<PAGE>
FIRST UNION TAX FREE MONEY MARKET PORTFOLIO
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
May 2, 1995
Dear Shareholders of First Union Tax Free Money Market Portfolio:
On June 30, 1994, First Union National Bank of North Carolina ("FUNB-NC"),
whose Capital Management Group acts as investment adviser to the First Union Tax
Free Money Market Portfolio ("First Union Tax Free"), acquired Evergreen Asset
Management Corp. ("Evergreen Asset") and its affiliate, Lieber & Company. Major
factors in the decision of FUNB-NC to acquire Evergreen Asset included its
desire to broaden the scope of its mutual fund offerings to all of its current
and prospective clients, including those who currently hold shares of First
Union Funds, achieve the greater economies of scale generally associated with
increased assets under management, and enhance its portfolio management
capabilities. Included in the sixteen open-end investment company portfolios
managed by Evergreen Asset is the Evergreen Tax Exempt Money Market Fund
("Evergreen Tax Exempt").
The proposal contained in the accompanying proxy statement provides, in
effect, for the combination of First Union Tax Free and Evergreen Tax Exempt,
funds with substantially similar investment objectives and policies. Under the
proposed Agreement and Plan of Reorganization (the "Plan"), Evergreen Tax Exempt
will acquire substantially all of the assets of First Union Tax Free in exchange
for shares of Evergreen Tax Exempt. This combination is consistent with the
goals noted above and serves the interests of First Union Tax Free's
shareholders by ensuring that their assets continue to be managed in a tax free
money market portfolio that can take advantage of the greatest possible
administrative efficiencies.
As discussed more fully in the proxy statement, the combined fund will
remain part of the First Union mutual fund organization under the management of
Evergreen Asset. As a result of the proposed combination, the full resources of
the combined Evergreen/First Union capital management team will be harnessed for
the benefit of Evergreen Tax-Exempt's shareholders, including First Union Tax
Free's current shareholders.
If shareholders of First Union Tax Free approve the Plan, upon consummation
of the transaction contemplated in the Plan, you will receive shares of a class
of Evergreen Tax Exempt with the same letter designation and the same
distribution-related and shareholder servicing-related expenses and sales
charges, including contingent deferred sales charges, if any, and having a value
equal to the value of your then outstanding shares of First Union Tax Free. The
proposed transaction will not result in any federal income tax liability for you
or for First Union Tax Free. As a shareholder of Evergreen Tax Exempt you will
have the ability to exchange your shares for shares of the other funds in the
Evergreen family of funds comparable to your present right to exchange among the
First Union family of funds.
The Trustees of the First Union Funds have called a special meeting of
shareholders of First Union Tax Free to be held June 15, 1995 to consider the
proposed transaction. WE STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO
REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. I thank you for your participation as a shareholder
and urge you to please exercise your right to vote by completing, dating and
signing the enclosed proxy card. A self-addressed, postage-paid envelope has
been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please call
1-800-326-3241.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
(Signature of Edward C. Gonzales)
EDWARD C. GONZALES
PRESIDENT
FIRST UNION FUNDS
<PAGE>
FIRST UNION TAX FREE MONEY MARKET PORTFOLIO,
A PORTFOLIO OF FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1995
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the First Union Tax Free Money Market Portfolio ("First Union
Tax Free"), a portfolio of First Union Funds, will be held at the offices of
First Union Corporation, Two First Union Center, 301 S. Tryon Street, Charlotte,
N.C. 28288 on June 15, 1995 at 10:00 a.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of March 21, 1995 providing for the acquisition of
substantially all of the assets of First Union Tax Free by The Evergreen
Tax Exempt Money Market Fund ("Evergreen Tax Exempt"), a series of the
Evergreen Municipal Trust, in exchange for shares of Evergreen Tax
Exempt, and the assumption by Evergreen Tax Exempt of certain identified
liabilities of First Union Tax Free. The Plan also provides for the
distribution of such shares of Evergreen Tax Exempt to shareholders of
First Union Tax Free in liquidation and subsequent termination of First
Union Tax Free. A vote in favor of the Plan is a vote in favor of
liquidation and dissolution of First Union Tax Free.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of First Union Funds have fixed the close of business on April
17, 1995 as the record date for the determination of shareholders of First Union
Tax Free entitled to notice of and to vote at this Meeting or any adjournment
thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees
PETER J. GERMAIN
SECRETARY
May 2, 1995
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and 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. John Doe
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr. Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 2, 1995
ACQUISITION OF ASSETS OF
FIRST UNION TAX FREE
MONEY MARKET PORTFOLIO,
A PORTFOLIO OF FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
BY AND IN EXCHANGE FOR SHARES OF
THE EVERGREEN TAX EXEMPT
MONEY MARKET FUND,
A SERIES OF THE EVERGREEN MUNICIPAL TRUST
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
This Prospectus/Proxy Statement is being furnished to shareholders of First
Union Tax Free Money Market Portfolio ("First Union Tax Free"), a portfolio of
First Union Funds, in connection with a proposed Agreement and Plan of
Reorganization (the "Plan"), to be submitted to shareholders of First Union Tax
Free for consideration at a Special Meeting of Shareholders to be held on June
15, 1995 at 10:00 a.m. Eastern Daylight Time, at the offices of First Union
Corporation, Two First Union Center, 301 S. Tryon Street, Charlotte, N.C. 28288,
and any adjournments thereof (the "Meeting"). The Plan provides for
substantially all of the assets of First Union Tax Free to be acquired by The
Evergreen Tax Exempt Money Market Fund ("Evergreen Tax Exempt"), a series of The
Evergreen Municipal Trust (the "Trust"), in exchange for shares of Evergreen Tax
Exempt and the assumption by Evergreen Tax Exempt of certain identified
liabilities of First Union Tax Free (hereinafter referred to as the
"Reorganization"). Following the Reorganization, shares of Evergreen Tax Exempt
will be distributed to shareholders of First Union Tax Free in liquidation of
First Union Tax Free, and First Union Tax Free will be terminated. Holders of
shares in First Union Tax Free will receive shares of the Class of Evergreen Tax
Exempt (the "Corresponding Shares") having the same letter designation and the
same distribution-related fees as the shares of the class of First Union Tax
Free held by them prior to the Reorganization (see "Summary -- Distribution of
Shares"). As a result of the proposed Reorganization, shareholders of First
Union Tax Free will receive that number of full and fractional Corresponding
Shares of Evergreen Tax Exempt having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of First Union Tax Free.
The Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
Evergreen Tax Exempt is a diversified series of the Trust, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Trust comprises four series, including
Evergreen Tax Exempt.
Evergreen Tax Exempt seeks to achieve as high a level of current income
exempt from federal income tax as is consistent with preserving capital and
providing liquidity. The Fund invests substantially all of its assets in
short-term municipal securities, the interest from which is exempt from federal
income tax. The shares of Evergreen Tax Exempt are presently issued in two
Classes: Class A and Class Y.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Tax Exempt that
shareholders of First Union Tax Free should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated May 2,
1995, relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of Evergreen Tax Exempt for
the fiscal period ended August 31, 1994 and the financial statements of First
Union Tax Free dated December 31, 1994, has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus/Proxy Statement.
A copy of such Statement of Additional Information is available upon request and
without charge by writing to the Trust at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241. In
order to expedite delivery, any such request should refer to "Evergreen Tax
Exempt -- Prospectus/Proxy Statement/Statement of Additional Information."
The Prospectuses of Evergreen Tax Exempt dated January 3, 1995, and its
Annual Report for the fiscal year ended August 31, 1994 are incorporated herein
by reference in their entirety, insofar as they relate to Evergreen Tax Exempt
only, and not to any other fund described therein, and copies are included for
your information. The two Prospectuses, which pertain (i) to Class Y shares and
(ii) to Class A shares, differ only insofar as they pertain to the separate
distribution and
<PAGE>
shareholder servicing arrangements applicable to the Classes. Shareholders of
First Union Tax Free will receive, with this Prospectus/Proxy Statement, copies
of the Prospectus pertaining to the respective Class of Evergreen Tax Exempt
that they will receive as a result of the consummation of the Reorganization.
Additional information about Evergreen Tax Exempt is contained in its Statement
of Additional Information which has been filed with the SEC and is available
upon request and without charge by writing to Evergreen Tax Exempt at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-326-3241. In order to expedite delivery, any such
request should refer to "Evergreen Tax Exempt -- Prospectus/Proxy
Statement/Statement of Additional Information."
The Prospectuses of First Union Tax Free dated February 28, 1995, insofar
as they relate to First Union Tax-Free, and not to any other portfolio described
therein, are incorporated herein in their entirety by reference. Copies of the
Prospectuses and a Statement of Additional Information dated the same date are
available upon request without charge by writing to First Union Tax Free at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-326-3241.
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 OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED
OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT
INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
AN INVESTMENT IN EVERGREEN TAX EXEMPT IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
COMPARISON OF FEES AND EXPENSES........................................................................................ 4
Expense Ratio........................................................................................................ 6
SUMMARY................................................................................................................ 7
Proposed Reorganization.............................................................................................. 7
Tax Consequences..................................................................................................... 7
Investment Objectives and Policies -- Evergreen Tax Exempt........................................................... 7
Investment Objectives and Policies -- First Union Tax Free........................................................... 8
Comparative Performance Information for Each Fund.................................................................... 8
Management of the Funds.............................................................................................. 9
Distribution of Shares............................................................................................... 10
Purchase and Redemption Procedures................................................................................... 11
Exchange Privileges.................................................................................................. 11
Dividend Policy...................................................................................................... 11
RISKS.................................................................................................................. 12
INFORMATION ABOUT THE REORGANIZATION................................................................................... 12
Reasons For The Reorganization....................................................................................... 12
Agreement and Plan of Reorganization................................................................................. 12
Federal Income Tax Consequences...................................................................................... 13
Recommendation of the Board.......................................................................................... 14
Pro-Forma Capitalization............................................................................................. 15
Shareholder Information.............................................................................................. 15
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................................................................... 16
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS........................................................................ 19
Form of Organization................................................................................................. 19
Capitalization....................................................................................................... 19
Shareholder Liability................................................................................................ 20
Shareholder Meetings and Voting Rights............................................................................... 20
Liquidation or Dissolution........................................................................................... 20
Liability and Indemnification of Trustees............................................................................ 20
Rights of Inspection................................................................................................. 20
ADDITIONAL INFORMATION................................................................................................. 21
VOTING INFORMATION CONCERNING THE MEETING.............................................................................. 21
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS........................................................................ 22
OTHER BUSINESS......................................................................................................... 22
</TABLE>
3
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class A shares of Evergreen Tax Exempt set forth in the
following tables and examples are estimated based on the experience of the Class
Y shares of Evergreen Tax Exempt for the fiscal period ended August 31 1994; the
amounts for the Class Y shares are based on the experience of the Class Y shares
for the fiscal period ended August 31, 1994. Class A shares of Evergreen Tax
Exempt were first offered to the public as of January 3, 1995. The amounts for
each Class of First Union Tax Free set forth in the following tables and
examples are estimated based on expenses expected during the fiscal year ending
December 31, 1995.
The following tables show for Evergreen Tax Exempt and First Union Tax Free
the shareholder transaction expenses and annual fund operating expenses
associated with an investment in the respective comparable Classes of shares of
Evergreen Tax Exempt and shares of First Union Tax Free, and such costs and
expenses associated with an investment in each Class of shares of Evergreen Tax
Exempt assuming consummation of the Reorganization.
COMPARISON OF CLASS Y SHARES OF EVERGREEN TAX EXEMPT
WITH CLASS Y SHARES OF FIRST UNION TAX FREE
<TABLE>
<CAPTION>
EVERGREEN TAX FIRST UNION TAX EVERGREEN TAX EXEMPT
EXEMPT (1) FREE (1) PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................ None None None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price)................................................ None None None
Contingent Deferred Sales Charge..................................... None None None
Exchange Fee (only applies after 4 exchanges per calendar year)...... $5 None $5
Redemption Fees...................................................... None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)
Advisory Fees........................................................ .50% .35% .50%
12b-1 Fees........................................................... None None None
Other Expenses....................................................... .14% .13% .08%
Annual Fund Operating Expenses......................................... .64% .48% .58%
</TABLE>
(1) The estimated annual fund operating expenses for First Union Tax Free do not
reflect the voluntary advisory fee waiver by FUNB-NC of .09 of 1% of average
net assets, based on expenses expected for the fiscal year ending December
31, 1995. The estimated annual fund operating expenses for Evergreen Tax
Exempt do not reflect the voluntary advisory fee waiver of .30 of 1% of
average net assets for the fiscal period ending August 31, 1994.
Evergreen Asset has agreed to reimburse Evergreen Tax Exempt to the extent
that its aggregate annual fund operating expenses (including Evergreen
Asset's fee, but excluding taxes, interest, brokerage commissions, Rule
12b-1 distribution-related fees and shareholder servicing-related fees and
extraordinary expenses) exceed 1.00% of average net assets. In addition,
Evergreen Asset may from time to time, in its discretion, voluntarily waive
all or a portion of its fees and reimburse expenses of the Fund in order to
reduce its expense ratio. Evergreen Asset may cease these voluntary waivers
and reimbursements at any time.
4
<PAGE>
COMPARISON OF CLASS A SHARES OF EVERGREEN TAX EXEMPT
WITH CLASS A SHARES OF FIRST UNION TAX FREE
<TABLE>
<CAPTION>
EVERGREEN TAX FIRST UNION TAX EVERGREEN TAX EXEMPT
EXEMPT (1) FREE (1) PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................ None None None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price)................................................ None None None
Contingent Deferred Sales Charge..................................... None None None
Exchange Fee......................................................... None None None
Redemption Fees...................................................... None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)
Advisory Fees........................................................ .50% .35% .50%
12b-1 Fees*.......................................................... .30% .30% .30%
Other Expenses....................................................... .14% .13% .08%
Annual Fund Operating Expenses......................................... .94% .78% .88%
</TABLE>
* The Rule 12b-1 distribution plans of Class A shares of Evergreen Tax Exempt
and First Union Tax Free permit payments at an annual rate of up to .75% and
.35%, respectively, of the respective Fund's average daily net assets
attributable to such classes. Currently, the annual rate at which such
payments may be made is limited to .30% of average daily net assets.
(1) See Footnote 1 on page 4.
EXAMPLES. The following tables show for the respective Classes of shares of
each Fund, and for Evergreen Tax Exempt, assuming consummation of the
Reorganization, examples of the cumulative effect of the shareholder transaction
expenses and annual fund operating expenses indicated above on a $1,000
investment in such shares for the periods specified, assuming (i) a 5% annual
return, and (ii) redemption at the end of such period.
CLASS Y SHARES
<TABLE>
<CAPTION>
EVERGREEN FIRST UNION EVERGREEN TAX EXEMPT
TAX EXEMPT TAX FREE PRO FORMA
<S> <C> <C> <C>
After 1 year................................................................. $ 7 $ 5 $ 6
After 3 years................................................................ $ 20 $15 $ 19
After 5 years................................................................ $ 36 $27 $ 32
After 10 years............................................................... $ 80 $60 $ 73
</TABLE>
CLASS A SHARES
<TABLE>
<CAPTION>
EVERGREEN FIRST UNION EVERGREEN TAX EXEMPT
TAX EXEMPT TAX FREE PRO FORMA
<S> <C> <C> <C>
After 1 year................................................................. $ 10 $ 8 $ 9
After 3 years................................................................ $ 30 $25 $ 28
After 5 years................................................................ $ 52 $43 $ 49
After 10 years............................................................... $115 $97 $108
</TABLE>
The purpose of the foregoing examples is to assist a First Union Tax Free
shareholder in understanding the various costs and expenses that an investment
in the respective Classes of shares of Evergreen Tax Exempt as a result of the
Reorganization would bear directly and indirectly, as compared with the various
direct and indirect expenses borne by a First Union Tax Free shareholder. These
examples should not be considered a representation of past or future expenses or
annual return. Actual expenses and annual return may be greater or less than
those shown.
5
<PAGE>
EXPENSE RATIO.
The expense ratios for the respective twelve month periods ended December
31, 1994 are as follows:
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT FIRST UNION TAX FREE
<S> <C> <C>
Class Y Shares.................................................................... .40 of 1% .31 of 1%
Class A Shares.................................................................... .70 of 1%* .61 of 1%
</TABLE>
The above-mentioned expense ratios are net of voluntary advisory fee
waivers and expense reimbursements by each Fund's investment adviser. If no
advisory fee waivers and reimbursements had been made, these expense ratios
would have been as follows:
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT FIRST UNION TAX FREE
<S> <C> <C>
Class Y Shares.................................................................... .64 of 1% .49 of 1%
Class A Shares.................................................................... .94 of 1%* .79 of 1%
</TABLE>
If the Funds were consolidated, and based upon the level of advisory fee
waiver on the part of Evergreen Asset in effect for the 12-month period ended
December 31, 1994, the pro forma expense ratios for the 12-month period ended
December 31, 1994, would have been as follows:
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT
PRO FORMA
<S> <C>
Class Y Shares........................................................... .34 of 1%
Class A Shares........................................................... .64 of 1%
</TABLE>
The following are the expense ratios of Evergreen Tax Exempt for the most
recent fiscal year ended August 31, 1994.
<TABLE>
<CAPTION>
NET OF ADVISORY FEE WAIVER EXCLUDING ADVISORY FEE WAIVER
<S> <C> <C>
Class Y Shares...................................................... .34 of 1% .64 of 1%
Class A Shares...................................................... .64 of 1%* .94 of 1%*
</TABLE>
* Expense ratios for Evergreen Tax Exempt Class A shares are based upon the
expense ratios of the Class Y shares adjusted for Rule 12b-1 distribution
fees. Class A shares commenced operations on January 3, 1995.
6
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, AND, TO THE
EXTENT NOT INCONSISTENT WITH SUCH ADDITIONAL INFORMATION, THE PROSPECTUSES OF
EVERGREEN TAX EXEMPT DATED JANUARY 3, 1995 AND THE PROSPECTUSES OF FIRST UNION
TAX FREE DATED FEBRUARY 28, 1995 (WHICH ARE INCORPORATED HEREIN BY REFERENCE),
AND THE PLAN, A COPY OF WHICH IS ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS
EXHIBIT A.
