PAGE>
2
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THE FUND
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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;
3
(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)
4
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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:
18517
<PAGE>
5
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
6
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.
- --------------------------------------------------------------------------------
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:
18517
<PAGE>
7
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
8
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.
- --------------------------------------------------------------------------------
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.
9
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.
10
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.
11
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.
12
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).
13
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.
14
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,
15
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.
16
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
17
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.
- --------------------------------------------------------------------------------
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
18
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.
19
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.
20
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.
21
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
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
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
18517
<PAGE>
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>
(This Page Left Blank Intentionally)
55
<PAGE>
(This Page Left Blank Intentionally)
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>
[front cover]
KEYSTONE
[photo of man teaching boy to ride two-wheeler]
LIQUID TRUST
[keystone logo]
ANNUAL REPORT
JUNE 30, 1996
<PAGE>
PAGE 1
- ----------------------
Keystone Liquid Trust
Seeks stability of principal and liquidity with current
income from high quality money market instruments.
Dear Shareholder:
We are pleased to report to you on the activities of Keystone Liquid Trust
for the twelve-month period which ended June 30, 1996.
Performance
Your Fund provided the following returns:
Class A shares returned 4.73% for the period, which includes reinvestment of
the 4.6 cent-per-share dividend.
Class B shares returned 3.76% for the period, which includes reinvestment of
the 3.7 cent-per-share dividend.
Class C shares returned 3.75% for the period, which includes reinvestment of
the 3.7 cent-per-share dividend.
Your Fund maintained a constant net asset value of $1 per share during the
period, and continued to focus on high-quality, short-term money market
instruments.
We believe this was satisfactory performance, reflecting a transition from a
generally declining interest rate environment in the second half of 1995 to a
period of rising rates during the first half of 1996.
Market Environment and Strategy
Short-term interest rates responded to changing expectations of economic
strength during the twelve-month period. Throughout the last half of 1995 and
early 1996, money market yields declined on expectations that the Federal
Reserve Board would continue to reduce interest rates. Those beliefs changed
in the first quarter of 1996 as strength in employment growth laid the
foundation for a stronger economy. Investors became concerned that this
growth might cause inflation to rise. As a result, short-term interest rates
rose modestly.
We believe that Keystone Liquid Trust was well positioned for this changing
environment. We shortened your Fund's average maturity to 37 days from 60
days, just before interest rates began to rise. This enabled us to invest the
portfolio's assets in higher yielding securities sooner. We emphasized
commercial paper, which offered higher yields and we believe better value
than other short-term obligations. As of June 30, 1996, the Fund's average
maturity was 37 days.
Keystone's Commitment to Quality and Liquidity
Our policy with respect to Keystone Liquid Trust is to emphasize quality and
liquidity. As of June 30, 1996, the average credit quality of the portfolio
was A-1+/P-1, the highest commercial paper rating given by Moody's and
Standard & Poor's.
Your Fund also requires an issuer to have the highest commercial paper
rating, as well as a minimum of a single "A" rating by all major credit
rating agencies on its long-term debt. For bank obligations, we concentrate
on large, well capitalized banks with diverse investment portfolios; and
invest only in the obligations of the bank itself. Our research team tracks
eligible issuers on an ongoing basis, monitoring liquidity ratios and other
financial data that measures a company's creditworthiness. During this
twelve-month period, your Fund did not invest in derivative securities.
Our Outlook
We believe that short-term rates may move modestly higher over the next few
months, if strong economic growth continues. Longer term, we think that the
current level of higher interest rates should slow future economic growth. We
think inflation could move a bit higher than in the recent past, but should
be well contained by historical standards.
<PAGE>
PAGE 2
- ----------------------
Keystone Liquid Trust
Keystone Liquid Trust remains committed to providing investors with safety
and liquidity by investing in high quality money market instruments. We
intend to continue with our conservative management policies in all market
environments, and we believe these instruments can provide particular value
during periods of uncertainty.
As you evaluate your investment and market conditions, we encourage you to
remember a few investment principles that have withstood the test of time in
all types of markets. Diversify your investments. By putting your money in
different types of investments, you can minimize your risk. Take a long-term
perspective. The longer you keep your money invested, the more time you have
to weather the market's fluctuations. Invest regularly. By making periodic
investments over time, you can lower your average cost per share. Of course,
your investment will fluctuate with market conditions, and there is no
assurance that it will be worth more when you sell shares.
Your investment adviser can help you with these strategies by developing a
plan to meet your particular needs. He or she is a professional with the
resources and expertise to help you achieve your investment goals. We
encourage you to take advantage of the services your adviser can provide.
We appreciate your continued support of Keystone funds. If you have any
questions or comments about your investment, we encourage you to write to us.
Sincerely,
/s/Albert H. Elfner, III /s/George S. Bissell
Albert H. Elfner, III George S. Bissell
Chairman and President Chairman of the Board
Keystone Investments, Inc. Keystone Funds
August 1996
[dalbar Dalbar Key Honors
logo]
Honoring Commitment to Excellence
Keystone was recently recognized by Dalbar, an independent mutual
fund rating organization, for demonstrating a commitment to serving
the needs of customers. The award is intended to distinguish
companies who are committed to investors and have a proven ability
to provide good service.
[receiver Keystone Introduces Investment Insight Line for Shareholders
graphic]
Now you can keep up-to-date on your fund's current strategy and
outlook by calling Keystone Investment Insight Line. You can hear
Keystone portfolio managers discuss their latest strategies or
listen to Keystone's overall market outlook from James McCall,
chief investment officer. Of course, your financial adviser can
provide you with more complete information on Keystone Funds. This
service is available 24 hours a day, seven days a week and updated
at least monthly.
Keystone Investment Insight Line 1-800-346-3858, Press 2 after
the greeting
[telephone graphic]
<PAGE>
PAGE 3
- ----------------------
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>
[back cover]
KEYSTONE
FAMILY OF FUNDS
[diamond]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
KLT-R-8/96
17.6M [recycle logo]
<PAGE>
PAGE 1
- -----------------------------------------------------------------------------
Keystone Liquid Trust
Seeks stability of principal and liquidity with current income from high quality
money market instruments.
Dear Shareholder:
We are pleased to report to you on the activities of Keystone Liquid Trust for
the six-month period which ended December 31, 1996.
Performance
Your Fund provided the following returns:
Class A shares returned 2.25% for the period, which includes reinvestment of
the 2.2 cent-per-share dividend.
Class B shares returned 1.79% for the period, which includes reinvestment of
the 1.8 cent-per-share dividend.
Class C shares returned 1.81% for the period, which includes reinvestment of
the 1.8 cent-per-share dividend.
Your Fund maintained a constant net asset value of $1 per share during the
period and continued to focus on high-quality, short-term money market
instruments.
Market Environment and Strategy
Short-term interest rates were steady to modestly lower over the past six
months, in response to a confirmed trend of moderate economic growth and low
inflation. This atmosphere of stability was in sharp contrast to the rising
interest rate environment of the first half of 1996. At that time, the economy
had begun to grow faster than many investors expected. The uncertainty regarding
the economy's strength stimulated concerns about future inflation. Interest
rates moved higher, as investors adjusted their economic outlooks and waited for
a clear trend to emerge.
We structured Keystone Liquid Trust to take advantage of this more stable and
lower interest rate environment by actively managing the Fund's average
maturity. As of June 30, 1996, the average maturity stood at 37 days. We then
extended it in anticipation of declining rates, enabling the Fund to maximize
income for a longer period of time. On December 31, 1996, the Fund's average
maturity was 54 days. This reflects our expectations for a neutral interest rate
environment over the coming months and is comparable to the industry average.
We also sought to maximize income through asset-allocation. As of December 31,
1996, approximately 54% of the Fund's net assets were invested in commercial
paper, which has consistently provided the highest short-term yields over the
past six months. The Fund continues to emphasize quality and liquidity. The
average credit quality of the portfolio was A1+/P1 on December 31, 1996. A1+/P1
is the highest commercial paper rating given by Moody's and Standard & Poors.
Keystone's Continued Emphasis on Quality and Liquidity
Keystone Liquid Trust requires an issuer to have the highest commercial paper
rating, as well as a minimum single "A" rating by all major credit rating
agencies on its longer-term debt. For bank obligations, we concentrate on large,
well-capitalized banks with diverse investment portfolios and invest only in the
obligations of the bank itself. Our research team monitors eligible issuers on
an ongoing basis, utilizing liquidity ratios and other financial data that
measures a company's creditworthiness. During this six-month period, your Fund
did not invest in derivative securities.
(continued on next page)
<PAGE>
PAGE 2
- -----------------------------------------------------------------------------
Keystone Liquid Trust
Our Outlook
As we enter 1997, we anticipate a steady interest rate environment, similar to
that experienced over the past few months. We expect the economy to grow at a
pace of 1-1/2% to 3% and for inflation to remain well-contained. The economy
still exhibits signs of strength, particularly in the housing and manufacturing
sectors and in consumer confidence. However, consumer borrowing has slowed. This
could dampen the rate of growth since consumer spending accounts for two-thirds
of domestic economic activity.
We believe that the U.S. economy is in a prolonged moderate growth cycle with
periodic over-heating and recessionary scares. This leads to a bond market that
should trade in a volatile pattern within a generally well- defined range.
Longer term, we do not see excesses in the real economy embedded with higher
inflation.
We appreciate your continued support of Keystone funds. If you have any
questions or comments about your investment, we encourage you to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman
Keystone Investment Management Company
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
February 1997
<PAGE>
PAGE 3
- -----------------------------------------------------------------------------
Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for managing
a portfolio's assets prudently and making appropriate investment decisions, such
as which securities to buy, hold and sell, based on the investment objectives of
the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a claim
on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it has
borrowed money. A bond usually promises to pay interest income to the bondholder
at regular intervals and to repay the entire amount borrowed at maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or bonds)
that is exchangeable for a set number of another security type (usually common
stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The fund
pays income which can fluctuate daily. Liquidity and safety of principal are
primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund. The
NAV per share is determined by subtracting a fund's total liabilities from its
total assets, and dividing that amount by the number of fund shares outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net asset
value drops by the amount of the distribution because the distribution is no
longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses. Capital
gains are paid to fund shareholders on a per share basis. When a capital gain
distribution is made, the fund's net asset value drops by the amount of the
distribution because the distribution is no longer considered part of the fund's
assets.
YIELD--The annualized rate of income as measured against the current net asset
value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified period
of time, taking into account the change in a fund's market price and the
reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price at
which the share is sold to the public.
<PAGE>
PAGE 4
- -----------------------------------------------------------------------------
Keystone Liquid Trust
SCHEDULE OF INVESTMENTS--December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKERS' ACCEPTANCES (4.9%)
First National Bank of Chicago 01/09/97 $ 2,000,000 $ 1,997,931
Morgan Guaranty Trust Co. of New York 03/25/97 3,000,000 2,962,827
Republic National Bank, New York 06/02/97 2,000,000 1,954,448
Republic National Bank, New York 06/16/97 2,000,000 1,950,225
Sun Bank Orlando 01/06/97 2,000,000 1,998,829
- ------------------------------------------------------------------------------------------------
TOTAL BANKERS' ACCEPTANCES (Cost--$10,867,841) 10,864,260
- ------------------------------------------------------------------------------------------------
BANK NOTES (6.3%)
Fifth Third Bancorp, 5.36% 01/06/97 10,000,000 9,999,953
Morgan Guaranty Trust Co. of New York, 5.25% 01/15/97 2,000,000 1,999,683
Wachovia Bank & Trust, 6.65% 09/05/97 2,000,000 2,012,900
- ------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (Cost--$14,012,866) 14,012,536
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.0%)
Algemene Bank Nederland NV, Yankee CD, 5.50% 04/09/97 5,000,000 4,998,917
Bayerische Landesbank, Euro CD, 5.54% 02/07/97 5,000,000 4,999,931