PROPOSED REORGANIZATION
The Plan provides for the transfer of substantially all of the assets of
First Union Tax Free in exchange for shares of Evergreen Tax Exempt and the
assumption by Evergreen Tax Exempt of certain identified liabilities of First
Union Tax Free. (First Union Tax Free and Evergreen Tax Exempt each may also be
referred to in this Prospectus/Proxy Statement as a "Fund" and collectively as
the "Funds"). The Plan also calls for the distribution of Corresponding Shares
(as defined above) of Evergreen Tax Exempt to First Union Tax Free shareholders
in liquidation of First Union Tax Free as part of the Reorganization. As a
result of the Reorganization, each shareholder of First Union Tax Free will
become the owner of that number of full and fractional Corresponding Shares of
Evergreen Tax Exempt having an aggregate net asset value equal to the aggregate
net asset value of the shareholder's shares of First Union Tax Free as of the
close of business on the date that First Union Tax Free's assets are exchanged
for shares of Evergreen Tax Exempt. See "Information About the Reorganization."
The Trustees of First Union Funds, including the Trustees who are not
"interested persons," as that term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of First Union Tax Free and that the interests of the
shareholders of First Union Tax Free will not be diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of First Union Tax Free's shareholders.
THE BOARD OF TRUSTEES OF FIRST UNION FUNDS RECOMMENDS APPROVAL OF THE PLAN
EFFECTING THE REORGANIZATION.
The Board of Trustees of the Trust has also approved the Plan, and
accordingly, Evergreen Tax Exempt's participation in the Reorganization.
Approval of the Reorganization will require the affirmative vote of more
than 50% of its outstanding voting securities of First Union Tax Free, with
shares of all classes voting as one class. See "Voting Information Concerning
the Meeting."
If the shareholders of First Union Tax Free do not vote to approve the
Reorganization, the Trustees will continue to operate First Union Tax Free under
existing arrangements, or consider other alternatives in the best interests of
the shareholders.
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, First Union Tax Free
will have received an opinion of counsel that the Reorganization has been
structured so that no gain or loss will be recognized by First Union Tax Free or
its shareholders for federal income tax purposes as a result of the receipt of
shares of Evergreen Tax Exempt in the Reorganization. The holding period and
aggregate tax basis of Corresponding Shares of Evergreen Tax Exempt that are
received by First Union Tax Free shareholders will be the same as the holding
period and aggregate tax basis of shares of First Union Tax Free previously held
by such shareholders, provided that shares of First Union Tax Free are held as
capital assets. In addition, the holding period and tax basis of the assets of
First Union Tax Free in the hands of Evergreen Tax Exempt as a result of the
Reorganization will be the same as in the hands of First Union Tax Free
immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES -- EVERGREEN TAX EXEMPT
The investment objective of Evergreen 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. Evergreen Tax Exempt will seek to
achieve its objective by investing substantially all of its assets in a
diversified portfolio of short-term (i.e., with remaining maturities not
exceeding 397 days) debt obligations issued by states, territories and
possessions of the United States and by the District of Columbia, and their
political subdivisions and duly constituted authorities, the interest from which
is exempt from federal income tax. Such securities are referred to herein as
"Municipal Securities." The Fund invests in high quality Municipal Securities,
which 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 -- Rule 2a-7 Investments."
7
<PAGE>
Municipal Securities in which the Fund may invest include: (i) Municipal
Securities that are rated in one of the top two short-term rating categories by
any two of Standard & Poor's Ratings Group ("S&P"), Moody's Investor Service,
Inc. ("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); (ii) Municipal Securities that are issued by an issuer
that has outstanding a class of short-term debt instruments (i.e., having a
maturity of 366 days or less) that (A) is comparable in priority and security to
such instruments and (B) meets the rating requirements above; and (iii) bonds
with a remaining maturity of 397 days or less that are rated no lower than one
of the top two long-term rating categories by any SRO and determined by its
Trustees to be of comparable quality. If a portfolio security is no longer of
eligible quality, the Fund shall dispose of such security in an orderly fashion
as soon as reasonably practicable, unless its Trustees determine, in light of
market conditions or other factors, that disposal of the instrument would not be
in the best interests of the Fund and its shareholders. Evergreen Tax Exempt may
also purchase Municipal Securities which are unrated at the time of purchase up
to a maximum of 20% of its total assets, if such securities are determined by
its Trustees to be of comparable quality. Certain Municipal Securities
(primarily variable rate demand notes) may be entitled to the benefit of standby
letters of credit or similar commitments issued by banks or other financial
institutions and, in such instances, the Trustees will take into account the
obligation of the bank in assessing the quality of such security. For more
information concerning types of Municipal Securities, see "Comparison of
Investment Objectives and Policies -- Municipal Securities."
Interest income on certain types of bonds issued after August 7, 1986 to
finance nongovernmental activities is an item of "tax-preference" subject to the
federal alternative minimum tax for individuals and corporations. To the extent
the Fund invests in these "private activity" bonds (some of which were formerly
referred to as "industrial development" bonds), individual and corporate
shareholders, depending on their status, may be subject to the alternative
minimum tax on the part of the Fund's distributions derived from the bonds. As a
matter of fundamental policy, the Fund will invest at least 80% of its net
assets in Municipal Securities, the interest from which is not subject to the
federal alternative minimum tax.
INVESTMENT OBJECTIVES AND POLICIES -- FIRST UNION TAX FREE
First Union Tax Free seeks to provide current income exempt from federal
regular income tax, while preserving capital and maintaining liquidity. First
Union Tax Free pursues this objective by investing at least 80% of its assets in
a diversified portfolio of Municipal Securities maturing in 397 days or less,
with an average dollar-weighted maturity of 90 days or less. As a matter of
investment policy that cannot be changed without the approval of shareholders,
the Fund will invest its assets so that at least 80% of its assets will be
invested in securities, the income from which is exempt from federal income
taxes (including the alternative minimum tax).
Municipal Securities are the primary investment of First Union Tax Free.
The Municipal Securities in which it may invest are: (i) bonds rated in the two
highest categories by an SRO or, if unrated, deemed by the Fund's investment
adviser to be of comparable quality to securities having such ratings; (ii)
securities guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest; (iii) municipal leases; or (iv) notes,
tax-exempt commercial paper and variable rate demand obligations rated in the
highest category by an SRO or if unrated, determined by the investment adviser
to be of comparable quality. First Union Tax Free may buy participation
interests in Municipal Securities.
COMPARATIVE PERFORMANCE INFORMATION FOR EACH FUND
Discussions of the manner of calculation of total return, yield and
effective yield are contained in the respective Prospectuses and Statements of
Additional Information of the Funds.
The total return of the Class Y shares of Evergreen Tax Exempt and of each
Class of shares of First Union Tax Free for the one year period ended on
December 31, 1994 and the period from inception through December 31, 1994 is set
forth in the table below.
COMPARISON OF PERFORMANCE
AVERAGE ANNUAL COMPOUNDED TOTAL RETURN
<TABLE>
<CAPTION>
FUND PERIOD CLASS Y CLASS A
<S> <C> <C> <C>
Evergreen Tax Exempt............................................. 1 year 2.76% --
From inception 4.38% --
First Union Tax Free............................................. 1 year 2.91% 2.61%
From inception 3.14% 3.80%
</TABLE>
8
<PAGE>
The inception date for Class Y of Evergreen Tax Exempt is November 2, 1985.
The inception date for Class Y and Class A of First Union Tax Exempt is January
3, 1991 and January 3, 1989, respectively. Evergreen Tax Exempt Class A shares
were not available for distribution on December 31, 1994 and commenced
operations January 3, 1995.
The effective and tax equivalent yield of the Class Y shares of Evergreen
Tax Exempt and of each Class of shares of First Union Tax Free for the 7 days
ended December 31, 1994 is set forth in the table below.
<TABLE>
<CAPTION>
EFFECTIVE
YIELD TAX EQUIVALENT YIELD*
FUND 7 DAYS ENDED CLASS Y CLASS A CLASS Y CLASS A
<S> <C> <C> <C> <C> <C>
Evergreen Tax Exempt............................. 12/31/94 4.37% -- 6.83% --
First Union Tax Free............................. 12/31/94 5.02% 4.71% 7.84% 7.36%
</TABLE>
* Assumes a 36% marginal federal income tax rate.
MANAGEMENT OF THE FUNDS
The overall management of each of the First Union Funds and Evergreen
Municipal Trust is the responsibility of, and is supervised by, its Trustees.
INVESTMENT ADVISERS AND ADMINISTRATORS
EVERGREEN TAX EXEMPT. Evergreen Asset Management Corp. ("Evergreen Asset")
is the investment adviser of Evergreen Tax Exempt and, as such, manages its
investments, provides various administrative services and supervises the Fund's
daily business affairs. Under its investment advisory agreement with Evergreen
Tax Exempt, Evergreen Asset is entitled to receive an annual fee equal to .50 of
1% of the Fund's average daily net assets. Evergreen Asset has agreed to
reimburse Evergreen Tax Exempt to the extent that its aggregate operating
expenses (including Evergreen Asset's fee, but excluding taxes, interest,
brokerage commissions, Rule 12b-1 distribution-related fees and shareholder
servicing-related fees and extraordinary expenses) exceed 1.00% of average net
assets. In addition, Evergreen Asset may from time to time, in its discretion,
voluntarily waive all or a portion of its fees and reimburse expenses of the
Fund in order to reduce its expense ratio. Evergreen Asset may reduce or cease
these voluntary waivers and reimbursements at any time. Evergreen Asset has
engaged Lieber & Company to provide certain sub-advisory services to Evergreen
Asset in connection with its activities as investment adviser to Evergreen Tax
Exempt. The address of Evergreen Asset and of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. All reimbursement to Lieber &
Company in respect of such services is borne by Evergreen Asset and does not
result in any additional expense to Evergreen Tax Exempt.
Evergreen Tax Exempt commenced operations on November 2, 1988. Evergreen
Tax Exempt had $386 million in aggregate net assets as of March 1, 1995.
FIRST UNION TAX FREE. The Capital Management Group ("CMG"), a division of
FUNB-NC, One First Union Center, 301 S. College Street, Charlotte, North
Carolina 28288, serves as investment adviser to First Union Tax Free and is
responsible for the management of its investments and supervision of the Fund's
daily business affairs. CMG is entitled to receive an annual fee with respect to
First Union Tax Free under its investment advisory agreement with First Union
Funds at an annual rate equal to 0.35 of 1% of the Fund's average daily net
assets. Federated Administrative Services ("FAS") acts as administrator and fund
accounting agent for First Union Tax Free and the other portfolios of First
Union Funds and provides First Union Tax Free with certain administrative
personnel and services necessary to operate the Fund. For its services, FAS is
entitled to receive a fee at an annual rate based on the average daily net
assets of First Union Funds, computed as follows: .15 of 1% of the first $250
million; .125 of 1% of the next $250 million; .10 of 1% of the next $250
million; and .075 of 1% of assets in excess of $750 million. Unless waived, the
minimum administration fee during a fiscal year shall aggregate at least $50,000
per portfolio of First Union Funds. Federated Services Company serves as the
transfer agent and dividend disbursing agent for First Union Tax Free.
Commencing on July 1, 1995, Evergreen Asset will become the administrator of
First Union Funds pursuant to a contract approved by the Trustees of First Union
Funds on April 20, 1995. If First Union Tax Free were to continue its operations
after July 1, 1995, it would be subject to an administrative fee of no more than
.05 of 1% of average daily net assets on an annual basis.
First Union Tax Free commenced operations on January 3, 1989. As of March
1, 1995, First Union Tax Free had total net assets of $582 million.
9
<PAGE>
CERTAIN INFORMATION REGARDING EVERGREEN ASSET, CMG AND FUNB-NC
Evergreen Asset, together with its predecessor, has served as investment
adviser to the complex of mutual funds comprising the Evergreen Funds since
1971. Since June 30, 1994, Evergreen Asset has been a wholly-owned subsidiary of
FUNB-NC. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment
officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the
owners of Evergreen Asset's predecessor of the same name and the former general
partners of Lieber & Company. In addition to Evergreen Tax Exempt, Evergreen
Asset manages one other fund that invests principally in money market
securities, Evergreen Money Market Trust, having total assets, together with
Evergreen Tax Exempt, of $630 million as of March 1, 1995.
CMG has advised First Union Funds since First Union Funds' inception in
1984. CMG has been managing trust assets for over 50 years and currently
oversees assets of more than $51.2 billion. CMG employs an experienced staff of
professional investment analysts, portfolio managers, and traders, and uses
several proprietary computer-based systems in conjunction with fundamental
analysis to identify investment opportunities. In addition to First Union Tax
Free, CMG manages two other portfolios that invest principally in money market
securities, having total assets, together with First Union Tax Free, of $1,855
million as of March 1, 1995.
FUNB-NC is a subsidiary of First Union Corporation ("First Union"), a bank
holding company headquartered in Charlotte, North Carolina, with $77.3 billion
in total consolidated assets as of December 31, 1994. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses through offices in 42 states and two foreign countries. First Union
Brokerage Services, Inc., a wholly-owned subsidiary of FUNB-NC, is a registered
broker-dealer that is principally engaged in providing retail brokerage services
consistent with its federal banking authorizations. First Union Capital Markets
Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services.
DISTRIBUTION OF SHARES
Evergreen Funds Distributor, Inc. ("EFD"), a wholly-owned subsidiary of
Furman Selz Incorporated, acts as underwriter of Evergreen Tax Exempt's shares.
Federated Securities Corp. ("FSC"), a subsidiary of Federated Investors, has
acted as distributor of First Union Tax Free's shares. Commencing on July 1,
1995, EFD will become the distributor of First Union Funds pursuant to a
contract approved by the Trustees of First Union Funds on April 20, 1995. EFD
and FSC distribute Fund shares directly or through broker-dealers, banks,
including FUNB-NC, or other financial intermediaries.
The respective shares of each Fund with the same Class letter designation
have, except to the extent described below, substantially the same
distribution-related fees, if any, as described below. More detailed
descriptions of the distribution arrangements applicable to the Classes of
shares are contained in the respective Evergreen Tax Exempt Prospectuses and
First Union Tax Free Prospectuses and in each Fund's respective Statement of
Additional Information.
CLASS Y SHARES
Class Y shares are sold without any sales charges and are not subject to
distribution-related fees or shareholder servicing-related fees.
CLASS A SHARES
Class A shares are sold without an initial sales charge but, as indicated
below, are subject to distribution-related fees. Exchanges of Class A shares of
a Fund for Class A shares of other funds within the Evergreen Mutual Fund
complex (in the case of Evergreen Tax Exempt) or other First Union Funds (in the
case of First Union Tax Free) generally will require the payment of applicable
sales loads unless such shares derive from Class A shares of such other funds on
which a sales charge has already been paid.
DISTRIBUTION-RELATED EXPENSES
Each Fund has adopted a Rule 12b-1 plan with respect to its Class A shares
under which the Class may pay for distribution-related expenses at an annual
rate which may not exceed, in the case of Evergreen Tax Exempt, .75 of 1%, and,
in the case of First Union Tax Free, .35 of 1% of average daily net assets
attributable to the Class. Payments with respect to Class A shares of each Fund
are currently limited to .30 of 1% of average daily net assets attributable to
the class, which amount may be increased to the full plan rate for a Fund by the
Trustees without shareholder approval. The 12b-1 fee to be charged to Class A
shares of Evergreen Tax Exempt, .30 of 1%, will be in place for at least one
year.
10
<PAGE>
The payment of fees under the respective Rule 12b-1 plans may from time to
time be limited to the extent any amounts payable thereunder exceed the
limitations contained under Section 26(d) of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD Rule").
The NASD Rule provides that the rate of payments of "asset based sales charges"
shall not exceed .75 of 1% of average annual net assets. In addition, the
payment of such fees may from time to time be limited by certain other
provisions of the NASD Rule.
PURCHASE AND REDEMPTION PROCEDURES
Information concerning applicable sales charges, distribution-related fees
and shareholder servicing-related fees are described above. Shares of each Fund
are sold at net asset value (plus any applicable sales charges) next determined
after receipt of a purchase order. The minimum initial purchase requirement for
both Evergreen Tax Exempt and First Union Tax Free is $1,000; there is no
minimum for subsequent purchases. Each Fund provides for telephone, mail or wire
redemption of shares at net asset value as next determined after receipt of a
redemption request on each day the New York Stock Exchange is open. Additional
information concerning purchases and redemptions of shares, including how the
Funds' net asset values are determined, is contained in the respective
Prospectuses for each Fund. Each Fund may involuntarily redeem shareholders'
accounts that have less than $1,000 of invested funds.
EXCHANGE PRIVILEGES
Holders of shares of each Class of Evergreen Tax Exempt currently are
permitted to exchange such shares for shares of the same Class of other funds in
the Evergreen mutual fund complex. Holders of shares of each Class of First
Union Tax Free currently are permitted to exchange such shares for shares of the
same Class of other portfolios of First Union Funds. Exchanges of Class A shares
of a Fund for Class A shares of other funds within the Evergreen Mutual Fund
complex (in the case of Evergreen Tax Exempt) or other First Union Funds (in the
case of First Union Tax Free) generally will require the payment of applicable
sales loads unless such shares derive from Class A shares of such other funds on
which a sales charge has already been paid. The current exchange privileges, and
the requirements and limitations attendant thereto, are described in the Funds'
respective Prospectuses and Statements of Additional Information. After July 1,
1995 (or as soon thereafter as is reasonably practicable, and subject to
applicable laws), it is expected, although it cannot be assured, that
shareholders in each of the First Union Funds and all funds in the Evergreen
mutual fund complex will be permitted to exchange their shares for shares of the
same Class (to the extent available) of all portfolios of First Union Funds and
all funds in the Evergreen mutual fund complex. Although there is no present
intention to do so, the exchange privilege may be modified or terminated at any
time.
DIVIDEND POLICY
Each Fund declares income dividends daily and pays such dividends monthly.