Commerzbank, New York, CD, 5.40% 03/11/97 5,000,000 4,998,896
Deutsche Bank AG, New York, Yankee CD, 5.62% 01/15/97 5,000,000 5,000,028
Deutsche Bank AG, Yankee CD, 5.57% 02/03/97 3,000,000 3,000,155
Rabobank Nederland NV, Yankee CD, 5.53% 02/05/97 10,000,000 9,999,777
Republic National Bank, New York, CD, 5.51% 04/30/97 5,000,000 4,998,969
- ------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (Cost--$38,002,285) 37,996,673
- ------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (53.9%)
ABN-AMRO North America Finance Co. 01/07/97 5,000,000 4,996,298
Abbott Laboratories, Inc. 01/16/97 5,000,000 4,989,617
American Express Credit Corp. 01/10/97 5,000,000 4,994,089
American Express Credit Corp. 06/20/97 5,000,000 4,873,250
Ameritech Corp. 01/17/97 5,000,000 4,988,854
Associates Corp. of North America 01/13/97 5,000,000 4,991,842
Associates Corp. of North America 01/24/97 5,000,000 4,983,653
Bayerische Landesbank 02/18/97 5,000,000 4,964,554
Bayerische Vereinsbank AG 01/08/97 5,000,000 4,995,550
BellSouth Telecommunications, Inc. 03/26/97 7,000,000 6,912,204
Commerzbank AG, New York 01/10/97 2,000,000 1,997,627
Commerzbank U.S. Financial Corp. 02/28/97 3,000,000 2,973,875
Dean Witter, Discover & Co. 01/30/97 5,000,000 4,979,194
Deutsche Bank Financial, Inc. 05/08/97 2,000,000 1,961,990
duPont (E.I.) deNemours & Co. 01/28/97 5,000,000 4,980,789
<PAGE>
PAGE 5
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (continued)
General Electric Capital Corp. 01/06/97 $ 5,000,000 $ 4,997,033
General Electric Capital Corp. 02/04/97 5,000,000 4,975,433
Heinz (H.J.) Co. 01/09/97 5,000,000 4,994,828
Heinz (H.J.) Co. 01/16/97 3,000,000 2,993,735
Kellogg Co. 01/14/97 3,600,000 3,593,688
Merrill Lynch & Co., Inc. 01/17/97 5,000,000 4,988,792
Merrill Lynch & Co., Inc. 02/25/97 5,000,000 4,958,900
Proctor & Gamble Co. 01/21/97 7,000,000 6,980,235
Proctor & Gamble Co. 02/10/97 3,000,000 2,982,580
UBS Finance Delaware, Inc. 01/02/97 10,000,000 10,000,000
- ------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost--$120,057,722) 120,048,610
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT (AND AGENCY) ISSUES (13.4%)
FHLMC Discount Notes 04/01/97 3,000,000 2,960,321
FHLMC Discount Notes 08/28/97 5,000,000 4,997,090
FNMA Discount Notes 01/03/97 5,000,000 4,999,274
FNMA Discount Notes 03/17/97 5,000,000 4,944,808
FNMA Discount Notes 03/27/97 4,000,000 3,949,880
U.S. Treasury Notes 08/31/97 5,000,000 5,015,508
U.S. Treasury Notes 11/30/97 3,000,000 3,011,894
- ------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (Cost--$29,874,976) 29,878,775
- ------------------------------------------------------------------------------------------------
Maturity
Value
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (4.1%) (Cost--$9,054,000)
Keystone Joint Repurchase Agreement
(Investments in repurchase agreements,
in a joint trading account,
6.72%, purchased 12/31/96) (a) 01/02/97 9,057,380 9,054,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost--$221,869,690) 221,854,854
OTHER ASSETS AND LIABILITIES--NET (0.4%) 836,080
- ------------------------------------------------------------------------------------------------
NET ASSETS--(100.0%) $222,690,934
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at December 31, 1996.
Legend of Portfolio Abbreviations
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 period)
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
1996 --------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .0222 .0464 .0454 .0235 .0230 .0386
Net realized and
unrealized gain (loss)
on investments .0001 (.0001) 0 0 (.0001) .0003
- --------------------------------------------------------------------------------------------------------
Total from investment
operations .0223 .0463 .0454 .0235 .0229 .0389
- --------------------------------------------------------------------------------------------------------
Less distributions to
shareholders (.0223) (.0463) (.0454) (.0235) (.0229) (.0389)
- --------------------------------------------------------------------------------------------------------
Net asset value end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Total return 2.25% 4.73% 4.63% 2.37% 2.31% 3.96%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 4.41%(b) 4.66% 4.42% 2.50% 2.29% 3.99%
Total expenses (a) 1.06%(b) 0.98% 0.92% 1.02% 1.11% 1.10%
Net assets end of period
(thousands) $207,960 $332,796 $245,308 $398,617 $189,167 $227,115
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.04% (annualized) for the
six months ended December 31, 1996 and 0.95% for the year ended June 30,
1996.
(b) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 7
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended Year Ended June 30, (Date of Initial
December 31, ---------------------------- Public Offering)
1996 1996 1995 1994 to June 30, 1993
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .0178 .0369 .0362 .0142 .0047
Net realized and unrealized gain
(loss) on investments .0001 0 0 0 (.0001)
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations .0179 .0369 .0362 .0142 .0046
- ---------------------------------------------------------------------------------------------------------------
Less distributions to shareholders (.0179) (.0369) (.0362) (.0142) (.0046)
- ---------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Total return (c) 1.79% 3.76% 3.68% 1.43% 0.46%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.56%(b) 3.73% 3.66% 1.84% 1.08% (b)
Total expenses (a) 1.92%(b) 1.91% 1.84% 1.85% 2.15% (b)
Net assets end of period (thousands) $10,942 $10,042 $ 7,281 $11,198 $ 241
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.90% (annualized) for the
six months ended December 31, 1996 and 1.88% for the year ended June 30,
1996.
(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 period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended Year Ended June 30, (Date of Initial
December 31, ---------------------------- Public Offering)
1996 1996 1995 1994 to June 30, 1993
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .0180 .0370 .0362 .0142 .0045
Net realized and unrealized
loss on investments 0 (.0001) 0 0 (.0002)
- ------------------------------------------------------------------------------------------------------
Total from investment operations .0180 .0369 .0362 .0142 .0043
- ------------------------------------------------------------------------------------------------------
Less distributions to shareholders (.0180) (.0369) (.0362) (.0142) (.0043)
- ------------------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------
Total return (c) 1.81% 3.75% 3.68% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.57%(b) 3.72% 3.52% 1.97% 1.01%(b)
Total expenses (a) 1.93%(b) 1.94% 1.82% 1.86% 2.09% (b)
Net assets end of period (thousands) $ 3,788 $ 3,285 $ 4,112 $ 6,599 $ 34
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.91% (annualized) for the
six months ended December 31, 1996 and 1.91% for the year ended June 30,
1996.