Distributions of any net realized capital gains of a Fund will be made at least
annually. Dividends and distributions are reinvested in additional shares of the
same Class of the respective Fund, or paid in cash, as a shareholder has
elected. See the respective Prospectuses of the Funds for further information
concerning dividends and distributions.
After the Reorganization, shareholders of First Union Tax Free that have
elected (or that so elect no later than June 15, 1995) to have their dividends
and/or distributions reinvested, will have dividends and/or distributions
received from Evergreen Tax Exempt reinvested in shares of Evergreen Tax Exempt.
Shareholders of First Union Tax Free that have elected (or that so elect no
later than June 15, 1995) to receive dividends and/or distributions in cash will
receive dividends and/or distributions from Evergreen Tax Exempt in cash after
the Reorganization, although they may, after the Reorganization, elect to have
such dividends and/or distributions reinvested in additional shares of Evergreen
Tax Exempt.
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, so long as each Fund distributes all
of its investment company taxable income and non-taxable income and any net
realized gains to shareholders, it is expected that the Fund will not be
required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements with respect to the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
11
<PAGE>
RISKS
In general, an investment in either of the Funds entails substantially the
same risks, primarily the risk that yields of short term debt may decline from
time to time and the risk that an issuer of a Municipal Security may default on
the payment of interest or principal. Although the investment objectives and
policies of the Funds are similar, they are not identical. 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. See "Comparison of Investment
Objectives and Policies."
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
There are substantial similarities between First Union Tax Free and
Evergreen Tax Exempt. Specifically, First Union Tax Free and Evergreen Tax
Exempt have similar investment objectives and policies, and comparable risk
profiles. See, "Comparison of Investment Objectives and Policies," below. In
addition, the investment records of each Fund are comparable, with Evergreen Tax
Exempt having a somewhat better and longer term performance history. See,
"Comparative Performance Information For Each Fund." Given the substantial
similarities between the Funds, and the fact that First Union Tax Free and
Evergreen Tax Exempt are now managed by affiliated entities and offered through
certain common distribution channels, Evergreen Asset and FUNB-NC do not believe
that it makes sense to divide the resources of the Evergreen/First Union mutual
fund advisory organizations between two substantially identical funds. In fact,
Evergreen Asset and FUNB-NC believe that such a division could result in both
Funds being disadvantaged due to an inability to achieve optimum size,
performance levels and the greatest possible economies of scale. There can be no
assurance any anticipated economies of scale in connection with the
Reorganization will be realized.
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 Evergreen Tax Exempt will acquire
substantially all of the assets of First Union Tax Free in exchange for shares
of Evergreen Tax Exempt and the assumption by Evergreen Tax Exempt of certain
identified liabilities of First Union Tax Free on June 30, 1995, or such later
date as may be agreed upon by the parties (the "Closing Date"). Prior to the
Closing Date, First Union Tax Free will endeavor to discharge all of its known
liabilities and obligations. Evergreen Tax Exempt will not assume any
liabilities or obligations of First Union Tax Free other than those reflected in
an unaudited statement of assets and liabilities of First Union Tax Free
prepared as of the close of regular trading on the New York Stock Exchange, Inc.
(the "NYSE"), currently 4:00 p.m. Eastern Time, on the Closing Date. The number
of full and fractional common shares of each Class of Evergreen Tax Exempt to be
received by First Union Tax Free will be determined on the basis of the relative
net asset values per share of each respective Class of Evergreen Tax Exempt's
shares and the net asset values attributable to each Class of shares of First
Union Tax Free, computed as of the close of regular trading on the NYSE on the
Closing Date. The net asset value per share of each Class will be determined by
dividing assets, less liabilities, in each case attributable to the respective
Class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for each Fund, will
compute the value of the Funds' respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of Evergreen Tax Exempt,
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, First Union Tax Free 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
First Union Tax Free's shareholders (in shares of First Union Tax Free, or in
cash, as the shareholder has previously elected) all of First Union Tax Free's
investment company taxable income and non-taxable income for the taxable year
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and all of its net capital gains realized in all taxable
years ending on or prior to the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, First Union Tax
Free 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 Evergreen Tax Exempt received by First Union Tax Free. Such
liquidation and distribution will be accomplished by the establishment of
accounts in the names of First Union Tax Free's shareholders on the share
records of Evergreen Tax Exempt's
12
<PAGE>
transfer agent. Each account will represent the respective pro rata number of
full and fractional Corresponding Shares of Evergreen Tax Exempt due to First
Union Tax Free's shareholders. All issued and outstanding shares of First Union
Tax Free, including those represented by certificates, will be canceled. The
shares of Evergreen Tax Exempt to be issued will have no pre-emptive or
conversion rights. After such distribution and the winding up of its affairs,
First Union Tax Free will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by First Union Tax Free's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel including those matters referred to in "Federal Income Tax Consequences"
below. Notwithstanding approval of First Union Tax Free's shareholders, the Plan
may be terminated: (a) by the mutual agreement of both parties; 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 First Union Tax Free in connection with the Reorganization
(including the cost of any proxy soliciting agents), will be borne by FUNB. The
expenses of Evergreen Tax Exempt incurred in connection with the Reorganization
will be borne by Evergreen Asset. No portion of such expenses shall be borne
directly or indirectly by First Union Tax Free or its shareholders. Following
the reorganization, Evergreen Tax Exempt will not be assuming any liabilities or
making any reimbursements in connection with the Rule 12b-1 Plan of First Union
Tax Free.
If the Reorganization is not approved by shareholders of First Union Tax
Free, the Trustees of First Union Funds will continue to operate First Union Tax
Free under existing arrangements, or consider other possible courses of action,
including liquidation of First Union Tax Free.
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, First Union Tax Free will receive an opinion
of counsel to the effect that, on the basis of the existing provisions of the
Code, U.S. Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) The transfer of substantially all of the assets of First Union Tax
Free solely in exchange for shares of Evergreen Tax Exempt and the
assumption by Evergreen Tax Exempt of certain identified liabilities,
followed by the distribution of Evergreen Tax Exempt's shares by First
Union Tax Free in dissolution and liquidation of First Union Tax Free, will
constitute a "reorganization" within the meaning of section 368(a)(1)(C) of
the Code, and Evergreen Tax Exempt and First Union Tax Free will each be a
"party to a reorganization" within the meaning of section 368(b) of the
Code;
(2) No gain or loss will be recognized by First Union Tax Free on the
transfer of its assets to Evergreen Tax Exempt (except, possibly, with
respect to certain options, futures and forward contracts, if any, included
in the assets ("Contracts")), solely in exchange for Evergreen Tax Exempt's
shares and the assumption by Evergreen Tax Exempt of liabilities or upon
the distribution (whether actual or constructive) of Evergreen Tax Exempt's
shares to First Union Tax Free's shareholders in exchange for their shares
of First Union Tax Free;
(3) The tax basis of the assets transferred (with the possible
exception of the Contracts) will be the same to Evergreen Tax Exempt as the
tax basis of such assets to First Union Tax Free immediately prior to the
Reorganization, and the holding period of such assets (with the possible
exception of the Contracts) in the hands of Evergreen Tax Exempt will
include the period during which the assets were held by First Union Tax
Free;
(4) No gain or loss will be recognized by Evergreen Tax Exempt upon
the receipt of the assets from First Union Tax Free solely in exchange for
the shares of Evergreen Tax Exempt and the assumption by Evergreen Tax
Exempt of certain liabilities;
(5) No gain or loss will be recognized by First Union Tax Free's
shareholders upon the issuance of the shares of Evergreen Tax Exempt to
them, provided they receive solely such shares (including fractional
shares) in exchange for their shares of First Union Tax Free; and
(6) The aggregate tax basis of the shares of Evergreen Tax Exempt,
including any fractional shares, received by each of the shareholders of
First Union Tax Free pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of First Union Tax Free held by such
shareholder immediately prior to the Reorganization, and the
13
<PAGE>
holding period of the shares of Evergreen Tax Exempt, including fractional
shares, received by each such shareholder will include the period during
which the shares of First Union Tax Free exchanged therefor were held by
such shareholder (provided that the shares of First Union Tax Free 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 First Union Tax Free shareholder
would recognize a taxable gain or loss equal to the difference between his tax
basis in his First Union Tax Free shares and the fair market value of the
Evergreen Tax Exempt shares he received. Shareholders of First Union Tax Free
should consult their tax advisers regarding the effect, if any, of the proposed
Reorganization in light of their individual circumstances. Tax counsel to the
funds know of no reason why the Reorganization would not qualify as a tax-exempt
reorganization. Since the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, shareholders of First Union Tax
Free should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
RECOMMENDATION OF THE BOARD
Based on the recommendation of FUNB-NC and Evergreen Asset at Special
Meetings held on January 6 and March 7, 1995, the respective Boards of Trustees
of First Union Funds and the Trust considered and approved the Reorganization,
including the entry by First Union Funds and the Trust into the Plan on behalf
of each Fund. Specifically, the Trustees of First Union Funds determined that
the proposed Reorganization would be in the best interests of First Union Tax
Free and its shareholders and would not result in the dilution of the interests
of shareholders.
In reaching their decision to recommend shareholder approval of the
Reorganization, the Trustees of First Union Funds considered information
provided by FUNB-NC with respect to each of the factors (e.g., current asset
levels and common distribution channels) discussed above in "Reasons for the
Reorganization." In addition, the Trustees considered, among other things, (i)
the terms and conditions of the Reorganization; (ii) whether the Reorganization
would result in the dilution of shareholder interests; (iii) the fact that
FUNB-NC will bear the expenses incurred by First Union Tax Free in connection
with the Reorganization; (iv) the fact that Evergreen Tax Exempt will assume all
of the disclosed obligations and certain identified liabilities of First Union
Tax Free; and (v) the expected federal income tax consequences of the
Reorganization.
The Trustees also considered the benefits to be derived by shareholders of
First Union Tax Free from the sale of its assets to Evergreen Tax Exempt. In
this regard, the Trustees considered the potential benefits of being associated
with a larger, more viable entity and the economies of scale that could be
realized by the participation by shareholders of First Union Tax Free in the
combined fund. The Trustees of First Union Tax Exempt considered the relative
advisory fees of both funds in their assessments of the benefits of the
reorganization. In addition, the Trustees considered that there are alternatives
available to shareholders of First Union Tax Free, including the ability to
redeem their shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization, the Independent Trustees
met with the other Trustees as well as separately with independent legal counsel
regarding the legal issues involved. The Trustees of Evergreen Tax Exempt also
concluded that the proposed Reorganization would be in the best interests of
shareholders of Evergreen Tax Exempt and that the interests of the shareholders
of Evergreen Tax Exempt will not be diluted as a result of the transactions
contemplated by the Reorganization.
THE TRUSTEES OF FIRST UNION FUNDS RECOMMEND THAT THE SHAREHOLDERS OF FIRST
UNION TAX FREE APPROVE THE PROPOSED REORGANIZATION.
14
<PAGE>
PRO FORMA CAPITALIZATION.
The following table shows the capitalization of Evergreen Tax Exempt and
First Union Tax Free as of March 31, 1995 and on a pro forma basis as of that
date, giving effect to the proposed acquisition of assets at net asset value:
CAPITALIZATION OF
FIRST UNION TAX FREE AND EVERGREEN TAX EXEMPT
<TABLE>
<CAPTION>
FIRST UNION TAX FREE (1)
<S> <C> <C>
CLASS Y CLASS A
Net Assets................................................................................... $59,271,514 $ 549,988,383
Shares Outstanding........................................................................... 59,300,324 550,133,273
Net Asset Value per Share.................................................................... $1.00 $1.00
<CAPTION>
EVERGREEN TAX EXEMPT
CLASS Y CLASS A
<S> <C> <C>
Net Assets................................................................................... $ 376,522,493 $ 176,105
Shares Outstanding........................................................................... 376,543,881 176,089
Net Asset Value per Share.................................................................... $1.00 $1.00
</TABLE>
PRO-FORMA COMBINED
CAPITALIZATION OF EVERGREEN TAX EXEMPT (2)
<TABLE>
<CAPTION>
CLASS Y CLASS A
<S> <C> <C>
Net Assets................................................................................... $ 435,794,007 $ 550,164,488
Shares Outstanding (3)....................................................................... 435,844,205 550,309,362
Net Asset Value per Share.................................................................... $1.00 $1.00
</TABLE>
1. Net Assets and Net Asset Value per Share of First Union Tax Free represent
the aggregate and per share value of First Union Tax Free's net assets which
would have been transferred to Evergreen Tax Exempt had the Reorganization
been consummated on March 31, 1995.
2. Data does not take into account expenses incurred in the Reorganization which
will be borne by Evergreen Asset Management for Evergreen Tax Exempt and by
FUNB for First Union Tax Free.
3. Had the Reorganization been consummated on March 31, 1995, First Union Tax
Free would have received 59,271,514 Class Y and 549,988,383 Class A shares of
Evergreen Tax Exempt, which would then be available for distribution to
shareholders. No assurance can be given as to how many Class Y and Class A
shares of Evergreen Tax Exempt First Union Tax Free shareholders will receive
on the date that the Reorganization takes place, and the foregoing should not
be relied upon to reflect the number of Class Y and Class A shares of
Evergreen Tax Exempt that will actually be received on or after such date.
SHAREHOLDER INFORMATION
As of April 17, 1995, the following number of each Class of the shares of
First Union Tax Free were outstanding: Class A-533,114,157 shares; and Class
Y-75,851,475 shares.
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<PAGE>
The number and percent of outstanding shares of First Union Tax Free owned
by the officers and Trustees of the Trust in the aggregate is less than 1%. Set
forth below is certain information as to each person who owned, beneficially or
of record more than 5% of each Class of First Union Tax Free's total outstanding
shares as of April 17, 1995:
CLASS A
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
PERCENTAGE SHARES
NAME AND ADDRESS NUMBER OF SHARES OF CLASS OUTSTANDING
<S> <C> <C> <C>
First Union National Bank of Georgia.............................................. 29,991,603 5.63% 4.93%
Attn: Cap Account Dept.
One First Union Center
Charlotte, N.C. 28288
First Union National Bank of Florida.............................................. 203,200,299 38.12% 33.37%
Attn: Cap Account Dept.
One First Union Center
Charlotte, N.C. 28288
First Union National Bank of Virginia............................................. 32,009,455 6.00% 5.26%
Attn: Cap Account Dept.
One First Union Center
Charlotte, N.C. 28288
First Union National Bank of North Carolina....................................... 132,947,824 24.94% 21.83%
Attn: Cap Account Dept.
One First Union Center
Charlotte, N.C. 28288
</TABLE>
CLASS Y
<TABLE>
<S> <C> <C> <C>
First Union National Bank of North Carolina....................................... 75,851,323 100% 12.46%
Trust Accounts
301 S. Tryon Street
Charlotte, N.C. 28288
</TABLE>
As of April 17, 1995, the following number of each Class of the shares of
Evergreen Tax Exempt were outstanding: Class A-183,738 shares; and Class
Y-371,615,722 shares.
As of the Record Date, the officers and Trustees of Evergreen Tax Exempt
beneficially owned as a group less than 1% of the outstanding shares of
Evergreen Tax Exempt. To the best knowledge of the Trustees, as of the Record
Date, no other shareholder or "group" (as that term is used in Section 13(d) of
the Securities Exchange Act of 1934, the ("Exchange Act")) beneficially owned
more than 5% of Evergreen Tax Exempt's outstanding shares.
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 Evergreen Tax Exempt can be found in its Prospectuses under the captions
"Investment Objectives and Policies" and "Investment Policies and Restrictions."
Evergreen Tax Exempt's Prospectuses also offer one additional fund advised by
Evergreen Asset. This additional fund is not involved in the Reorganization, its
investment objectives, policies and restrictions are not discussed in this
Prospectus/Proxy Statement and its shares are not offered hereby. The investment
objectives, policies and restrictions of First Union Tax Free can be found in
the Prospectuses of First Union Tax Free under the captions "Descriptions of the
Fund," "Types of Investments," "Temporary Investments," "Concentration of
Investments" and "Municipal Bonds." First Union Tax Free's Prospectuses also
offer two additional portfolios advised by CMG. These additional funds are not
involved in the Reorganization, and their investment objectives, policies and
restrictions are not discussed in this Prospectus/Proxy Statement.
Both Evergreen Tax Exempt and First Union Tax Free seek to achieve a level
of current income exempt from federal income tax consistent with preserving
capital and providing liquidity. While the investment objectives and policies of
each
16
<PAGE>
Fund are similar, as described below, certain differences exist that could
impact on the performance of, and risks associated with, an investment in each
Fund.
RULE 2A-7 INVESTMENTS. Both Funds are subject to the provisions of Rule
2a-7. Securities eligible for purchase by the Funds under Rule 2a-7 include
First Tier Securities (i.e., securities rated in the highest short-term rating
category) and Second Tier Securities (i.e., securities eligible for purchase
under Rule 2a-7, which are not in the First Tier).
In addition, 2a-7 has certain portfolio maturity restrictions. The Funds
may 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 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 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 on a continuing
basis. The market value of the obligations in each Fund's portfolio can be
expected to vary inversely to changes in prevailing interest rates.
MUNICIPAL SECURITIES. As noted above, the Funds will invest substantially
all of their assets in Municipal Securities. These include municipal bonds,
short-term municipal notes and tax exempt commercial paper. "Municipal bonds"
are debt obligations issued to obtain funds for various public purposes that are
exempt from federal income tax in the opinion of issuer's counsel. The two
principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific source such as from the user of the
facility being financed. The term "municipal bonds" also includes "moral
obligation" issues which are normally issued by special purpose authorities.
Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. The credit quality of IDBs and PABs is usually directly related to
the credit standing of the corporate user of the facilities being financed.
Participation interests are interests in municipal bonds, including IDBs and
PABs, and floating and variable rate obligations that are owned by banks. These
interests carry a demand feature permitting the holder to tender them back to
the bank, which demand feature is backed by an irrevocable letter of credit or
guarantee of the bank. A put bond is a municipal bond which gives the holder the
unconditional right to sell the bond back to the issuer at a specified price and
exercise date, which is typically well in advance of the bond's maturity date.
"Short-term municipal notes" and "tax exempt commercial paper" include tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements and other revenues.