(b) Annualized.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 9
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES--
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Assets (Note 2)
Investments at market value
(identified cost--$221,869,690) $221,854,854
Cash 339,701
Receivable for:
Fund shares sold 192,084
Interest 1,167,350
Other assets 48,112
- -----------------------------------------------------------------------------
Total assets 223,602,101
- -----------------------------------------------------------------------------
Liabilities (Notes 2 and 4)
Payable for:
Fund shares redeemed 57,151
Distributions to shareholders 738,158
Due to related parties 9,932
Accrued Trustees' fees and expenses 2,148
Other accrued expenses 103,778
- -----------------------------------------------------------------------------
Total liabilities 911,167
- -----------------------------------------------------------------------------
Net assets $222,690,934
- -----------------------------------------------------------------------------
Net assets represented by (Note 2)
Class A Shares ($1.00 a share on 207,960,367 shares
outstanding) $207,960,367
Class B Shares ($1.00 a share on 10,942,259 shares
outstanding) 10,942,259
Class C Shares ($1.00 a share on 3,788,308 shares
outstanding) 3,788,308
- -----------------------------------------------------------------------------
$222,690,934
- -----------------------------------------------------------------------------
Net asset value and offering price per share
(Class A, B and C) $1.00
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS--
Six Months Ended December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Investment income
Interest $8,753,202
Expenses (Notes 3, 4 and 5)
Management fee $ 804,692
Transfer agent fees 417,167
Accounting, auditing and legal fees 34,164
Custodian fees 96,320
Trustees' fees and expenses 13,785
Distribution Plan expenses 255,302
Other 159,550
- -----------------------------------------------------------------------------
Total expenses 1,780,980
Less: Expenses paid indirectly (32,438)
- -----------------------------------------------------------------------------
Net expenses 1,748,542
- -----------------------------------------------------------------------------
Net investment income 7,004,660
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments
Net realized gain on investments 2,965
Net change in unrealized appreciation on investments 26,907
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments 29,872
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,034,532
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 10
- -----------------------------------------------------------------------------
Keystone Liquid Trust
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended
1996 June 30, 1996
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operations
Net investment income $ 7,004,660 $ 12,563,580
Net realized gain on investments 2,965 4,475
Net change in unrealized appreciation (depreciation) on investments 26,907 (39,780)
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,034,532 12,528,275
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 1)
Class A Shares (6,743,248) (12,043,595)
Class B Shares (220,772) (383,777)
Class C Shares (70,512) (100,903)
- ------------------------------------------------------------------------------------------------------
Total distributions to shareholders (7,034,532) (12,528,275)
- ------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2)
Class A Shares (124,835,304) 87,487,588
Class B Shares 900,185 2,760,515
Class C Shares 502,910 (826,275)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions (123,432,209) 89,421,828
- ------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (123,432,209) 89,421,828
Net assets
Beginning of period 346,123,143 256,701,315
- ------------------------------------------------------------------------------------------------------
End of period $ 222,690,934 $346,123,143
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 11
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1.) Significant Accounting Policies
Keystone Liquid Trust (the "Fund") is a Massachusetts business trust for which
Keystone Investment Management Company ("Keystone") is the Investment Adviser
and Manager. Keystone was formerly a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII") and is currently a subsidiary of First Union Keystone,
Inc. First Union Keystone, Inc. is a wholly-owned subsidiary of First Union
National Bank of North Carolina which in turn is a wholly-owned subsidiary of
First Union Corporation ("First Union"). The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end investment company. The Fund offers several classes of shares. 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 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.
A. Valuation of Securities
Money market investments maturing in sixty days or less are valued at amortized
cost. 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.
B. Repurchase Agreements
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.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral
daily and will 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.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
D. 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 (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.
E. Distributions
The Fund declares dividends daily, pays dividends monthly and automatically
reinvests such dividends in
<PAGE>
PAGE 12
- -----------------------------------------------------------------------------
Keystone Liquid Trust
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.
F. Class Allocations
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 is payable upon redemption
and decreases depending on how long the shares have been held. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
automatically convert to Class A shares. Class B shares purchased prior to June
1, 1995 that have been outstanding for seven years automatically convert to
Class A shares. Class C shares are offered without an initial sales charge,
although a contingent deferred sales charge is payable on shares redeemed within
one year of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest with no par value. Shares of beneficial
interest of the Fund are currently divided into Class A, Class B and Class C.
Since the Fund sold, redeemed and reinvested shares at $1.00 net asset value,
the shares and dollar amount are the same. Transactions in shares of the Fund
were as follows:
Six Months
Ended Year
December 31, Ended
Class A 1996 June 30, 1996
- -----------------------------------------------------------------------------
Shares sold $ 602,052,721 $ 1,105,810,542
Shares redeemed (732,901,073) (1,027,927,276)
Shares issued in reinvestment of
dividends and distributions 6,013,048 9,604,322
- -----------------------------------------------------------------------------
Net increase (decrease) $(124,835,304) $ 87,487,588
- -----------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------
Shares sold $ 20,141,291 $ 31,488,209
Shares redeemed (19,428,017) (29,034,624)
Shares issued in reinvestment of
dividends and distributions 186,911 306,930
- -----------------------------------------------------------------------------
Net increase $ 900,185 $ 2,760,515
- -----------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------
Shares sold $ 3,764,790 $ 7,581,549
Shares redeemed (3,324,177) (8,502,653)
Shares issued in reinvestment of
dividends and distributions 62,297 94,829
- -----------------------------------------------------------------------------
Net increase (decrease) $ 502,910 $ (826,275)
- -----------------------------------------------------------------------------
(3.) Distribution Plans
The Fund bears some of the costs of selling its shares under Distribution Plans
adopted for its Class A, B and C shares pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, the Fund pays its
<PAGE>
PAGE 13
- -----------------------------------------------------------------------------
principal underwriter amounts which are calculated and paid monthly.
Prior to December 11, 1996, Evergreen Keystone Investment Services, Inc.
(formerly, Keystone Investment Distributors Company) ("EKIS"), a wholly-owned
subsidiary of Keystone, served as the Fund's principal underwriter. On December
11, 1996, the Fund entered into a principal underwriting agreement with
Evergreen Keystone Distributor, Inc. (formerly, Evergreen Funds Distributor,
Inc.) ("EKD"), a wholly-owned subsidiary of BISYS Group Inc. At that time, EKD
replaced EKIS as the Fund's principal underwriter.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A shares,
to pay expenses related to the distribution of Class A shares. During the six
months ended December 31, 1996, the Fund paid $173,450 to EKIS under the Class A
Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays a
distribution fee which may not exceed 1.00% annually of the average daily net
assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees.