The ability of a Fund to meet its investment objective is necessarily
subject to the ability of municipal issuers to meet their payment obligations.
In addition, the Funds will be affected by general changes in interest rates
which will result in increases or decreases in the value of the obligations held
by the Fund. Investors should recognize that, in periods of declining interest
rates, the yield of the Fund will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates, the yield of the Fund
will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sale of its shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the current yield of the Fund.
In periods of rising interest rates, the opposite can be expected to occur.
WHEN-ISSUED SECURITIES. Both Funds may purchase securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). A Fund generally would not pay for such securities or
start earning interest on them until they are received, but assumes the risks of
ownership at the time of purchase, not at the time of receipt. Evergreen Tax
Exempt does not expect that when-issued securities will normally exceed 25% of
its total assets.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, each Fund's custodian, or "primary dealers" (as designated by the
Federal Reserve Bank of New York) in U.S. government securities. A repurchase
agreement is an arrangement pursuant to which a buyer purchases a security and
simultaneously agrees to resell it to the vendor at a price that results in an
agreed-upon market rate of return which is effective for the period of time
(which is normally one to seven days, but may be longer) the buyer's money is
invested in the security. The arrangement results in a fixed rate of return that
is not subject to market fluctuations during a Fund's holding period. Each Fund
requires continued maintenance of collateral with its custodian in an amount
equal to, or in excess of, the market value of the securities, including accrued
interest, which are the subject of a
17
<PAGE>
repurchase agreement. In the event a vendor defaults on its repurchase
obligation, a Fund might suffer a loss to the extent that the proceeds from the
sale of the collateral were less than the repurchase price. If the vendor
becomes the subject of bankruptcy proceedings, a Fund might be delayed in
selling the collateral. First Union Tax Free and Evergreen Tax Exempt may not
enter into repurchase agreements if, as a result, more than 10% of each Fund's
net assets would be invested in repurchase agreements maturing in more than
seven days and in other securities that are not readily marketable.
REVERSE REPURCHASE AGREEMENTS AND THE BORROWING OF MONEY. Each Fund may
agree to sell portfolio securities to financial institutions, such as banks and
broker-dealers, and to repurchase them at a mutually agreed upon date and price
(a "reverse repurchase agreement"). At the time a Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account cash, U.S.
government securities or liquid high grade debt obligations having a value equal
to the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities. First
Union Tax Free may borrow money directly or enter into reverse repurchase
agreements for temporary or emergency purposes only, in amounts not exceeding 5%
of the value of its total assets, except that it may borrow either directly or
through reverse repurchase agreements in amounts up to one-third of its net
assets to meet redemption requests. Evergreen Tax Exempt may borrow money
directly or enter into reverse repurchase agreements 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 its net
assets, including the amount borrowed, to meet redemption requests without
immediately selling portfolio securities. First Union Tax Free may not purchase
portfolio securities if it has borrowings outstanding that exceed 5% of its
total assets while Evergreen Tax Exempt may not purchase portfolio securities if
it has any borrowings (including reverse repurchase agreements) outstanding.
RESTRICTED AND ILLIQUID SECURITIES. Evergreen Tax Exempt and First Union
Tax Free may each invest up to 10% of their net assets in illiquid securities
and other securities which are not readily marketable, including repurchase
agreements with maturities longer than seven days. Securities not registered
under the Securities Act of 1933 (the "Securities Act") but eligible for resale
pursuant to Rule 144A thereunder, which have been determined to be liquid, will
not be considered illiquid or not readily marketable and, therefore, are not
subject to the aforementioned 10% limit on investment in illiquid securities. In
addition to its investment restrictions relating to investment in illiquid
securities, First Union Tax Free restricts investment in securities subject to
restrictions on resale under the Federal securities laws to 10% of net assets.
SECURITIES LENDING. In order to generate income and to offset expenses, the
Funds may lend portfolio securities to brokers, dealers and other financial
organizations. Loans of securities by a Fund, if and when made, will be
collateralized by cash, U.S. government securities or, with respect to Evergreen
Tax Exempt, letters of credit, that are maintained at all times in an amount
equal to at least 100 percent of the current market value of the loaned
securities, including accrued interest. Evergreen Tax Exempt limits loans of
securities to 30% of its total assets. First Union Tax Free may not make loans
of securities in excess of 15% of its total assets.
There is a risk that when lending portfolio securities, the securities may
not be available to a Fund on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities files for bankruptcy or becomes insolvent,
disposition of the securities may be delayed pending court action.
STAND-BY COMMITMENTS. Each Fund may also acquire "stand-by commitments"
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Securities at a specified price. The total amount paid in either
manner for outstanding stand-by commitments held in Evergreen Tax Exempt's
portfolio will not exceed 10% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired. Each Fund will enter
into stand-by commitments only with banks and broker-dealers that, in the
judgment of its investment adviser, present minimal credit risks.
TAXABLE INVESTMENTS. Evergreen Tax Exempt may temporarily invest up to 20%
of the Fund's net assets in taxable securities under any one or more of the
following circumstances: (a) pending investment of proceeds of sale of Fund
shares or of portfolio securities, (b) pending settlement of purchases of
portfolio securities, and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. In addition, the Fund may temporarily invest more than
20% of its total assets in taxable securities for defensive purposes. Evergreen
Tax Exempt may invest for defensive purposes during periods when its assets
available for investment exceed the available Municipal Securities that meet its
quality and other investment criteria. Taxable securities in which Evergreen Tax
Exempt may invest on a short-term basis include obligations of the U.S.
government, its agencies or instrumentalities, including repurchase agreements
with banks or securities dealers involving such securities; time deposits
maturing in not more than seven days; other debt securities rated within the two
highest ratings
18
<PAGE>
assigned by any major rating service; commercial paper rated in the highest
grade by Moody's or S&P; and certificates of deposit issued by United States
branches of United States banks with assets of $1 billion or more.
First Union Tax Free is permitted to make taxable, temporary investments,
although it has no current intention of doing so. Such investments may be made
if, in the opinion of its investment adviser, a temporary defensive position in
the market is appropriate. These investments may include: (i) obligations issued
on behalf of municipal or corporate issuers having the same quality
characteristics as Municipal Securities purchased by the Fund; (ii) marketable
obligations of the U.S. government, its agencies or instrumentalities; (iii)
instruments issued by banks or savings and loans which have capital, surplus and
undivided profits in excess of $100,000,000 at the time of investment whose
deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund, foreign branches of U.S. banks and U.S. branches of foreign
banks; (iv) repurchase agreements collateralized by eligible investments; (v)
prime commercial paper rated A-1 by S&P or P-1 by Moody's; and (vi) variable
amount master demand notes.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. Municipal Securities in which
each Fund may invest also include certain variable rate and floating rate
municipal obligations with or without demand features. These variable rate
securities do not have fixed interest rates; rather, those rates fluctuate based
upon changes in specified market rates, such as the prime rate, or are adjusted
at predesignated periodic intervals. Such securities must comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 397 days or less. Certain of these obligations may carry a demand
feature that gives a Fund the right to demand prepayment of the principal amount
of the security prior to its maturity date. The demand obligation may or may not
be backed by letters of credit or other guarantees of banks or other financial
institutions. Such guarantees may enhance the quality of the security. Variable
rate Municipal Securities without the demand feature are not considered liquid
by First Union Tax Free, which will limit investments in illiquid securities to
no more than 10% of net assets. As a matter of operating policy, Evergreen Tax
Exempt will limit the value of its investments in any floating or variable rate
securities which are not readily marketable and in all other not readily
marketable securities to 10% or less of its total assets.
CONCENTRATION OF INVESTMENTS. First Union Tax Free has a policy that
permits it to invest more than 25% of its total assets in industrial development
bonds, with no more than 25% of its total assets in a single industry. Evergreen
Tax Exempt will not invest 25% or more of its total assets in the securities of
issuers conducting their principal business activities in any one industry
except that this limitation does not apply to certificates of deposit and
bankers acceptances issued by domestic branches of U. S. banks.
The foregoing discussion covers the principal investment policies of each
Fund and the manner in which they differ. The characteristics of each investment
policy and the associated risks are described in the Prospectuses and Statements
of Additional Information of the Funds. Both Evergreen Tax Exempt and First
Union Tax Free have other investment policies and restrictions which are also
set forth in the Prospectuses and Statements of Additional Information of the
Funds.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
Each of the Funds is a separate investment series of an open-end management
investment company registered with the SEC under the 1940 Act which continuously
offers its shares to the public. Each is organized as a series of a
Massachusetts business trust and is governed by a Declaration of Trust, By-Laws
and Board of Trustees. Both are also governed by applicable Massachusetts and
federal law.
CAPITALIZATION
The beneficial interests in Evergreen Tax Exempt are represented by an
unlimited number of transferable shares of beneficial interest with a $0.0001
par value. The beneficial interests in First Union Tax Free are represented by
an unlimited number of transferable shares of beneficial interest without par
value. The respective Declarations of Trust under which each Fund has been
established permits shares to be allocated into an unlimited number of series,
and Classes thereof, with rights determined by the Trustees. Fractional shares
may be issued. Each Fund's shares have equal voting rights with respect to
matters affecting shareholders of all Classes of each Fund, and in the case of
First Union Tax Free each series of the First Union Funds, and represent equal
proportionate interests in the assets belonging to the Funds. Shareholders of
each Fund are entitled to receive dividends and other amounts to the extent
realized by such Fund as determined by the Trustees of the Fund or trust under
which the Fund has been established. Shareholders of each Fund vote separately,
by Class, as to matters, such as approval or amendments of Rule 12b-1
distribution plans or amendments thereto, that affect only their particular
class and,
19
<PAGE>
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 trust could, under certain
circumstances, be held personally liable for the obligations of the trust.
However, the respective Declarations of Trust under which the Funds operate
disclaim shareholder liability for acts or obligations of the portfolio or
series and require that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Funds or the Trustees.
The Declarations of Trust provide for indemnification out of the portfolio's or
series' property for all losses and expenses of any shareholder held personally
liable for the obligations of the portfolio or series. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the portfolio or series itself would be unable to meet its
obligations. A substantial number of mutual funds in the United States are
organized as Massachusetts business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither Evergreen Tax Exempt or First Union Funds, on behalf of First Union
Tax Free or any of its other series, are 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 to
do so by the holders of at least 10% of the outstanding shares of either
Evergreen Tax Exempt or First Union Funds. In addition, each is required to call
a meeting of shareholders for the purpose of electing Trustees, if, at any time,
less than a majority of the Trustees then holding office were elected by
shareholders. If Trustees of either Evergreen Tax Exempt or First Union Funds
fail or refuse to call a meeting as required by the respective Declarations of
Trust for a period of 30 days after a request in writing by shareholders holding
an aggregate of at least 10% of the shares outstanding, then shareholders
holding said 10% may call and give notice of a shareholders' meeting. Evergreen
Tax Exempt and First Union Funds currently do not intend to hold regular
shareholder meetings. Neither Fund permits cumulative voting. A majority of
shares entitled to vote on a matter constitutes a quorum for consideration of
such matter. In either case, a majority of the shares voting is sufficient to
act on a matter (unless otherwise specifically required by the applicable
governing documents or other law, including the 1940 Act).
LIQUIDATION OR DISSOLUTION
In the event of the liquidation of the Funds, the shareholders are entitled
to receive, when, and as declared by the Trustees of either Evergreen Tax Exempt
or First Union Funds the excess of the assets belonging to the Funds or
attributable to the relevant class over the liabilities belonging to the Funds
or attributable to the relevant class. In either case, the assets so
distributable to shareholders of the Funds will be distributed among the
shareholders in proportion to the number of shares of the Funds held by them and
recorded on the books of the Funds.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The By-Laws of The Evergreen Municipal 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
Evergreen Tax Exempt 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 willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
The Declaration of Trust of First Union Funds provides that no Trustee,
officer or agent of First Union Funds shall be personally liable to any person
for any action or failure to act, except for his own bad faith, willful
misfeasance, or gross negligence, or reckless disregard of his duties. The
Declaration of Trust of First Union Funds provides that a Trustee or officer is
entitled to indemnification against liabilities and expenses with respect to
claims related to his position, unless such Trustee or officer shall have been
adjudicated to have acted with bad faith, willful misfeasance, or gross
negligence, or in reckless disregard of his duties, or not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
Fund, or, in the event of settlement, unless there has been a determination that
such Trustee or officer has engaged in willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties.
20
<PAGE>
RIGHTS OF INSPECTION
Shareholders of the Funds have the same right to inspect in Massachusetts
the governing documents, records of meetings of shareholders, shareholder lists,
share transfer records, accounts and books of the Funds as are permitted
shareholders of a corporation under the Massachusetts corporation law. The
purpose of inspection must be for interests of shareholders relative to the
affairs of the Funds.
The foregoing is only a summary of certain characteristics of the
operations of the Funds, the Declarations of Trust under which they have been
established, the By-Laws governing each Fund, and Massachusetts law. The
foregoing is not a complete description of the documents cited. Shareholders
should refer to the provisions of such respective Declarations of Trust,
By-Laws, and to Massachusetts law directly for a more thorough description.
ADDITIONAL INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and must in accordance therewith file
reports and other information including proxy material, reports and charter
documents with the SEC. These reports can be inspected and copies obtained at
the Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Northeast Regional Office of the SEC, Seven World
Trade Center, Suite 1300, New York, New York 10048 and at the Southeast Regional
Office of the SEC, 1401 Brickwell Avenue, Miami, Florida 33131. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of First Union Funds, on behalf
of First Union Tax Free, to be used at the Special Meeting of Shareholders to be
held at 10:00 a.m. June 15, 1995, at the offices of First Union Corporation, Two
First Union Center, 301 S. Tryon Street, Charlotte, N.C. 28288, 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 10, 1995. Only shareholders of record as of the close of business on the
Record Date will be entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. The holders of a majority of the shares outstanding at the
close of business on the Record Date present in person or represented by proxy
will constitute a quorum for the Meeting. If the enclosed form of proxy is
properly executed and returned in time to be voted at the Meeting, the proxies
named therein will vote the shares represented by the proxy in accordance with
the instructions marked thereon. Unmarked proxies will be voted FOR the proposed
Reorganization and FOR any other matters deemed appropriate. Proxies that
reflect abstentions and "broker non-votes" (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the beneficial
owners or the persons entitled to vote or (ii) the broker or nominee does not
have discretionary voting power on a particular matter) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will have the effect of being counted as votes against
the Plan. A proxy may be revoked at any time on or before the Meeting by written
notice to the Secretary of First Union Funds, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. Unless revoked, all valid proxies will be
voted in accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plan and the Reorganization contemplated
thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities of First Union Tax Free, with all Classes
voting together as one class. Each full share outstanding is entitled to one
vote and each fractional share outstanding is entitled to a proportionate share
of one vote.
If the shareholders do not vote to approve the Reorganization, the Trustees
of First Union Funds will continue to operate First Union Tax Free under
existing arrangements or consider other alternatives in the best interests of
the shareholders.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, telegraph or personal solicitations conducted by
officers and employees of Evergreen Asset, its affiliates or other
representatives of First Union Funds. Proxies are solicited by mail. The cost of
solicitation will be borne by FUNB-NC. Trustees and officers of the Funds and
officers of FUNB may also solicit proxies, without compensation. Proxies may be
solicited by mail, in person or by telephone. Proxies may be recorded pursuant
to telephone or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized.
21
<PAGE>
FUNB-NC will be responsible for the respective expenses of First Union
Funds incurred in connection with entering into and carrying out the
Reorganization, whether or not the Reorganization is consummated.
In the event that sufficient votes to approve the Reorganization are not
received by June 15, 1995, the persons named as proxies may propose one or more
adjournments of either or both of the Meetings to permit further solicitation of
proxies. 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 First
Union Funds to demand payment for, or an appraisal of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of Evergreen Tax Exempt which they receive in
the transaction at their then-current net asset value. Shares of First Union Tax
Free may be redeemed at any time prior to the consummation of the
Reorganization.
First Union Funds does not hold annual shareholder meetings. Shareholders
wishing to submit proposals for consideration for inclusion in a proxy statement
for a subsequent shareholder meeting should send their written proposals to the
Secretary of First Union Funds at the address set forth on the cover of this
Prospectus/Proxy Statement such that they will be received by First Union Funds
in a reasonable period of time prior to any such meeting.
The votes of the shareholders of Evergreen Tax Exempt 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 First Union Tax Free whether other persons are beneficial owners
of shares for which proxies are being solicited and, if so, the number of copies
of this Prospectus/Proxy Statement needed to supply copies to the beneficial
owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS
The audited financial statements of First Union Tax Free as of December 31,
1994 and the statement of operations for the year ended December 31, 1994 and
changes in net assets for the two years ended December 31, 1994 and financial
highlights for the period indicated therein have been incorporated by reference
into this Prospectus/Proxy Statement in reliance on the report of KPMG Peat
Marwick LLP, independent accountants for First Union Tax Free, given on the
authority of the firm as experts in accounting and auditing.
The audited financial statements and financial highlights incorporated into
this Prospectus/Proxy Statement by reference to the Evergreen Tax Exempt Annual
Report to Shareholders for the period ended August 31, 1994 have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants for Evergreen Tax Exempt, given on the authority of the firm as
experts in accounting and auditing.
Certain legal matters concerning the issuance of shares of Evergreen Tax
Exempt will be passed upon by Shereff, Friedman, Hoffman & Goodman, LLP, 919
Third Avenue, New York, New York 10022.
OTHER BUSINESS
The Trustees of First Union Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgement.