During the six months ended December 31, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $42,382 for Class B shares purchased before June
1, 1995 and $19,690 for Class B shares purchased on or after June 1, 1995. The
Fund paid $19,780 under the Class C Distribution Plan.
Each of the Distribution Plans may be terminated at any time by 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, and subject to the discretion of the Independent Trustees, payments to
EKIS and/or EKD may continue as compensation for services which had been earned
while the Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.
At December 31, 1996 total unpaid distribution costs were $1,199,417 for Class
B shares purchased before June 1, 1995 and $287,222 for Class B shares purchased
on or after June 1, 1995. Unpaid distribution costs for Class C were $1,214,156
at December 31, 1996.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
(4.) Investment Management Agreement and Other Affiliated Transactions
Under an investment advisory agreement dated December 11, 1996, Keystone serves
as the Investment Adviser and Manager to the Fund. Keystone provides the Fund
with investment advisory and management services. In return, Keystone 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 average daily net asset value of the Fund.
Prior to December 11, 1996, Keystone Management, Inc. ("KMI"), a wholly-owned
subsidiary of Keystone, served as Investment Manager to the Fund and provided
investment management and administrative services. Under an investment advisory
agreement between KMI and Keystone, Keystone served as the Investment Adviser
and provided investment advisory and management
<PAGE>
PAGE 14
- -----------------------------------------------------------------------------
Keystone Liquid Trust
services to the Fund. In return for its services, Keystone received an annual
fee equal to 85% of the management fee received by KMI.
During the six months ended December 31, 1996, the Fund paid or accrued
$14,341 to Keystone for certain accounting services. The Fund paid or accrued
$417,167 to Evergreen Keystone Service Company (formerly, Keystone Investor
Resource Center, Inc.), a wholly-owned subsidiary of Keystone, for services
rendered as the Fund's transfer and dividend disbursing agent.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
(5.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian. For
the six months ended December 31, 1996, the Fund incurred total custody fees of
$96,320 and received a credit of $32,438 pursuant to this expense offset
arrangement, resulting in a net custody expense of $63,882. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
<PAGE>
PAGE 15
- -----------------------------------------------------------------------------
ADDITIONAL INFORMATION (Unaudited)
Shareholders of the Fund considered and acted upon the proposals listed below
at a special meeting of shareholders held Monday, December 9, 1996. In addition,
next to each proposal are the results of that vote.
Affirmative Withheld
------------- -------------
1. To elect the following Trustees:
Frederick Amling 174,614,490.186 9,827,496.960
Laurence B. Ashkin 174,499,798.106 9,712,804.880
Charles A. Austin III 174,573,127.716 9,754,167.350
Foster Bam 174,481,228.756 9,846,066.310
George S. Bissell 174,444,876.646 9,882,418.420
Edwin D. Campbell 174,571,976.386 9,755,318.680
Charles F. Chapin 174,513,556.876 9,813,738.190
K. Dun Gifford 174,599,806.346 9,727,488.720
James S. Howell 174,477,253.346 9,850,041.720
Leroy Keith, Jr. 174,536,145.346 9,791,149.720
F. Ray Keyser 174,502,970.576 9,824,324.490
Gerald M. McDonnell 174,484,684.226 9,842,610.840
Thomas L. McVerry 174,496,773.116 9,830,521.950
William Walt Pettit 174,475,109.256 9,852,185.810
David M. Richardson 174,599,806.346 9,727,488.720
Russell A. Salton, III MD 174,439,202.376 9,888,092.690
Michael S. Scofield 174,542,891.566 9,784,403.500
Richard J. Shima 174,484,681.016 9,842,614.050
Andrew J. Simons 174,384,040.676 9,943,254.390
Votes For Votes Against Abstentions
--------- ------------- -----------
2. To approve an
Investment Advisory
and Management
Agreement between the
Fund and Keystone
Investment Management
Company. 168,374,747.516 5,839,366.530 10,113,181.020
3. To amend the Fund's
Declaration of Trust
to permit the Board
Trustees to fix the
number of Trustees
from time to time. 168,189,259.926 7,378,193.920 8,759,841.220
<PAGE>
KEYSTONE
FAMILY OF FUNDS
[diamond]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Keystone funds, contact
your financial adviser or call Evergreen Keystone.
[GRAPHIC] Evergreen Keystone Logo
P.O. Box 2121
Boston, Massachusetts 02106-2121
KLT-R-2/97
15.5M [recycle logo]
KEYSTONE
[GRAPHIC] Man assisting child on bicycle
LIQUID TRUST
[GRAPHIC] Evergreen Keystone Logo
SEMIANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
EVERGREEN MONEY MARKET TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability and
Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
Number Description
1(A) Amended and Restated Declaration of Trust.(1)
(B) Instrument providing for the Establishment and Designation of
Classes.(1)
(C) Amendment to Declaration of Trust and Certification of
Designation.(2)
2 By-laws.(3)
3 Not applicable.
4 Agreement and Plan of Reorganization (included as Exhibit A to the
Prospectus contained in Part A to this registration statement)
5 [To be completed.]
6(A) Investment Advisory Agreement between Evergreen Asset Management
Corp. and the Registrant.(2)
(B) Investment Sub-Advisory Agreement between Evergreen Asset Management
Corp. and Lieber & Company.(1)
7(A) Form of Distribution Agreement between Evergreen Keystone
Distributor, Inc.(formerly Evergreen Funds Distributor, Inc.) and
the Registrant.(4)
(B) Form of Dealer Agreement for Class A, B and C shares used by
Evergreen Keystone Distributor, Inc.(4)
(C) Form of Sub-Administrator Agreement.(2)
8 Not applicable.
9 Custody Agreement between State Street Bank and Trust Company and
Registrant.(5)
10 Rule 12b-1 Distribution Plans.(2)
11 Opinion and consent of Sullivan & Worcester LLP as to the legality of
the legality of the shares being issued.(4)
12 Tax opinion and consent of Sullivan & Worcester LLP.(6)
13 Form of Administrative Services Agreement (2)
14(A) Consent of Price Waterhouse LLP to the use of their report dated
October 18, 1996, concerning the financial statements of Evergreen
Money Market Fund for the fiscal year ended August 31, 1996.(6)
(B) Consent of KPMG Peat Marwick LLP.(4)
15 Not applicable.
16 Powers of Attorney.(4)(See signature page included herewith.)
17(A) Form of Proxy Card.(4)
(B) Registrant's Rule 24f-2 Declaration.(6)
- -------------------
(1) Incorporated by reference to post-effective amendment no. 9 to
Registrant's registration statement (No. 33-16706) (the "Registration
Statement") filed December 30, 1994.