THE BOARD OF TRUSTEES OF FIRST UNION FUNDS, ON BEHALF OF FIRST UNION TAX
FREE, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND APPROVAL OF THE PLAN, AND
ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
May 2, 1995
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 21st day of March, 1995, by and between Evergreen Municipal Trust (the
"Evergreen Trust"), a Massachusetts business trust, with its principal place of
business at 2500 Westchester Avenue Purchase, New York 10577, with respect to
its Evergreen Tax Exempt Money Market Fund series (the "Acquiring Fund"), and
First Union Funds, a Massachusetts business trust (the "First Union Trust"),
with its principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, with respect to its First Union Tax Free Money Market
Portfolio series (the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368 (a)(1)(D) of the United States
Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial interest,
par value $.0001 per share, of the Acquiring Fund (the "Acquiring Fund Shares")
and the assumption by the Acquiring Fund of certain stated liabilities of the
Selling Fund and the distribution, after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the Selling Fund in
liquidation of the Selling Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are separate investment
series of open-end, registered investment companies of the management type and
the Selling Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Evergreen Trust have determined that the
exchange of substantially all of the assets of the Selling Fund for Acquiring
Fund Shares and the assumption of certain stated liabilities by the Acquiring
Fund on the terms and conditions hereinafter set forth is in the best interests
of the Acquiring Fund shareholders and that the interests of the existing
shareholders of the Acquiring Fund will not be diluted as a result of the
transactions contemplated herein;
WHEREAS, the Trustees of the First Union Trust have determined that the
Selling Fund should exchange substantially all of its assets and certain of its
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Selling Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Selling Fund's net assets computed in the manner and as of the time and date set
forth in paragraph 2.1 by the net asset value of one Acquiring Fund Share
computed in the manner and as of the time and date set forth in paragraph 2.2
and (ii) to assume certain liabilities of the Selling Fund, as set forth in
paragraph 1.3. The determination of the number of Acquiring Fund Shares to be
delivered shall be made in such a manner as to result in the Selling Fund
receiving a number of shares of the respective classes of the Acquiring Fund as
shall permit shareholders of the Selling Fund to receive shares of a class
having the same letter designation and the same distribution-related fees,
shareholder servicing-related fees and sales charges, including contingent
deferred sales charges, if any, as the shares of the class of the Selling Fund
held by them prior to the Reorganization. Such transactions shall take place at
the closing provided for in paragraph 3.1 (the "Closing Date").
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1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including without limitation
all cash, securities, commodities and futures interests and dividends or
interest receivable, which is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date. The Selling Fund has provided the Acquiring Fund with its most
recent audited financial statements which contain a list of all of Selling
Fund's assets as of the date thereof. The Selling Fund hereby represents that as
of the date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest. The Acquiring Fund will, within a reasonable time prior to
the Closing Date, furnish the Selling Fund with a statement of the Acquiring
Fund's investment objectives, policies and restrictions and a list of the
securities, if any, on the Selling Fund's list referred to in the second
sentence of this paragraph which do not conform to the Acquiring Fund's
investment objectives, policies, and restrictions. In the event that the Selling
Fund holds any investments which the Acquiring Fund may not hold, the Selling
Fund will dispose of such securities prior to the Closing Date. In addition, if
it is determined that the Selling Fund and the Acquiring Fund portfolios, when
aggregated, would contain investments exceeding certain percentage limitations
imposed upon the Acquiring Fund with respect to such investments, the Selling
Fund if requested by the Acquiring Fund will dispose of a sufficient amount of
such investments as may be necessary to avoid violating such limitations as of
the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
1.4 LIQUIDATION AND DISTRIBUTION. As soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Closing Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1. and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund, to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in Section 5.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
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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
Closing Date (such time and date being hereinafter called the "Valuation Date"),
using the valuation procedures set forth in the Evergreen Trust's Declaration of
Trust and the Acquiring Fund's then current prospectus and statement of
additional information or such other valuation procedures as shall be mutually
agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value of each class of Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Evergreen Trust's Declaration of Trust and
the Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by dividing the value of the assets of
the Selling Fund attributable to each of its classes determined using the same
valuation procedures referred to in paragraph 2.1 by the net asset value of the
respective classes of Acquiring Fund Shares determined in accordance with
paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing Date shall be June 30, 1995 or such later
date as the parties may agree to in writing. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of business
on the Closing Date unless otherwise provided. The Closing shall be held as of
5:00 o'clock p.m. at the offices of Evergreen Asset Management Corp., 2500
Westchester Avenue, Purchase, New York 10577, or at such other time and/or place
as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank & 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.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted, or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Boston Financial Data Services, Inc., as
transfer agent for each of the Selling Fund and the Acquiring Fund shall deliver
at the Closing a certificate of an authorized officer stating that their records
contain the names and addresses of the Selling Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the First Union Trust , or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts and other documents as such
other party or its counsel may reasonably request.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts;
(b) The Selling Fund is a separate investment series of a registered
investment company classified as a management company of the open-end type and
its registration with the Securities and Exchange Commission (the "Commission")
as an investment company under the Investment Company Act of 1940 (the "1940
Act") is in full force and effect;
(c) The current prospectus and statement of additional information of the
Selling Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended, (the "1933 Act") and the 1940 Act and
the rules and regulations of the Commission thereunder and do not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and performance of
this Agreement (subject to shareholder approval) will not, result in violation
of any provision of the First Union Trust's Declaration of Trust or By-Laws or
of any agreement, indenture, instrument, contract, lease or other undertaking to
which the Selling Fund is a party or by which it is bound;
(e) The Selling Fund has no material contracts or other commitments (other
than this Agreement) which will be terminated with liability to it prior to the
Closing Date;
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against the Selling Fund or any of its properties or assets which, if
adversely determined, would materially and adversely affect its financial
condition, the conduct of its business or the ability of the Selling Fund to
carry out the transactions contemplated by this Agreement. The Selling Fund
knows of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated;
(g) The financial statements of the Selling Fund at December 31, 1994 have
been audited by KPMG Peat Marwick LLP, certified public accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Selling Fund as of such dates, and
there are no known contingent liabilities of the Selling Fund as of such dates
not disclosed therein;
(h) Since December 31, 1994, there has not been any material adverse change
in the Selling Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Selling Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net
asset value of the Selling Fund shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of
the Selling Fund required by law to have been filed by such dates shall have
been filed, and all Federal and other taxes shall have been paid so far as due,
or provision shall have been made for the payment thereof and to the best of the
Selling Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) For each of the preceding six fiscal years of its operation the Selling
Fund has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains;
(k) All issued and outstanding shares of the Selling Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Selling Fund (except that, under Massachusetts law,
Selling Fund Shareholders could, under certain circumstances be held personally
liable for obligations of the Selling Fund). All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the
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amounts set forth in the records of the transfer agent as provided in paragraph
3.4. The Selling Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Selling Fund shares, nor is there
outstanding any security convertible into any of the Selling Fund shares;
(l) At the Closing Date, the Selling Fund will have good and marketable
title to the Selling Fund's assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder, and upon delivery and payment for
such assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act, other than as disclosed to the
Acquiring Fund and accepted by the Acquiring Fund;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Selling Fund and,
subject to approval by the Selling Fund's shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all material
respects and shall comply in all material respects with Federal securities and
other laws and regulations thereunder applicable thereto;
(o) The proxy statement of the Selling Fund to be included in the
Registration Statement referred to in paragraph 5.7 (other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type and its registration with the Commission
as an investment company under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(d) The Acquiring Fund is not, and the execution, delivery and performance
of this Agreement will not, result in violation of Evergreen Trust's Declaration
of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquiring Fund is a party or by which it is
bound;
(e) Except as otherwise disclosed to the Selling Fund and accepted by the
Selling Fund, no material litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this Agreement. The
Acquiring Fund knows of no facts which might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein;
(f) The financial statements of the Acquiring Fund at August 31, 1994,
certified by Price Waterhouse LLP, independent accountants, copies of which have
been furnished to the Selling Fund, fairly and accurately reflect the financial
condition of the Acquiring Fund as of such date in accordance with generally
accepted accounting principles consistently applied;
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(g) Since August 31, 1994, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change;
(h) At the Closing Date, all Federal and other tax returns and reports of
the Acquiring Fund required by law then to be filed shall have been filed, and
all Federal and other taxes shown due on said returns and reports shall have
been paid or provision shall have been made for the payment thereof and to the
best of the Acquiring Fund's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns;
(i) For each fiscal year of its operation the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company;
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable (except that, under Massachusetts law, shareholders of the
Acquiring Fund could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund). The Acquiring Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any Acquiring
Fund Shares, nor is there outstanding any security convertible into any
Acquiring Fund Shares;
(k) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring Fund, and
this Agreement constitutes a valid and binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Selling
Fund, for the account of the Selling Fund Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and, when so
issued and delivered, will be duly and validly issued Acquiring Fund Shares, and
will be fully paid and non-assessable (except that, under Massachusetts law,
shareholders of the Acquiring Fund could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund);
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all material
respects and shall comply in all material respects with Federal securities and
other laws and regulations applicable thereto;
(n) The Prospectus and Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. The First Union Trust will call a meeting of
the Selling Fund Shareholders to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
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5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
Federal income tax purposes which will be carried over by the Acquiring Fund as
a result of Section 381 of the Code, and which will be certified by the First
Union Trust's President, its Treasurer and its independent auditors.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus (the "Prospectus and Proxy Statement") which will
include the Prospectus and Proxy Statement, referred to in paragraph 4.2(n), all
to be included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Evergreen Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Selling Fund and dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request; and
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Shereff, Friedman, Hoffman & Goodman 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:
That (a) the Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted; (b) the Agreement has been duly authorized, executed and
delivered by the Acquiring Fund, and, assuming that the Prospectus, Registration
Statement and Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of the Agreement by the Selling Fund, is a
valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c)
assuming that a consideration therefor not less than the net asset value
therefor has been paid, the Acquiring Fund Shares to be issued and delivered to
the Selling Fund on behalf of the Selling Fund Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be legally issued and
outstanding and fully paid and non-assessable (except that, under Massachusetts
law, shareholders of the Acquiring Fund could, under certain circumstances, be
held personally liable for obligations of the Acquiring Fund), and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof;
(d) the execution and delivery of the Agreement did not, and the consummation of
the transactions contemplated hereby will not, result in a violation of the
Evergreen Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or
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decree to which the Acquiring Fund is a party or by which it is bound; (e) to
the knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or the Commonwealth of
Massachusetts, is required for the consummation by the Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (f) only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown; (g) such counsel does not know of
any legal or governmental proceedings, only insofar as they relate to the
Acquiring Fund, existing on or before the effective date of the Registration
Statement or the Closing Date required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement which are not
described as required; (h) the Acquiring Fund is a separate investment series of
a Massachusetts business trust registered as an investment company under the
1940 Act and to such counsel's best knowledge, such registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; and (i) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement. In addition, such
counsel shall also state that they have participated in conferences with
officers and other representatives of the Acquiring Fund at which the contents
of the Prospectus and Proxy Statement and related matters were discussed and,
although they are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Prospectus
and Proxy Statement (except to the extent indicated in paragraph (f) of their
above opinion), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of the Evergreen Trust's officers and other
representatives of the Acquiring Fund), no facts have come to their attention
that lead them to believe that the Prospectus and Proxy Statement as of its
date, as of the date of the Selling Fund Shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or Registration Statement, and that such opinion is solely for the
benefit of the First Union Trust and the Selling Fund. Such opinion shall
contain such other assumptions and limitations as shall be in the opinion of
Shereff, Friedman, Hoffman & Goodman LLP appropriate to render the opinions
expressed therein and shall indicate, with respect to matters of Massachusetts
law that as Shereff, Friedman, Hoffman & Goodman LLP are not admitted to the bar
of Massachusetts, such opinions are based solely upon the review of published
statutes, cases and rules and regulations of the Commonwealth of Massachusetts.
In this paragraph 6.2, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the First Union
Trust's President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and, dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request;
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the First Union Trust; and
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7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester, counsel to the Selling Fund, in a form satisfactory to
the Acquiring Fund covering the following points:
That (a) the Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted; (b) the Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus, the
Registration Statement and the Prospectus and Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and, assuming due authorization, execution and delivery of the Agreement by the
Acquiring Fund, is a valid and binding obligation of the Selling Fund
enforceable against the Selling Fund in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and to general equity
principles; (c) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the First Union Trust's Declaration of Trust or By-laws, or any
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound; (d) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States, or the Commonwealth of
Massachusetts is required for the consummation by the Selling Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (e) only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown; (f) such counsel does not know of
any legal or governmental proceedings, only insofar as they relate to the
Selling Fund existing on or before the date of mailing of the Prospectus and
Proxy Statement and the Closing Date, required to be described in the Prospectus
and Proxy Statement or to be filed as an exhibit to the Registration Statement
which are not described or filed as required; (g) the Selling Fund is a separate
investment series of a Massachusetts business trust registered as an investment
company under the 1940 Act and to such counsel's best knowledge, such
registration with the Commission as an investment company under the 1940 Act is
in full force and effect; (h) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement; (i)
assuming that a consideration therefor not less than the net asset value
therefor has been paid, and assuming that such shares were issued in accordance
with the terms of the Selling Fund's registration statement, or any amendment
thereto, in effect at the time of such issuance all issued and outstanding
shares of the Selling Fund are legally issued and fully paid and non-assessable
(except that, under Massachusetts law, Selling Fund Shareholders could, under
certain circumstances be held personally liable for obligations of the Selling
Fund). Such counsel shall also state that they have participated in conferences
with officers and other representatives of the Selling Fund at which the
contents of the Prospectus and Proxy Statement and related matters were
discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (e) of their above opinion ), on the basis of the foregoing
(relying as to materiality to a large extent upon the opinions of the First
Union Trust's officers and other representatives of the Selling Fund ), no facts
have come to their attention that lead them to believe that the Prospectus and
Proxy Statement as of its date, as of the date of the Selling Fund Shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein regarding
the Selling Fund or necessary, in the light of the circumstances under which
they were made, to make the statements therein regarding the Selling Fund not
misleading. Such opinion may state that such counsel does not express any
opinion or belief as to the financial statements or any financial or statistical
data, or as to the information relating to the Acquiring Fund, contained in the
Prospectus and Proxy Statement or Registration Statement, and that such opinion
is solely for the benefit of the Evergreen Trust and the Acquiring Fund. Such
opinion shall contain such other assumptions and limitations as shall be in the
opinion of Sullivan & Worcester appropriate to render the opinions expressed
therein.
In this paragraph 7.3, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
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ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the First Union Trust's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date the Commission shall not have issued an unfavorable
report under Section 25(b) of the 1940 Act, nor instituted any proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement under Section 25(c) of the 1940 Act and no action, suit or other
proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All required consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities. Including
any necessary "no-action" positions of and exemptive orders from such Federal
and state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable years ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gain realized in all taxable years ending on or prior to the Closing
Date (after reduction for any capital loss carryforward);
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester, addressed to the Acquiring Fund and the Selling Fund substantially to
the effect that for Federal income tax purposes:
(a) The transfer of substantially all of the Selling Fund assets in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund
of certain identified liabilities of the Selling Fund followed by the
distribution of the Acquiring Fund's shares to the Selling Fund in dissolution
and liquidation of the Selling Fund, will constitute a "reorganization" within
the meaning of Section 368(a)(1)(D) of the Code and the Acquiring Fund and the
Selling Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (b) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Selling Fund solely in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund
of certain identified liabilities of the Selling Fund; (c) no gain or loss will
be recognized by the Selling Fund upon the transfer of the Selling Fund assets
to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of certain identified liabilities of the
Selling Fund or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to Selling Fund Shareholders in exchange for their shares
of the Selling Fund; (d) no gain or loss will be recognized by Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund; (e) the aggregate tax basis for
the Acquiring Fund Shares received by each Selling Fund Shareholder pursuant to
the Reorganization will be the same as the aggregate tax basis of the Selling
Fund shares held by such shareholder immediately prior to the Reorganization,
and the holding period of the Acquiring Fund Shares to be received by each
Selling Fund Shareholder will include the period during which the Selling Fund
shares exchanged therefor were held by such shareholder (provided the Selling
Fund shares were held as capital assets on the date of the Reorganization ); and
(f) the tax basis of the Selling Fund assets acquired by the Acquiring Fund will
be the same as the tax basis of such assets to the Selling Fund immediately
prior to the Reorganization, and the holding period of the
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<PAGE>
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 dated on the Closing Date, in form and
substance satisfactory to the Acquiring Fund, to the effect that (i) they are
independent certified public accountants with respect to the Selling Fund within
the meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the audited financial statements and the per
share data and ratios contained in the section entitled Financial Highlights and
provided in accordance with Item 3 of Form N-1A (the "Per Share Data") of the
Selling Fund included in or incorporated by reference into the Registration
Statement and Prospectus and Proxy Statement and previously reported on by them
comply as to form in all material respects with the applicable accounting
requirements of the l933 Act and the published rules and regulations thereunder;
(iii) on the basis of limited procedures agreed upon by the Acquiring Fund and
described in such letter (but not an examination in accordance with generally
accepted auditing standards) consisting of a reading of any unaudited pro forma
financial statements included in the Registration Statement and Prospectus and
Proxy Statement, and inquiries of appropriate officials of the First Union Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that (A) such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, or (B) said unaudited pro forma financial statements are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements; (iv) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter ( but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Selling Fund; and (v)
on the basis of limited procedures agreed upon by the Acquiring Fund and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the pro forma financial statements which are
included in the Registration Statement and Prospectus and Proxy Statement, were
prepared based on the valuation of the Selling Fund's assets in accordance with
the Evergreen Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information pursuant to procedures
customarily utilized by the Acquiring Fund in valuing its own assets (such
procedures having been previously described to KPMG Peat Marwick LLP in writing
by the Acquiring Fund).
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) (i) the
data utilized in the calculations of the projected expense ratio appearing in
the Registration Statement and Prospectus and Proxy Statement agree with
underlying accounting records of the Selling Fund or to written estimates by
Selling Fund's management and were found to be mathematically correct; and (ii)
the calculation of net asset value per share of the Selling Fund as of the
Valuation Date was determined in accordance with generally accepted accounting
practices and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from Price Waterhouse LLP a letter
addressed to the Selling Fund dated on the Closing Date, in form and substance
satisfactory to the Selling Fund, to the effect that (i) they are independent
certified public accountants with respect to the Acquiring Fund within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the audited financial statements and the per
share data and ratios contained in the section entitled Financial Highlights and
provided in accordance with Item 3 of Form N-1A (the "Per Share Data") of the
Acquiring Fund included in or incorporated by reference into the Registration
Statement and Prospectus and Proxy Statement and previously reported on by them
comply as to form in all material respects with the applicable accounting
requirements of the l933 Act and the published rules and regulations thereunder;
(iii) on the basis of limited procedures agreed upon by the Selling Fund and
described in such letter (but not an examination in accordance with generally
accepted auditing standards) consisting of a reading of any unaudited pro forma
financial statements included in the Registration Statement and Prospectus and
Proxy Statement, and inquiries of appropriate officials of the Evergreen Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that (A) such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, or (B) said unaudited pro forma financial statements are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements; and (iv) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the
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Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Acquiring Fund.