(2) Incorporated by reference to post-effective amendment no. 12 to the
Registration Statement filed September 11, 1996.
(3) Incorporated by reference to Registrant's Registration Statement filed
August 24, 1987.
(4) Filed herewith.
(5) Incorporated by reference to post-effective amendment no. 6 to the
Registration Statement dated filed 8, 1993.
(6) To be filed by amendment.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus that is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned registrant agrees to file, by post-effective amendment,
an opinion of counsel or a copy of an Internal Revenue Service ruling supporting
the tax consequences of the proposed reorganization within a reasonable time
after receipt of such opinion or ruling.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of New York and State of
New York, on the 11th day of March, 1997.
EVERGREEN MONEY MARKET TRUST
By: /s/ John J. Pileggi
_______________________
Name: John J. Pileggi
Title: President
Know all men by these presents that each person whose signature appears
below hereby severally constitutes and appoints John J. Pileggi, Dorothy E.
Bourassa, Terrence J. Cullen, James P. Wallin and Martin J. Wolin, and each of
them singly, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution, for the undersigned and in the undersigned's name, place
and stead, in any and all capacities, to sign and affix the undersigned's name
to any and all amendments to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or incidental to the performance and execution of
the powers herein granted, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or their substitutes, may lawfully
do or cause to be done by virtue hereof.
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities indicated on the day 11th
of March, 1997.
Signatures Title
- ----------- -----
/s/ John J. Pileggi
- ----------------------- President and
John J. Pileggi Treasurer
/s/ Laurence B. Ashkin
- ----------------------- Trustee
Laurence B. Ashkin
/s/ Foster Bam
- ----------------------- Trustee
Foster Bam
/s/ James S. Howell
- ----------------------- Trustee
James S. Howell
/s/ Gerald M. McDonnell
- ----------------------- Trustee
Gerald M. McDonnell
/s/ Thomas L. McVerry
- ----------------------- Trustee
Thomas L. McVerry
/s/ William Walt Pettit
- ----------------------- Trustee
William Walt Pettit
/s/ Russell A. Salton, III, M.D.
- ------------------------------ Trustee
Russell A. Salton, III, M.D
/s/ Michael S. Scofield
- ----------------------- Trustee
Michael S. Scofield
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
7(a) Form of Distribution Agreement
(b) Dealer Agreement
11 Opinion and Consent of Sullivan & Worcester.
14(b) Consent of KPMG Peat Marwick LLP
17(a) Form of Proxy Card
-------------------
FORM OF DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 1st day of January, 1997, by and between
[NAME OF FUND] (the "Trust") and Evergreen Keystone Distributor, Inc. ("EKD")
WHEREAS, The Trust, has adopted one or more Plans of Distribution with
respect to certain Classes of shares of its separate investment series (each a
"Plan", or collectively the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act") which Plans authorize the Trust
on behalf of the Funds to enter into agreements regarding the distribution of
such Classes of shares (the "Shares") of the separate investment series of the
Trust (the "Funds") set forth on Exhibit A; and
WHEREAS, the Trust has agreed that Evergreen Keystone Distributor, Inc.
(the "Distributor"), a Delaware corporation, shall act as the distributor of the
Shares; and
WHEREAS, the Distributor agrees to act as distributor of the Shares for
the period of this Distribution Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. SERVICES AS DISTRIBUTOR
1.1. The Distributor agrees to use appropriate efforts to promote each
Fund and to solicit orders for the purchase of Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation The services to be performed hereunder by the Distributor are
described in more detail in Section 7 hereof. . In the event that the Trust
establishes additional investment series with respect to which it desires to
retain Evergreen Funds Distributor, Inc. to act as distributor for one or more
Classes hereunder, it shall promptly notify the Distributor in writing. If the
Distributor is willing to render such services it shall notify the Trust in
writing whereupon such portfolio shall become a Fund and its designated Classes
of shares of beneficial interest shall become Shares hereunder.
1.2. All activities by the Distributor and its agents and employees as
the distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the 1940 Act by the Securities and Exchange Commission (the
"Commission") or any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.3 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all Federal and state
laws relating to the sale of such securities. Neither the Distributor, any
selected dealer or any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in the
Trust's registration statement (the "Registration Statement") or related Fund
prospectus and statement of additional information ("Prospectus and Statement of
Additional Information") and any sales literature specifically approved by the
Trust.
1.4 The Distributor shall adopt and follow procedures, as approved by
the officers of the Trust, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
1.5. The Distributor will transmit any orders received by it for
purchase or redemption of Shares to the transfer agent and custodian for the
applicable Fund.
1.6 The Distributor shall provide persons acceptable to the Trust to
serve as officers of the Trust.
1.7. Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8. The Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others. The
Distributor shall offer and sell Shares only to such selected dealers as are
members, in good standing, of the NASD.
1.9 The Distributor agrees to adopt compliance standards, in a form
satisfactory to the Trust, governing the operation of the multiple class
distribution system under which Shares are offered.
2. DUTIES OF THE TRUST.
2.1. The Trust agrees at its own expense to execute any and all
documents and to furnish, at its own expense, any and all information and
otherwise to take all actions that may be reasonably necessary in connection
with the qualification of Shares for sale in such states as the Trust and the
Distributor may designate.
2.2. The Trust shall furnish from time to time, for use in connection
with the sale of Shares such information with respect to the Funds and the
Shares as the Distributor may reasonably request; and the Trust warrants that
any such information shall be true and correct. Upon request, the Trust shall
also provide or cause to be provided to the Distributor: (a) unaudited
semi-annual statements of each Fund's books and accounts, (b) quarterly earnings
statements of each Fund, (c) a monthly itemized list of the securities in each
Fund, (d) monthly balance sheets as soon as practicable after the end of each
month, and (e) from time to time such additional. information regarding each
Fund's financial condition as the Distributor may reasonably request.
3. REPRESENTATIONS OF THE TRUST.
3.1. The Trust represents to the Distributor that it is registered
under the 1940 Act and that the Shares of each of the Funds have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Trust
will file such amendments to its Registration Statement as may be required and
will use its best efforts to ensure that such Registration Statement remains
accurate.