In addition, the Selling Fund shall have received from Price Waterhouse LLP
a letter addressed to the Selling Fund dated on the Closing Date, in form and
substance satisfactory to the Selling Fund, to the effect that on the basis of
limited procedures agreed upon by the Selling Fund (but not an examination in
accordance with generally accepted auditing standards) the data utilized in the
calculations of the projected expense ratio appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Acquiring Fund and the Selling Fund or to written estimates by
each Fund's management and were found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from
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 all or substantially all of the assets of the Selling
Fund to the Acquiring Fund and the ultimate dissolution of the Selling Fund,
upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 (a) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquiring Fund will
be borne by Evergreen Asset Management Corp. The expenses of the transactions
contemplated by this Agreement incurred by the Selling Fund will be borne by
First Union National Bank of North Carolina. Such expenses include, without
limitation, (i) expenses incurred in connection with the entering into and the
carrying out of the provisions of this Agreement; (ii) expenses associated with
the preparation and filing of the Registration Statement under the 1933 Act
covering the Acquiring Fund Shares to be issued pursuant to the provisions of
this Agreement; (iii) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which the Selling Fund Shareholders are resident as of
the date of the mailing of the Prospectus and Proxy Statement to such
shareholders; (iv) postage; (v) printing; (vi) accounting fees; (vii) legal
fees; and (viii) solicitation cost of the transactions. (b) Consistent with the
provisions of paragraph 1.3, the Selling Fund, prior to the Closing Date, shall
pay for or include in the audited statement of assets and liabilities prepared
pursuant to paragraph 1.3 all of its known and reasonably estimated expenses
associated with the transactions contemplated by this Agreement.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that the
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not cured
within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not or
cannot be met.
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11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund or the Selling Fund, the Evergreen Trust or the First Union Trust
or their respective Trustees or officers, to the other party or its, Trustees or
officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Selling
Fund and the Acquiring Fund: provided, however, that following the meeting of
the Selling Fund Shareholders called by the First Union Trust pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, overnight courier or certified mail addressed to
THE ACQUIRING FUND
Evergreen Municipal Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
OR TO THE SELLING FUND
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Attention: Peter J. Germain, Esq.
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
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14.5 It is expressly agreed to that the obligations of the Selling Fund and
the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Evergreen Trust or
the First Union Trust, personally, but bind only the trust property of the
Selling Fund and the Acquiring Fund, as provided in the Declarations of Trust of
the Evergreen Trust and the First Union Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Evergreen Trust and
the First Union Trust on behalf of the Acquiring Fund and the Selling Fund,
respectively, and signed by authorized officers of the Evergreen Trust and the
First Union 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 Evergreen Trust
and the First Union Trust as provided in their Declarations of Trust.
FIRST UNION FUNDS
on behalf of First Union Tax Free Money
Market Portfolio
By: /s/ EDWARD GONZALES
NAME: EDWARD GONZALES
TITLE: PRESIDENT
(Seal)
EVERGREEN MUNICIPAL TRUST
on behalf of Evergreen Tax Exempt Money
Market Fund
By: /s/ JOHN J. PILEGGI
NAME: JOHN J. PILEGGI
TITLE: PRESIDENT
(Seal)
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STATEMENT OF ADDITIONAL INFORMATION
May 2, 1995
Transfer of substantially all of the assets and certain identified
liabilities of
FIRST UNION TAX FREE MONEY MARKET PORTFOLIO, a series of
FIRST UNION FUNDS
by and in exchange for the shares of
EVERGREEN TAX EXEMPT MONEY MARKET FUND, a series of
EVERGREEN MUNICIPAL TRUST
This Statement of Additional Information relates specifically to the
proposed transfer of substantially all of the assets and certain identified
liabilities of First Union Tax Free Money Market Portfolio ("First Union Tax
Free"), a series of First Union Funds, by and in exchange for the shares of
Evergreen Tax Exempt Money Market Fund ("Evergreen Tax Exempt"), a series of
Evergreen Municipal Trust. This Statement of Additional Information consists of
this cover page and the documents described below, each of which is incorporated
by reference herein:
(1) Statement of Additional Information of First Union Tax Free dated February
28, 1995 (Post-Effective Amendment No. 39 to the Registration Statement of
First Union Funds on Form N-1A; File No. 2-94560);
(2) Annual Report for First Union Tax Free for the fiscal year ended December
31, 1994;
(3) Statement of Additional Information of Evergreen Tax Exempt dated January
3, 1995 (Post-Effective Amendment No. 16 to its Registration Statement on
Form N-1A; File No. 33-23180);
(4) Annual Report for Evergreen Tax Exempt for the fiscal year ended August 31,
1994;
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement/ Prospectus of Evergreen Money
Market dated May 2, 1995, which has been filed with the Securities and Exchange
Commisiioon and can be obtained, without charge, by writing to Evergreen Tax
Exempt at 2500 Westchester Avenue, Purchase, New York, 10577, or by calling
toll-free 1-800-[807-2940]. This Statement of Additional Information has been
incorporated into the Proxy Statement/ Prospectus.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EVERGREEN TAX EXEMPT MONEY MARKET FUND,
a series of
EVERGREEN MUNICIPAL TRUST
Table of Contents
Cover Page Cover Page
Financial Statements 1
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
ALABAMA - 4.4%
- ------------------------------------------------------------
Alabama Weekly VRDN Housing Finance Authority Multifamily
RRB (Series 1988 C)/(Amsouth Bank LOC) $3,600 $3,600,000 $3,600 $3,600,000
- ------------------------------------------------------------
City of Arab, AL, Weekly VRDN, Industrial Development Board
RRB (Series 1989)/(SCI Manufacturing, Inc.)/
(Bank of Tokyo LOC) 2,850 2,850,000 2,850 2,850,000
- ------------------------------------------------------------
City of Birmingham, AL, Weekly VRDN, Finance Authority
RB Baptist Medical Care Facilities (Senior Living Community
Inc. Project)/(Series 1990A)/(Fuji Bank Ltd. LOC) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------
City of Birmingham, AL, Daily VRDN, Medical Clinic RB
(Series 1991)/(Morgan Guaranty Trust LOC) 4,500 4,500,000 4,500 4,500,000
- ------------------------------------------------------------
City of Birmingham, AL, Weekly VRDN, Commercial Development
Authority RB, (Series 1991)/(Avondale Commerce Park,
Phase II Project)/(Amsouth Bank LOC) 1,305 1,305,000 1,305 1,305,000
- ------------------------------------------------------------
City of Birmingham, AL, Weekly VRDN, Commercial Development
Authority RB, (Series 1991)/(Southside Business Center
Project)/(Amsouth Bank LOC) 735 735,000 735 735,000
- ------------------------------------------------------------
City of Northport, AL, Weekly VRDN, Multifamily Housing
Refunding Revenue Warrants (Northbrook I Project)/
(Series 1993A)/(Southtrust Bank of Alabama, N.A. LOC) 5,935 5,935,000 5,935 5,935,000
- ------------------------------------------------------------
City of Tuscaloosa, AL, Weekly VRDN, Industrial Development
Board RRB, (Series 1992)/(Field Container Corp.)/
(American National Bank and Trust Co. of Chicago LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Jefferson County, AL, Weekly VRDN (Special Obligation)/
(Columbus Bank & Trust Co. LOC) 9,000 9,000,000 9,000 9,000,000
- ------------------------------------------------------------
Livingston, AL, IDB Weekly VRDN (Series 1989)/(Toin Corp.
U.S.A. Project)/(Subject to AMT)/(Industrial Bank of
Japan LOC) 1,100 1,100,000 1,100 1,100,000
- ------------------------------------------------------------
Mobile County, AL, IDB Weekly VRDN (Sherman International
Corp.) 3,500 3,500,000 3,500 3,500,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 21,925,000 13,600,000 35,525,000
- ------------------------------------------------------------ ------------ ------------ ------------
ARIZONA - 5.0%
- ------------------------------------------------------------
Chandler County, AZ, IDA Monthly VRDN (Series 1983)/
(Parsons Municipal Services) 900 900,000 900 900,000
- ------------------------------------------------------------
Maricopa County, AZ, Weekly VRDN, RB Refunding
(El Paso Electric Co.)/(Series A)/(Citibank LOC) 18,200 18,200,000 18,200 18,200,000
- ------------------------------------------------------------
Maricopa County, AZ, Weekly VRDN, RB Refunding
(El Paso Electric Co.)/(Credit Suisse LOC) 12,000 12,000,000 12,000 12,000,000
- ------------------------------------------------------------
Maricopa County, AZ, IDA Weekly VRDN (McLane County)/
(Barclays Bank PLC LOC) 200 200,000 200 200,000
- ------------------------------------------------------------
Maricopa County, AZ, 5.00%, Tax Anticipation Notes
(Series 1994), 7/28/95 8,500 8,530,301 8,500 8,530,301
- ------------------------------------------------------------ ------------ ------------ ------------
Total 8,530,301 31,300,000 39,830,301
- ------------------------------------------------------------ ------------ ------------ ------------
CALIFORNIA - 25.6%
- ------------------------------------------------------------
Barstow, CA, Weekly VRDN (Multifamily Housing RB)/
(Series 1988A)/(Rimrock Village Apartment Project)/
(Mercury Savings & Loan LOC) 1,400 1,400,000 1,400 1,400,000
- ------------------------------------------------------------
California State, Monthly VRDN, Libor Index Notes 9,000 9,000,000 9,000 9,000,000
- ------------------------------------------------------------
California State, 3.10%, PCR Bonds (Chevron USA Inc.
Project)/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ----------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ----------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
(Callable 5/15/95 @ 100) ARB, 5/15/02 1,000 995,853 1,000 995,853
- ------------------------------------------------------------
California State, 5.00%, RANS (Series A), 6/28/95 16,000 16,059,308 16,000 16,059,308
- ------------------------------------------------------------
California State, 4.10%, Various Purpose GO Bonds,
(Banque Nationale de Paris LIQ) ARB, 5/1/95 3,000 3,000,000 3,000 3,000,000
- ------------------------------------------------------------
City of Corona, CA, Weekly VRDN, Multifamily Housing RB
(Household Bank Project) (Series 1985B)/
(Household Bank-Guaranteed by Household Finance Corp, LOC) 4,500 4,500,000 4,500 4,500,000
- ------------------------------------------------------------
City of Riverside, CA, Weekly VRDN, Multifamily Housing RB,
(Series 1985B)/(The Willows and the Canyon Crest Project)/
(Western Savings and Loan Association LOC) 5,300 5,300,000 5,300 5,300,000
- ------------------------------------------------------------
Fresno, CA, Weekly VRDN (Housing Heritage Apartments)/
(Series 1985B)/(Western Federal Savings & Loan LOC) 8,800 8,800,000 8,800 8,800,000
- ------------------------------------------------------------
Fresno, CA, Weekly VRDN (Housing Sanger Project)/
(Series 1985B)/(Western Federal Savings & Loan LOC) 3,900 3,900,000 3,900 3,900,000
- ------------------------------------------------------------
Hemet, CA, Weekly VRDN (Mercury Savings & Loan LOC) 1,500 1,500,000 1,500 1,500,000
- ------------------------------------------------------------
Irvine, CA, Monthly VRDN, GO UT RB (Bank of America LOC) 20,000 20,000,000 20,000 20,000,000
- ------------------------------------------------------------
Irvine, CA, Monthly VRDN, RB Refunding (Series A)/
(Bank of America LOC) 2,500 2,500,000 2,500 2,500,000
- ------------------------------------------------------------
Irvine, CA, Monthly VRDN, PC (Capital Improvement Project)/
(Morgan Guaranty Trust LOC) 13,200 13,200,000 13,200 13,200,000
- ------------------------------------------------------------
Lancaster, CA, Weekly VRDN, Redevelopment Agency Multifamily
Housing RRB, (Far West Savings and Loan Association/20th
Street Apartments Project)/(Far West Savings and Loan
Association LOC)/(Collateralized: U.S. Treasury Bills) 8,500 8,500,000 8,500 8,500,000
- ------------------------------------------------------------
Los Angeles, 4.50%, CA, Unified School District 1994-95
TRANS, 7/10/95 6,000 6,027,114 6,000 6,027,114
- ------------------------------------------------------------
Northern California Power Agency, 9.75% Public RRB
(Northern California Geothermal Project No. 3)/(Series A)/
(U.S. Government Securities Prerefunded), 7/1/95 6,260 6,563,162 6,260 6,563,162
- ------------------------------------------------------------
Oceanside, CA, Weekly VRDN (Community Development
Multi-Family RB)/(Parcwood Apartments Project)/(Western
Federal Savings & Loan LOC) 8,525 8,525,000 8,525 8,525,000
- ------------------------------------------------------------
* Orange County, CA, 4.50%, UT GO TRANS (Series A)/
(First Union Corporation PUT), 7/19/95++ 14,000 14,055,058 14,000 14,055,058
- ------------------------------------------------------------
Orange County, CA, Monthly VRDN, PC (National
Westminster LOC) 22,600 22,600,000 22,600 22,600,000
- ------------------------------------------------------------
Orange County, CA, Monthly VRDN, PC (Series C)/
(FGIC Insured) 6,000 6,000,000 6,000 6,000,000
- ------------------------------------------------------------
Orange County, CA, Monthly Variable Rate Note 1994-95
TRANS (Series B)/(First Union Corporation PUT), 8/10/95# 10,000 10,000,000 10,000 10,000,000
- ------------------------------------------------------------
Redwood City, CA, Public Facilities, 8.20%, (U.S. Government
Securities Prerefunded), 6/1/95 2,650 2,743,957 2,650 2,743,957
- ------------------------------------------------------------
Riverside County, CA, Weekly VRDN, Multifamily Housing RB,
(Series 1985R)/(Mercury Savings and Loan/McKinley Hills
Apartment Project)/(Mercury Savings & Loan collateralized) 14,800 14,800,000 14,800 14,800,000
- ------------------------------------------------------------
San Diego, CA, Housing Authority, Weekly VRDN (Multi-Family
Housing RB)/(Oro Vista Apartments Project)/
(Series 1987A)/(Mercury Savings & Loan LOC) 4,500 4,500,000 4,500 4,500,000
- ------------------------------------------------------------
San Francisco, CA, 9.00%, Sales Tax Revenue Bonds (Bay Area
Rapid Transit)/(U.S. Government Securities Prerefunded),
7/1/95 2,000 2,108,444 2,000 2,108,444
- ------------------------------------------------------------
San Francisco, CA, 4.75%, Unified School District
(City and County of San Francisco) 1994 TRANS, 8/24/95 4,000 4,014,074 4,000 4,014,074
- ------------------------------------------------------------
Santa Ana, CA, Housing Authority, Weekly VRDN (Multi-Family
Housing RB)/(Villa Verde Apartments)/(Series 1985B)/
(Mercury Savings & Loan LOC) 5,000 5,000,000 5,000 5,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 72,200,496 133,391,474 205,591,970
- ------------------------------------------------------------ ------------ ------------ ------------
COLORADO - 1.1%
- ------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
Arapahoe County, CO, 3.90%, Capital Improvement Trust
Fund Highway RB (E-470 Project)/(Series 1986E)/
(Societe Generale LIQ) ARB, 2/28/95 8,000 8,000,000 8,000 8,000,000
- ------------------------------------------------------------
Boulder County, CO, 5.25%, Development RB (Series 1992)/
(The Geological Society of America, Inc. Project)/
(Banc One Corp. LOC) ARB, 12/1/95 580 580,000 580 580,000
- ------------------------------------------------------------ ------------ ------------
Total 8,580,000 8,580,000
- ------------------------------------------------------------ ------------ ------------
DELAWARE - 0.4%
- ------------------------------------------------------------
Delaware State, Weekly VRDN, EDR Bonds (Arlon Inc. Project)
(Bank of America Illinois LOC) 3,000 3,000,000 3,000 3,000,000
- ------------------------------------------------------------ ------------ ------------
DISTRICT OF COLUMBIA - 0.9%
- ------------------------------------------------------------
District of Columbia, 9.75%, GO Bonds (Series 1985B)/
(Prerefunded @ 102), 6/1/95 2,000 2,087,067 2,000 2,087,067
- ------------------------------------------------------------
District of Columbia, 7.10%, GO Bonds (Series 1989A)/
(AMBAC Insured), 6/1/95 625 632,097 625 632,097
- ------------------------------------------------------------
District of Columbia, 4.05%, Supplemental Student Loan
Revenue (Mitsubishi Bank LOC) ARB, 7/1/95 4,600 4,600,000 4,600 4,600,000
- ------------------------------------------------------------ ------------ ------------ -------------
Total 2,719,164 4,600,000 7,319,164
- ------------------------------------------------------------ ------------ ------------ -------------
FLORIDA -1.1%
- ------------------------------------------------------------
Alachua County, FL, 4.45%, Health Facilities Authority RB
(Academic Research Building Project)/(Barnette Bank LOC),
2/1/95 1,050 1,050,000 1,050 1,050,000
- ------------------------------------------------------------
Florida Housing Finance Agency, 5.00%, RB
(Continental Casualty Surety Bond Insured) ARB, 12/1/95 4,500 4,494,854 4,500 4,494,854
- ------------------------------------------------------------
Florida Housing Finance Agency, 5.00%, Residential Mortgage
RB (1986 Series 2)/(FGIC Insured) ARB, 6/1/95 2,980 2,980,000 2,980 2,980,000
- ------------------------------------------------------------
Palm Beach County, FL, 3.60%, Criminal Justice Facilities RB
(Series 1994)/(FGIC Insured), 6/1/95 500 499,376 500 499,376
- ------------------------------------------------------------ ------------ ------------ ------------
Total 3,479,376 5,544,854 9,024,230
- ------------------------------------------------------------ ------------ ------------ ------------
GEORGIA - 4.4%
- ------------------------------------------------------------
Albany Dougherty County Hospital, GA, Weekly VRDN
(Series 1984A) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Clayton County, GA, Weekly VRDN, Multifamily Housing RRB
(Summerwind Project)/(Series 1989)/(Amsouth Bank N.A. LOC) 6,555 6,555,000 6,555 6,555,000
- ------------------------------------------------------------
Cobb City, GA, 7.10%, School District GO, 2/1/95 350 350,329 350 350,329
- ------------------------------------------------------------
Columbus, GA, Weekly VRDN, Multifamily Housing Authority
RRB (Quail Ridge Project)/(Series 1988)/
(Columbus Bank & Trust Co. LOC) 2,200 2,200,000 2,200 2,200,000
- ------------------------------------------------------------
**Columbus, GA, IDA Weekly VRDN (R. P. Real Estate Project)/
(Series A)/(Columbus Bank and Trust Co. LOC) 490 490,000 490 490,000
- ------------------------------------------------------------
Columbus, GA, IDR Weekly VRDN (B & G Reality Inc.)/
(Bankers Trust LOC) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------
Dekalb County, GA, Weekly VRDN, Housing Authority
Multifamily Housing RRB (Terrace Club Project)/
(Series 1993A)/(Amsouth Bank N.A. LOC) 7,470 7,470,000 7,470 7,470,000
- ------------------------------------------------------------
Fulco, GA, 3.90%, Hospital Authority, Revenue Anticipation
Certificates (St. Josephs Hospital of Atlanta Project)/
(Series 1989)/(Trust Co. of Georgia LOC), 1/17/95 5,145 5,145,000 5,145 5,145,000
- ------------------------------------------------------------
Fulton County, GA, Weekly VRDN (Series 1993)/(Fulton County,
GA, Housing Authority)/(Federal Home Loan, Atlanta LOC) 2,455 2,455,000 2,455 2,455,000
- ------------------------------------------------------------
Georgia 9.875% Municipal Electric Authority RB,1/1/95 4,000 4,080,000 4,000 4,080,000
- ------------------------------------------------------------
Municipal Electric Authority, GA, 3.85% (Series A)/(Morgan
Guaranty Trust Bank LOC) ARB, 6/1/95 1,800 1,800,000 1,800 1,800,000
- ------------------------------------------------------------
Polk, GA, Weekly VRDN (Series 1985)/(Kimoto Tech, Inc.)/
(Industrial Bank Japan, NY LOC) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 21,720,329 13,825,000 35,545,329
- ------------------------------------------------------------ ------------ ------------ ------------
ILLINOIS - 4.2%
- ------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ----------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ----------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
Chicago, IL, 7.25%, GO School Assistance Bonds (Refunding
Series 1986)/(Prerefunded @102), 6/1/95 2,000 2,051,892 2,000 2,051,892
- ------------------------------------------------------------
Chicago, IL, 5.00%, O'Hare International Airport RB,
(1984 Series B)/(Westpac Banking Corp. LIQ) ARB, 7/1/95 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------
Illinois Development Finance Authority, Daily VRDN, PCR
(Diamond Star Motors Project)/(Mitsubishi Bank Ltd. LOC) 6,000 6,000,000 6,000 6,000,000
- ------------------------------------------------------------
Illinois Development Finance Authority, 4.15%, RB
(General Accident Insurance Company) ARB, 3/1/95 6 ,800 6,800,000 6,800 6,800,000
- ------------------------------------------------------------
Illinois Development Finance Authority, Weekly VRDN, IDR
(Series 1992)/(Saint Xavier University)/(American National
Bank and Trust Co. of Chicago LOC) 1,495 1,495,000 1,495 1,495,000
- ------------------------------------------------------------
Illinois Development Finance Authority, Weekly VRDN
(Camcraft Inc. Project)/(American National, Chicago LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Illinois Economic Development Review, Weekly VRDN (MTI
Corporate Project)/(Industrial Bank of Japan Ltd. LOC)/
(Subject to AMT) 3,500 3,500,000 3,500 3,500,000
- ------------------------------------------------------------
Illinois Development Finance Authority, Weekly VRDN
(Randolph Pickle Corp.)/(American National Chicago LOC) 3,400 3,400,000 3,400 3,400,000
- ------------------------------------------------------------
Illinois State, 7.10%, GO Bonds (Prerefunded @ 101.5),
5/1/95 500 509,963 500 509,963
- ------------------------------------------------------------
**LaSalle National Bank, Weekly VRDN, BusTOPS Trust, BusTOPS
Certificates (Series 1993A)/(LaSalle National Bank LIQ) 3,073 3,073,332 3,075 3,075,119 6,148 6,148,451
- ------------------------------------------------------------
Skokie, IL, Weekly VRDN, EDR Bond (Skokie Fashion
Square Associates Project)/(Series 1984)/(Bankers Trust Co.
LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 16,130,187 17,775,119 33,905,306
- ------------------------------------------------------------ ------------ ------------ ------------
INDIANA - 0.7%
- ------------------------------------------------------------
Avilla, IN, EDR Weekly VRDN (G & P Partners Partnership)/
(Credit Lyonnaise LOC)/(Subject to AMT) 750 750,000 750 750,000
- ------------------------------------------------------------
Hammond, IN, Economic Development Revenue, Monthly VRDN
(Lear Seating Corporation Project)/(Chemical Bank LOC) 2,750 2,750,000 2,750 2,750,000
- ------------------------------------------------------------
Indiana State Employment Development Commission, Weekly VRDN
(Griner Engineering Co.)/(Credit Lyonnaise LOC)/(Subject
to AMT) 300 300,000 300 300,000
- ------------------------------------------------------------
Indiana Transportation Finance Authority, 3.75%, Highway
RB (Series 1993A)/(AMBAC Insured), 6/1/95 750 750,000 750 750,000
- ------------------------------------------------------------
Indiana, 4.10%, Vocational Technical College Student Fee
Bonds (Series D)/(AMBAC Insured), 4/15/95 515 515,000 515 515,000
- ------------------------------------------------------------
Valparaiso, IN, 2.75%, Multi-Schools Building Corp. First
Mortgage RFB (Porter County)/(Series 1994)/
(AMBAC Insured), 1/1/95 315 315,000 315 315,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 1,580,000 3,800,000 5,380,000
- ------------------------------------------------------------ ------------ ------------ ------------
KANSAS - 2.1%
- ------------------------------------------------------------
Burlington, KS, 4.50%, PCR (National Rural Utilities/Kansas
Electric)/(Series C-2)/(Mandatory Put), 1/23/95 9,650 9,650,000 9,650 9,650,000
- ------------------------------------------------------------
Osage, KS, Weekly VRDN, Industrial Revenue Bonds 4,800 4,800,000 4,800 4,800,000
- ------------------------------------------------------------
Salina, KS, Weekly VRDN (Salina Central Mall L.P.)
(Dillard's Project)/(Boatmen's Bancshares Inc. LOC) 1,200 1,200,000 1,200 1,200,000
- ------------------------------------------------------------
Salina, KS, Weekly VRDN (Salina Central Mall L.P.)
(Penney's Project)/(Boatmen's Bancshares Inc. LOC) 1,105 1,105,000 1,105 1,105,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 11,955,000 4,800,000 16,755,000
- ------------------------------------------------------------ ------------ ------------ ------------
KENTUCKY - 2.4%
- ------------------------------------------------------------
Ohio County, Weekly VRDN, Kentucky PCR Bond (Series
1985)/(Big Rivers Electric Corp. Project)/
(Chemical Bank LOC) 9,900 9,900,000 9,900 9,900,000
- ------------------------------------------------------------
Pendleton County, KY, 3.70%, Multi-County Lease RB
(Kentucky Association Counties Leasing Program)/
(Commonwealth Bank of Australia LOC), 2/1/95 9,500 9,500,000 9,500 9,500,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 9,900,000 9,500,000 19,400,000
- ------------------------------------------------------------ ------------ ------------ ------------
LOUISIANA - 0.1%
- ------------------------------------------------------------
Jefferson Parish Hospital District No. 1, LA, 3.60%,
Hospital RB
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
(Series 1993)/(FGIC Insured), 1/1/95 500 500,000 500 500,000
- ------------------------------------------------------------ ---------- ------------
MARYLAND - 3.4%
- ------------------------------------------------------------
Anne Arundel County, MD, 3.70%, Revenue Refunding Bonds
(Baltimore Gas & Electric Company)/
(Chemical Bank LOC), 2/1/95 700 700,000 700 700,000
- ------------------------------------------------------------
Mayor and City Council of Baltimore, MD, 5.00%, Highway User
RANS (Series 1994), 6/9/95 13,800 13,850,965 13,800 13,850,965
- ------------------------------------------------------------
Mayor and City Council of Baltimore, MD, Weekly VRDN,
Economic Development RRB (Series 1992)/(Field Container
Corp.)/(American National Bank and Trust Co. of Chicago LOC) 1,200 1,200,000 1,200 1,200,000
- ------------------------------------------------------------
Maryland, 3.90%, Department of Housing and Community
Development Single Family Program Bonds (1987 Fourth Series)
(First National Bank of Chicago TOP) ARB, 4/1/95 7,000 7,000,000 7,000 7,000,000
- ------------------------------------------------------------
Northeast, MD, 3.40%, Reserve Recovery RB
(Waste Disposal Authority)/(Long Option Period Refunding
CR-120)/(MBIA Insured) ARB, 1/1/95 4,800 4,800,000 4,800 4,800,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 22,050,965 5,500,000 27,550,965
- ------------------------------------------------------------ ------------ ------------ ------------
MASSACHUSETTS - 0.6%
- ------------------------------------------------------------
Massachusetts State, 5.00%, UT GO (Series A), 6/15/95 5,000 5,017,627 5,000 5,017,627
- ------------------------------------------------------------ ------------ ------------
MICHIGAN - 1.6%
- ------------------------------------------------------------
City of Battle Creek, MI, Weekly VRDN, Limited Obligation
Economic Development Corp. RRB (Series 1992)/(Michigan
Carton & Paperboard Co.)/(American National Bank and
Trust Co. of Chicago LOC) 2,909 2,909,000 2,909 2,909,000
- ------------------------------------------------------------
City of St. Joseph, MI, 2.90%, Hospital Finance Authority
RRB (Mercy Memorial Medical Center Obligated Group)/
(Series 1993)(AMBAC Insured), 1/1/95 435 435,000 435 435,000
- ------------------------------------------------------------
Meridian, MI, EDC, IDR Weekly VRDN (Series 1984)/(Hanna
Technology & Research Center)/(Barclays Bank LOC) 800 800,000 800 800,000
- ------------------------------------------------------------
Michigan State Building Authority, 5.40%, RB (Series 1987I)/
(University of Michigan)/(U.S. Government
Securities ETM), 3/1/95 2,380 2,388,481 2,380 2,388,481
- ------------------------------------------------------------
Michigan State Job Development Authority RB, Weekly VRDN,
(Gordon Foods Service, Inc. Project)/(Series 1985)/
(Rabobank Nederland LOC) 4,000 4,000,000 4,000 4,000,000
- ------------------------------------------------------------
Van Buren TWP, MI, Weekly VRDN, RB (Daikin Clutch
USA Incorporated Project)/(Sanwa Bank Chicago LOC) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 7,344,000 5,188,481 12,532,481
- ------------------------------------------------------------ ------------ ------------ ------------
MINNESOTA - 1.1%
- ------------------------------------------------------------
City of Minneapolis, MN, Daily VRDN, Hospital Facilities RB
(Series 1991A)/(LifeSpan Inc. Issue)/(Minneapolis
Children's Medical Center Project)/(Morgan Guaranty
Trust LOC 3,725 3,725,000 3,725 3,725,000
- ------------------------------------------------------------
**Eagle Tax-Exempt Trust, PC Weekly VRDN (Class A)/
(Harris County, TX, Highway and Flood Control)/
(Citibank LOC) 4,000 4,000,000 4,000 4,000,000
- ------------------------------------------------------------
Regents of the University of Minnesota, 9.50%, GO, RFB
(Series 1985A)/(Prerefunded @ 102), 2/15/95 1,000 1,027,088 1,000 1,027,088
- ------------------------------------------------------------ ------------ ------------ ------------
Total 4,752,088 4,000,000 8,752,088
- ------------------------------------------------------------ ------------ ------------ ------------
MISSISSIPPI - 0.2%
- ------------------------------------------------------------
Mississippi Housing Finance Corporation, 4.75%, RB
(Citibank, NY LOC)/(Callable 2/13/95 @ 103) ARB, 9/15/95 1,305 1,305,000 1,305 1,305,000
- ------------------------------------------------------------ ------------ ------------
MISSOURI - 0.8%
- ------------------------------------------------------------
Missouri State Finance Board, IDR, Weekly VRDN (Cook
Composites Company Project)/(Societe Generale LOC) 4,500 4,500,000 4,500 4,500,000
- ------------------------------------------------------------
St. Louis, MO, IDA, Weekly VRDN (Schmuck Markets, Inc.)/
(Bankers rust LOC) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------ ------------ ------------
Total 6,500,000 6,500,000
- ------------------------------------------------------------ ------------ ------------
MONTANA - 0.4%
- ------------------------------------------------------------
Montana State Board Investment Resource Recovery, Weekly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
VRDN (Coalstrip Project)/(Fuji Bank Ltd. LOC)/
(Subject to AMT) 3,300 3,300,000 3,300 3,300,000
- ------------------------------------------------------------ ------------ ------------
NEW MEXICO - 1.4%
- ------------------------------------------------------------
Albuquerque, NM, 9.25%, Revenue RFB (Series B)/
(MBIA Insured)/(Callable 8/1/95 @ 102), 8/1/12 1,000 1,041,311 1,000 1,041,311
- ------------------------------------------------------------
Farmington, NM, Monthly VRDN, Revenue RFB (El Paso
Electric Company)/(Series A)/(Citibank, NY LOC) 10,000 10,000,000 10,000 10,000,000
- ------------------------------------------------------------ ------------ ------------
Total 11,041,311 11,041,311
- ------------------------------------------------------------ ------------ ------------
NEW JERSEY - 1.0%
- ------------------------------------------------------------
New Jersey EDA, Weekly VRDN (Atlantic States
Cast Iron Pipe Co. Project)/(Amsouth Bank N.A. LOC) 2,815 2,815,000 2,815 2,815,000
- ------------------------------------------------------------
New Jersey, 3.75%, GO Bonds, RB (Series D)
(Banque Nationale de Paris LIQ) ARB, 2/15/95 5,400 5,400,000 5,400 5,400,000
- ------------------------------------------------------------ ------------ ------------
Total 8,215,000 8,215,000
- ------------------------------------------------------------ ------------ ------------
NEW YORK - 4.7%
- ------------------------------------------------------------
New York, NY, UT GO, Monthly VRDN 20,000 20,000,000 20,000 20,000,000
- ------------------------------------------------------------
New York, NY, Monthly VRDN, GO RANS (Fiscal 1995 Series B) 18,000 18,000,000 18,000 18,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 18,000,000 20,000,000 38,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
NORTH CAROLINA - 1.7%
- ------------------------------------------------------------
Beaufort County, NC, Weekly VRDN, Industrial Facilities and
Pollution Control Financing Authority RB (Texasgulf Inc.
Project)/(Series 1985)/(Societe Generale LOC) 4,000 4,000,000 4,000 4,000,000
- ------------------------------------------------------------
Columbus County, NC, Industrial Facilities & PCR Weekly VRDN
(Solid Waste Disposal RB)/(Federal Paper Board Co., Inc.
Project)/(Series 1992)/(Dai-Ichi Kango Bank LOC)/(Subject to
AMT) 7,700 7,700,000 7,700 7,700,000
- ------------------------------------------------------------
NCNB Pooled Tax-Exempt Trust, NC, Monthly VRDN,
COP (Series 1990A)/(NationsBank of North Carolina LOC) 1,700 1,700,000 1,700 1,700,000
- ------------------------------------------------------------
North Carolina Eastern Municipal Power, 10.00%, RB
(U.S. Government Securities Prerefunded), 1/1/95 500 505,000 500 505,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 5,700,000 8,205,000 13,905,000
- ------------------------------------------------------------ ------------ ------------ ------------
OKLAHOMA - 0.6%
- ------------------------------------------------------------
Bartlesville, OK, Weekly VRDN, Development Authority RB
(Series 1985)/(Heritage Village Nursing Center Project)/
(Kreditbank LOC) 2,800 2,800,000 2,800 2,800,000
- ------------------------------------------------------------
Oklahoma Housing Finance Agency, 4.25%, SFM, RRB
(Callable 8/1/95 @ 100) ARB, 3/1/16 1,225 1,225,000 1,225 1,225,000
- ------------------------------------------------------------
Tulsa County, OK, Independent School District No. 1, 7.90%
(Tulsa Board of Education)/(Building Bonds of
1993), 3/1/95 500 503,196 500 503,196
- ------------------------------------------------------------ ------------ ------------ ------------
Total 3,303,196 1,225,000 4,528,196
- ------------------------------------------------------------ ------------ ------------ ------------
OREGON - 0.1%
- ------------------------------------------------------------
Metropolitan Service District, OR, Weekly VRDN Revenue
Refunding Bonds (Ridel Oregon Compost Co.)/(U.S. National
Bank, Portland LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------ ------------ ------------
PENNSYLVANIA - 2.1%
- ------------------------------------------------------------
Lawrence County, PA, Weekly VRDN, IDA, PCR (Calgon Carbon
Project)/(Series 1983A)/(The Bank of New York LOC) 650 650,000 650 650,000
- ------------------------------------------------------------
School District of Philadelphia, 4.75%, TRANS
(Series 1994-5, 6/30/95 13,000 13,033,906 13,000 13,033,906
- ------------------------------------------------------------
Westmoreland County, PA, IDA, 4.63%, RB (White Consolidated
Industries, Inc. Project)/(Chemical Bank LOC) ARB, 6/1/95 2,945 2,945,000 2,945 2,945,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 13,683,906 2,945,000 16,628,906
- ------------------------------------------------------------ ------------ ------------ ------------
SOUTH CAROLINA - 2.6%
- ------------------------------------------------------------
Anderson County, SC, IDR 3.25% (Kravit Fabrics, Inc.)/
(South Carolina National Bank LOC) ARB, 3/1/95 1,370 1,370,000 1,370 1,370,000
- ------------------------------------------------------------
School District of Oconee County, SC, 8.50%, GO Bonds of
1994 (MBIA Insured), 1/1/95 800 800,000 800 800,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Daily VRDN (Series 1989B)/
(Ridge Pallets, Inc.)/(Credit Lyonnaise LOC)/
(Subject to AMT) 700 700,000 700 700,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Weekly VRDN (Harvin Choice
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
Meats)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) 850 850,000 850 850,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Weekly VRDN Healthcare Facilities
RB (The Methodist Home Project)/(Series 1994)/
(NationsBank of South Carolina LOC) 4,000 4,000,000 4,000 4,000,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Weekly VRDN (Tuttle Co.)/
(Series A)/(Credit Lyonnaise LOC)/(Subject to AMT) 850 850,000 850 850,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Weekly VRDN (Regal Beloit Corp.