4. INDEMNIFICATION.
4.1 The Trust shall indemnify and hold harmless the Distributor, ITS
OFFICERS AND DIRECTORS, and each person, if any, who controls the Distributor
within the meaning of Section 15 of the Securities Act against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith), which the
Distributor or such controlling person may incur under the Securities Act or
under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in the
Registration Statement, as from time to time amended or supplemented, any
prospectus or annual or interim report to shareholders of the Trust, or arising
out of or based upon any omission, or alleged omission, to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Trust in connection therewith by
or on behalf of the Distributor, provided, however, that in no case (i) is the
indemnity of the Trust in favor of the Distributor, ITS OFFICER AND DIRECTORS,
or any such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling person, as the case maybe, shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the other
first legal process giving information of the nature of the claim shall have
been served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Trust of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action it brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Trust will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Trust elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Trust elects to assume the defense
of any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Trust does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Trust shall promptly notify the Distributor of the commencement of any
litigation or proceeding against it or any of its officers or directors in
connection with the issuance or sale of any of the shares.
4.2 The Distributor shall indemnify and hold harmless the Trust and
each of its directors and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in paragraph 4.1, but only with respect to
statements or omissions made in reliance upon , and in conformity with,
information furnished to the Trust in writing by or on behalf of the Distributor
for uses in connection with the Registration Statement, as from time to time
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Trust or any persons so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of paragraph 4.1.
5. OFFERING OF SHARES.
5.1. None of the Shares shall be offered by either the Distributor or
the Trust under any of the provisions of this Agreement, and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust, if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus and statement of
additional information as required by Section 10(b) (2) of the Securities Act,
as amended, is not on file with the Commission; provided, however, that nothing
contained in this paragraph 5.1 shall in any way restrict or have any
application to or bearing upon the Trust's obligation to repurchase Shares from
any shareholder in accordance with the provisions of the prospectus of each Fund
or the Trust's prospectus or Declaration of Trust.
6. AMENDMENTS TO REGISTRATION STATEMENT AND OTHER MATERIAL EVENTS.
6.1. The Trust agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor: (a) of any
request or action taken by the Commission which is material to the Distributor's
obligations hereunder or (b) any material fact of which the Trust becomes aware
which affects the Distributor's obligations hereunder.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
7. COMPENSATION OF DISTRIBUTOR.
7.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the Trust
shall compensate the Distributor for its distribution services rendered during
the previous month (but not prior to the Commencement Date); by making payment
to the Distributor in the amounts set forth on Exhibit A annexed hereto with
respect to each Class of Shares of each Fund to which this Agreement is
applicable. The compensation by the Trust of the Distributor is authorized
pursuant to the Plan or Plans adopted by the Trust pursuant to Rule 12b-l under
the 1940 Act.
(b) Under this Agreement, the Distributor shall: (i) make
payments to securities dealers and others engaged in the sale of Shares; (ii)
make payments of principal and interest in connection with the financing of
commission payments made by the Distributor in connection with the sale of
Shares (iii) incur the expense of obtaining such support services, telephone
facilities and shareholder services as may reasonably be required in connection
with its duties hereunder; (iv) formulate and implement marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (v)
prepare, print and distribute sales literature; (vi) prepare, print and
distribute Prospectuses of the Funds and reports for recipients other than
existing shareholders of the Funds; and (vii) provide to the Trust such
information, analyses and opinions with respect to marketing and promotional
activities as the Trust may, from time to time, reasonably request.
(c) The Distributor shall prepare and deliver reports to the
Treasurer of the Trust on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Distributor in connection with its
services rendered pursuant to this Agreement and the Plan and the purposes
therefor, as well as any supplemental reports as the Trustees, from time to
time, may reasonably request.
(d) The Distributor may retain as a sales charge the difference
between the current offering price of Shares, as set forth in the current
prospectus for each Fund, and net asset value, less any reallowance that is
payable in accordance with the sales charge schedule in effect at any given time
with respect to the Shares.
(e) The Distributor may retain any contingent deferred sales
charge ("CDSCs") payable with respect to the redemption of any Shares, provided
however, that any CDSCs received by the Distributor shall first be applied by
the Distributor or its assignee to any outstanding amounts payable or which may
in the future be payable by the Distributor or its assignee under financing
arrangements entered into in connection with the payment of commissions on the
sale of Shares.
(f) The Distributor may sell, assign, pledge or hypothecate its
rights to receive compensation hereunder. The Trust acknowledges that, in
connection with the financing of commission payments made by the Distributor in
connection with the sale of Shares, the Distributor may sell and assign, and/or
has sold and assigned, to Mutual Fund Funding 1994-1 the Distributor's interest
in certain items of compensation payable to the Distributor hereunder, and that
Mutual Fund Funding 1994-1 in turn may pledge or assign, and/or has assigned,
such interest to First Union Corporation as lender to secure such financing. It
is understood that an assignee may not further sell, assign, pledge, or
hypothecate its right to receive such reimbursement unless such sale,
assignment, pledge or hypothecation has been approved by the vote of the Board
of the Trust, including a majority of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on such approval.
(g) In addition to the foregoing, and in respect of its services
hereunder and for similar services rendered to other investment companies for
which Evergreen Asset Management Corp. (the "Investment Adviser") serves as
investment adviser, the Investment Adviser may pay to the Distributor an
additional fee to be paid in such amount and manner as the Investment Adviser
and Distributor may agree from time to time.
8. CONFIDENTIALITY, NON-EXCLUSIVE AGENCY.
8.1. The Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Funds and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and to obtain approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where the Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust.
8.2. Nothing contained in this Agreement shall prevent the Distributor,
or any affiliated person of the Distributor, from performing services similar to
those to be performed hereunder for any other person, firm, or corporation or
for its or their own accounts or for the accounts of others.
9. TERM.
9.1. This Agreement shall continue until June 30, 1998 and thereafter
for successive annual periods, provided such continuance is specifically
approved at least annually by (i) a vote of the majority of the Trustees of the
Trust and (ii) a vote of the majority of those Trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan, in this Agreement or any agreement
related to the Plan (the "Independent Trustees") by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable at any time, with respect to the Trust, without penalty, (a) on not
less than 60 days' written notice by vote of a majority of the Independent
Trustees, or by vote of the holders of a majority of the outstanding voting
securities of the Trust, or (b) upon not less than 60 days' written notice by
the Distributor. This Agreement may remain in effect with respect to a Fund even
if it has been terminated in accordance with this paragraph with respect to one
or more other Funds of the Trust. This Agreement will also terminate
automatically in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities", "interested persons", and
"assignment" shall have the same meaning as such terms have in the 1940 Act.)