Project)/(Series A)/(Credit Lyonnaise LOC)/(Subject to AMT) 1,200 1,200,000 1,200 1,200,000
- ------------------------------------------------------------
South Carolina Jobs, EDA Weekly VRDN (Roller Bearing
Company)/(Series A)/(Heller Finance LOC)/(Subject to AMT) 2,700 2,700,000 2,700 2,700,000
- ------------------------------------------------------------
South Carolina Jobs, EDR Weekly VRDN (Sudan Co. and Delta
Properties)/(Series A)/(Credit Lyonnaise LOC)/(Subject
to AMT) 150 150,000 150 150,000
- ------------------------------------------------------------
South Carolina Jobs, EDR Weekly VRDN (Kent Manufacturing
Project)/(Series A)/(Credit Lyonnaise LOC)/(Subject to AMT) 300 300,000 300 300,000
- ------------------------------------------------------------
**State of South Carolina, Weekly VRDN (Capital Import Bonds)/
(Series V-BTP-27)/(Class A Certificates)/
(ADP Investment LOC) 5,049 5,049,000 5,049 5,049,000
- ------------------------------------------------------------
Sumter County, SC, Weekly VRDN (Bendix Corporation)/
(Sumitomo Bank LOC) 2,400 2,400,000 2,400 2,400,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 4,800,000 15,569,000 20,369,000
- ------------------------------------------------------------ ------------ ------------ ------------
TENNESSEE - 4.4%
- ------------------------------------------------------------
Blount, TN, IDR Weekly VRDN (Series 1988)/(Advanced
Crystal, Inc.)/(Industrial Bank of Japan Ltd. LOC)/
(Subject to AMT) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Chattanooga-Hamilton County, TN, Weekly VRDN, Hospital
Revenue (Morgan guaranty SBPA) 2,000 2,000,000 2,000 2,000,000
- ------------------------------------------------------------
Chattanooga, TN, Weekly VRDN, IDB (Warehouse Row Ltd.
Project)/(Credit Suisse LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
**Knoxville, TN, Weekly VRDN (Waste Water System Revenue
Refunding Improvement Bonds)/(Series 1993BTP-57)/(ADP
Investment LOC) 3,540 3,540,000 3,540 3,540,000
- ------------------------------------------------------------
**Memphis, TN, Weekly VRDN (Electric System Revenue Refunding
Bonds)/(Series 1992)/(Series BTP-28)/(Class A Certificates) 4,665 4,665,000 4,665 4,665,000
- ------------------------------------------------------------
Metropolitan Government, Nashville and Davidson County, TN,
Weekly VRDN, RB (Perimeter Two Ltd.) 3,760 3,760,000 3,760 3,760,000
- ------------------------------------------------------------
Metropolitan Government of Nashville and Davidson County,
4.25%, Industrial Development Board, Multifamily Housing RRB
(Nashville Apartment Properties #2, Ltd. Project)/
(Series 1987)(Union Bank of Switzerland LOC) ARB, 9/1/95 2,850 2,850,000 2,850 2,850,000
- ------------------------------------------------------------
Morristown, TN, Weekly VRDN, Industrial Development
Board RB, (Series 1983)/(Camvac International, Inc.
Project)/(ABN Amro Bank LOC) 5,000 5,000,000 5,000 5,000,000
- ------------------------------------------------------------
Rutherford County, TN, Weekly VRDN, IDR (Outboard Marine
Corp.)/(Royal Bank of Canada LOC) 3,700 3,700,000 3,700 3,700,000
- ------------------------------------------------------------
Shelby County, TN, Monthly VRDN, Health, Educational and
Housing Facility Board Educational Facilities RB (Rhodes
College)/(Series 1985)/(National Westminster Bank LOC) 1,100 1,100,000 1,100 1,100,000
- ------------------------------------------------------------
Sullivan County, TN, 6.40%, Hospital RB (Holston Valley
Health Care, Inc.)/(Series 1990)/(MBIA Insured), 2/15/95 500 501,400 500 501,400
- ------------------------------------------------------------
Tennessee Housing Development Agency, 3.40%
(Series F-CR 51)/(FSA Insured) ARB, 1/1/95 5,960 5,960,000 5,960 5,960,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 12,451,400 22,625,000 35,076,400
- ------------------------------------------------------------ ------------ ------------ ------------
TEXAS - 9.3%
- ------------------------------------------------------------
Bexar County, TX, Weekly VRDN, Health Facilities Development
Corp. Retirement Community RB (The Army Retirement Residence
Foundation-San Antonio Project)/(Series 1985B)/(Banque
Paribas LOC) 6,310 6,310,000 6,310 6,310,000
- ------------------------------------------------------------
**Eagle Tax-Exempt Trust, PC Weekly VRDN (Series 1994E)/
(Class A)/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
(Harris County, TX, Highway and Flood Control)/
(Citibank LOC) 15,600 15,600,000 15,600 15,600,000
- ------------------------------------------------------------
El Paso, TX 5.875%, GO (Public Property Finance Contractual
Obligation), 8/15/95 500 504,050 500 504,050
- ------------------------------------------------------------
Fort Worth, TX, (Tarrant County) 8.70% GeneralPurpose RB
(Series 1985A)/(Prerefunded @ 100), 3/1/95 300 302,839 300 302,839
- ------------------------------------------------------------
Galveston, TX, Weekly VRDN Multifamily Housing Finance Corp.
RRB (Village by the Sea Apartments Project)/(Series Project)
(Series 1993)/(Sumitomo Bank, Ltd. LOC) 6,425 6,425,000 6,425 6,425,000
- ------------------------------------------------------------
Harris County, TX, Weekly VRDN, Toll Road Unlimited Tax and
Sub Lien RB (Series 1994A)/ (Citibank LIQ) 5,000 5,000,000 5,000 5,000,000
- ------------------------------------------------------------
**Houston, TX,Weekly VRDN(Houston,TX, Water & Sewer System)/
(Series BTP 54)/(MBIA Insured) 3,455 3,455,000 3,455 3,455,000
- ------------------------------------------------------------
Irving, TX, 4.75%, Independent School District (Dallas
County) TRANS (Series 1994), 8/31/95 10,000 10,036,965 10,000 10,036,965
- ------------------------------------------------------------
NCNB Pooled Tax Exempt-Trust, TX, Monthly VRDN,
COP (Series 1990B)/(NationsBank of Texas LOC) 6,625 6,625,000 6,625 6,625,000
- ------------------------------------------------------------
North Central, TX, Daily VRDN, Hospital Revenue Bonds
(Series 1985-B)/(Methodist Hospital of Dallas)/(Chemical
Bank LIQ) 2,400 2,400,000 2,400 2,400,000
- ------------------------------------------------------------
San Antonio, TX, 7.00%, Electric & Gas Systems Revenue
Improvement Bonds (Series 1985A)/(Prerefunded @ 101.5),
2/1/95 7,350 7,482,659 7,350 7,482,659
- ------------------------------------------------------------
San Antonio, TX, 6.875%, Electric & Gas Systems Revenue
RFB (New Series 1987)/(Prerefunded @ 101.5), 2/1/95 675 686,605 675 686,605
- ------------------------------------------------------------
San Antonio, TX 3.90%, Revenue RFB, (San Antonio
Airport)/(AMBAC insured) ARB, 4/1/95 1,420 1,420,000 1,420 1,420,000
- ------------------------------------------------------------
Spring Branch, TX, 4.20%, Independent School District
Maintenance TRANS (Series 1994), 2/1/95 3,985 3,986,824 3,985 3,986,824
- ------------------------------------------------------------
Tarrant County, TX, Weekly VRDN (Housing Finance
Corporation)/(Multi-Family Housing Revenue)/(Lincoln Meadows
Project)/(Series 1988)/(Continental Casualty Surety Bond) 4,380 4,380,000 4,380 4,380,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 49,255,892 25,359,050 74,614,942
- ------------------------------------------------------------ ------------ ------------ ------------
UTAH - 1.9%
- ------------------------------------------------------------
**Intermountain Power Supply Agency, Variable Rate Trust
Certificates XVII, Weekly VRDN (Payment Guaranteed) 6,783 6,783,000 6,783 6,783,000
- ------------------------------------------------------------
Intermountain Power Agency, 10.375%, OID Revenue RFB
(Series 1985A)/(Callable 7/1/95 @ 102.5), 7/1/16 3,065 3,220,146 3,065 3,220,146
- ------------------------------------------------------------
Intermountain Power Agency, 9.00%, OID Revenue RFB
(Series I)/(Callable 7/1/95 @ 101.5), 7/1/19 1,000 1,035,223 1,000 1,035,223
- ------------------------------------------------------------
Intermountain Power Agency, 9.375%, OID Revenue RFB
(Series 1985B)/(Callable 7/1/95 @ 102), 7/1/01 1,000 1,044,773 1,000 1,044,773
- ------------------------------------------------------------
Summit County, UT, Weekly VRDN, IDR Bond (Hornes' Kimball
Junction L.P. Project)/(Series 1985)/(West One Trust LOC) 3,100 3,100,000 3,100 3,100,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 3,100,000 12,083,142 15,183,142
- ------------------------------------------------------------ ------------ ------------ ------------
VIRGINIA - 5.3%
- ------------------------------------------------------------
Alexandria, VA Redevelopment & Housing Authority Monthly VRDN
Revenue RFB (Multi-Family Housing Revenue)/(Crystal
City Apartments Project)/(Series A) 6,900 6,900,000 6,900 6,900,000
- ------------------------------------------------------------
Amelia County, VA, IDA Weekly VRDN (Chambers Waste
Systems)/(NationsBank LOC)/(Subject to AMT) 6,900 6,900,000 6,900 6,900,000
- ------------------------------------------------------------
Charles County & City, VA, IDA Weekly VRDN, Exempt Facility
Revenue (Chambers Development)/(NationsBank LOC)/(Subject 1,100 1,100,000 1,100 1,100,000
to AMT)
- ------------------------------------------------------------
Charles County & City, VA, IDA Weekly VRDN, Exempt Facility
Revenue (Chambers Development)/(NCNB National Bank LOC)/
(Subject to AMT) 3,400 3,400,000 3,400 3,400,000
- ------------------------------------------------------------
Chesterfield County, VA, 4.50%, PCR (Virginia Electric Power Co.)/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN TAX EXEMPT MONEY MARKET FUND
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
EVERGREEN TAX EXEMPT FIRST UNION TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND PRO FORMA COMBINED
----------------------- ---------------------- --------------------
PAR (000) VALUE PAR (000) VALUE PAR (000) VALUE
- ------------------------------------------------------------ ----------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 99.6%
- ------------------------------------------------------------
(Series B)/(Mandatory Put), 1/23/95 10,335 10,335,000 10,335 10,335,000
- ------------------------------------------------------------
Rockingham County, VA, Weekly VRDN, IDA, PCR
Bond (1982 SeriesA)/(Merck & Co. Project) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Virginia State Housing Development Authority, 4.40%, RB
(Series B)/(Mandatory Put Date 7/12/95 @ 100) ARB, 7/1/22 3,000 3,000,000 3,000 3,000,000
- ------------------------------------------------------------
Virginia State, 4.25%, Housing Development Authority,
Commonwealth Mortgage Bonds, (Series 1993A)/
(Mandatory Put), 7/12/95 10,000 10,000,000 10,000 10,000,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 21,335,000 21,300,000 42,635,000
- ------------------------------------------------------------ ------------ ------------ ------------
WASHINGTON - 1.3%
- ------------------------------------------------------------
Pilchuck Development Public Corporation, Weekly VRDN
(Crystal Creek Lot # 11)/(Mitsubishi Bank Ltd. LOC) 747 747,000 747 747,000
- ------------------------------------------------------------
Seattle, WA, Weekly VRDN (Industrial Development Corp.)/
(Northwestern Industrial Project)/(Industrial Bank of Japan
Ltd. LOC) 1,000 1,000,000 1,000 1,000,000
- ------------------------------------------------------------
Washington State, Weekly VRDN, GO Bond (Series 1995A)
(Citibank TOP) 4,000 4,000,000 4,000 4,000,000
- ------------------------------------------------------------
**Washington State, Weekly VRDN (Washington State
Public Power Supply) 5,035 5,035,000 5,035 5,035,000
- ------------------------------------------------------------ ------------ ------------ ------------
Total 4,000,000 6,782,000 10,782,000
- ------------------------------------------------------------ ------------ ------------ ------------
WEST VIRGINIA - 0.2%
- ------------------------------------------------------------
Marshall County, WV, Daily VRDN, PCR (Mountaineer
Carbon Co.) 1,800 1,800,000 1,800 1,800,000
- ------------------------------------------------------------ ------------ ------------
WISCONSIN - 2.5%
- ------------------------------------------------------------
Alma, WI, Monthly VRDN, Pollution Control RRB (Dairyland
Power Cooperative Project)/(Series 1984)/(Rabobank
Nederland LOC) 3,400 3,400,000 3,400 3,400,000
- ------------------------------------------------------------
**Eagle Tax-Exempt Trust, PC Weekly VRDN, 10,000 10,000,000 10,000 10,000,000
- ------------------------------------------------------------
Lac du Flambeau Band of Lake Superior, WI, Weekly VRDN
Chippewa Indians Special Obligation Bonds (Series 1985)/
(Simpson Electric Co. Project)/(Barclay's Bank LOC) 6,100 6,100,000 6,100 6,100,000
- ------------------------------------------------------------
Wisconsin State, 5.60%, Clean Water RB (Series 1991-1),
6/1/95 850 854,474 850 854,474
- ------------------------------------------------------------ ------------ ------------ ------------
Total 10,354,474 10,000,000 20,354,474
- ------------------------------------------------------------ ------------ ------------ ------------
TOTAL INVESTMENTS (COST $799,747,833)+ - 99.6% $372,365,775 $427,082,058 $799,447,833
- ------------------------------------------------------------
OTHER ASSETS AND LIABILITIES-NET - 0.4% 14,373,667 (10,834,085) 3,539,582
- ------------------------------------------------------------ ------------ ------------ -------------
NET ASSETS - 100.0% $386,739,442 $416,247,973 $802,987,415
- ------------------------------------------------------------ ------------ ------------ -------------
------------ ------------ -------------
<FN>
* Non income producing security.
** Securities which were deemed to be not readily marketable. A breakdown of
these securities as a percentage of net assets at December 31, 1994 is as
follows:
Evergreen Tax Exempt First Union Tax-Free Pro Forma
Money Market Fund Money Market Fund Combined
-------------------- -------------------- ---------
Secuirites deemed
liquid 2.9% 9.6% 6.4%
Securities deemed
illiquid - 5.2 2.7
-------------------- -------------------- ---------
Total 2.9% 14.8% 9.1%
-------------------- -------------------- ---------
-------------------- -------------------- ---------
+ The cost for federal tax purposes is $799,447,833.
++This security is backed by a put option issued by First Union Corporation
(an affiliate) whereby First Union Corporation will stand by to purchase the
security at par value from the Fund. At December 31, 1994, this security had
a value of $14,055,058, which includes the market value of the put option of
$1,330,000.
# This security is backed by a put option issued by First Union Corporation (an
affiliate) whereby First Union Corporation will stand by to purchase the
security at par value from the Fund. At December 31, 1994, this security had a
value of $10,000,000 which includes the value of the put option of $1,900,000.
The value of the put option on the date of issuance (December 7, 1994) was
$300,000 which is considered a capital contribution to the Fund by First
Union.
Note: The categories of investments are shown as a percentage of
net assets ($802,987,415) at December 31, 1994.
</FN>
</TABLE>
<PAGE>
THE FOLLOWING ABBREVIATIONS ARE USED IN THIS PORTFOLIO:
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax
ARB - 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 December 31, 1994. At December 31,
1994 these securities represent 11.2% of the total investments of Evergreen Tax
Exempt Money Market Fund, 9.5% of the total investments of First Union Tax-Free
Money Market Fund and 10.3% of the pro forma combined total investments.
COP - Certificates of Participation
EDA - Economic Development Authority
EDC - Economic Development Commission
EDR - Economic Development Revenue
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
GO - General Obligation
IDA - Industrial Development Authority
IDB - Industrial Development Bond
IDR - Industrial Development Revenue
LIQ - Liquidity Provider
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
OID - Original Issue Discount
PC - Participation Certificate
PCR - Pollution Control Revenue
RANS - Revenue Anticipation Notes
RB - Revenue Bonds
RFB - Refunding Bonds
SBPA - Standby Bond Purchase Agreement
SFM - Single Family Mortgage
RRB - Refunding Revenue Bonds
TOP - Tender Option Purchase
TRANS - Tax Revenue Anticipation Notes
UT - Unlimited Tax
VRDN - 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
December 31, 1994. At December 31, 1994, these securities represent 53.5% of the
total investments of Evergreen Tax Exempt Money Market Fund, 77.5% of the total
investments of First Union Tax-Free Money Market Fund and 66.3% of the pro forma
combined total investments.
Evergreen Tax Exempt Money Market Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities
December 31, 1994
<TABLE>
<CAPTION>
Evergreen Tax First Union Tax
Exempt Money Free Money