10. MISCELLANEOUS.
10.1. This Agreement shall be governed by the laws of the State of New
York.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
10.3 The obligations of the Trust hereunder are not personally binding
upon, nor shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust and only the Trust's
property shall be bound.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN FOUNDATION TRUST
By:_______________________________ By:______________________________
Title: , Vice President Title: John J. Pileggi, President
<PAGE>
EXHIBIT A
To Distribution Agreement between Evergreen Keystone Distributor, Inc.
and [NAME OF FUND]
FUNDS AND CLASSES COVERED BY THIS AGREEMENT:
DISTRIBUTION FEES
1. During the term of this Agreement, the Trust will pay to the Distributor a
quarterly fee with respect to each of the Funds and Classes of Shares thereof
listed above. This fee will be computed at the annual rate of .25 of 1% of the
average net asset value on an annual basis of Class A Shares of each Fund; and
.75 of 1% of the average net asset value on an annual basis of Class B and Class
C Shares of each Fund.
2. For the quarterly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the quarter.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated as of January 1, 1997 to be
executed by their officers designated below.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. [NAME OF FUND]
By:_______________________________ By:_______________________________
Title: , Vice President Title: John J. Pileggi, President
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange of Shares accepted by you
prior to the close of the New York Stock Exchange and placed with us the same
day prior to the close of our business day, 5:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place
orders for Shares only with us and at such closing price. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others
to place orders on your behalf. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not
to accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You have
no vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made
with the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon the termination of this
Agreement or upon the shareholder's instruction to transfer his or her account
to another Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior
notice, forthwith to cancel the sale, or, at our option, to sell such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your
customers, or for your own bonafide investment without a view to resale. If
you purchase Shares from your customers, you agree to pay such customers the
applicable net asset value per Share less any contingent deferred sales charge
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase
price. In such a sale to us, you may act either as principal for your own
account or as agent for your customer. If you act as principal for your own
account in purchasing Shares for resale to us, you agree to pay your
customer not less nor more than the repurchase price which you receive from
us. If you act as agent for your customer in selling Shares to us, you
agree not to charge your customer more than a fair commission for handling
the transaction. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of such
withholding.
10. We will not accept from you any conditional orders for Shares.
11. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund, or are tendered for redemption, within seven business
days after the date of our confirmation of the original purchase by you, it is
agreed that you shall forfeit your right to any commissions on such sales even
though the shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the
Fund any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
12. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received from
you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. In purchasing Shares from us you shall
rely solely on the representations contained in the appropriate Prospectus and
in such sales literature. We will furnish additional copies of such
Prospectuses and sales literature and other releases and information issued by
us in reasonable quantities upon request. You agree that you will in all
respects duly conform with all laws and regulations applicable to the sales of
Shares of the Funds and will indemnify and hold harmless the Funds, their
directors and trustees and the Company from any damage or expenses on account
of any wrongful act by you, your representatives, agents or sub-agents in
connection with any orders or solicitation or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at that time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
16. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA Plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
Evergreen Money Market Trust
April 11, 1997
Page 1
April 11, 1997
Evergreen Money Market Trust
2500 Westchester Avenue
Purchase, NY 10577
Ladies and Gentlemen:
We have been requested by the Evergreen Money Market Trust, a Massachusetts
business trust with transferable shares and currently consisting of three series
(the "Trust") established under a Declaration of Trust dated August 19, 1987 as
amended (the "Declaration"), for our opinion with respect to certain matters
relating to the Evergreen Money Market Fund (the "Acquiring Fund"), a series of
the Trust. We understand that the Trust is about to file a Registration
Statement on Form N-14 for the purpose of registering shares of the Trust under
the Securities Act of 1933, as amended (the "1933 Act"), in connection with the
proposed acquisition by the Acquiring Fund of all of the assets of the Keystone
Liquid Trust (the "Acquired Fund"), a Massachusetts business trust with
transferable shares, in exchange solely for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of liabilities of the Acquired Fund pursuant to
an Agreement and Plan of Reorganization the form of which is included in the
Form N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other proceedings
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine to our satisfaction, of the Trust's Declaration and
By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
Based upon the foregoing, and assuming the approval by shareholders of the
Acquired Fund of certain matters scheduled for their consideration at a meeting
presently anticipated to be held on July 14, 1997, it is our opinion that the
shares of the Acquiring Fund currently being registered, when issued in
accordance with
<PAGE>
Evergreen Money Market Trust
April 11, 1997
Page 2
the Plan and the Trust's Declaration and By-Laws, will be legally issued, fully
paid and non-assessable by the Trust, subject to compliance with the 1933 Act,
the Investment Company Act of 1940, as amended and applicable state laws
regulating the offer and sale of securities.
With respect to the opinion stated in the paragraph above, we note that
shareholders of a Massachusetts business trust may under some circumstances be
subject to assessment at the instance of creditors to pay the obligations of
such trust in the event that its assets are insufficient for the purpose.
We hereby consent to the filing of this opinion with and as a part of the
Registration Statement on Form N-14 and to the reference to our firm under the
caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/S/SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
F:\CEF\SALEM13\EVMONMKT.OPN:4/1/97
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
April 14, 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
Boston, Massachsuetts
April 14, 1997
KPMG PEAT MARWICK LLP
KEYSTONE LIQUID TRUST
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 30, 1997
The undersigned, revoking all Proxies heretofore given, hereby appoints
[Name], [Name], and [Name] or any 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 ("KLT") that the undersigned is entitled to vote at the
special meeting of shareholders of KLT to be held at 3:00 p.m. on Monday, June
30, 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 ("EMMF") will (i) acquire all of the assets of the KLT in
exchange for Shares of EMMF; and (ii) assume certain identified liabilities of
KLT, as substantially described in the accompanying Prospectus/Proxy Statement.
___________ FOR ___________ AGAINST ___________ ABSTAIN
<PAGE>
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE MID-CAP GROWTH FUND.
THE BOARD OF TRUSTEES OF KLT 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.
19471
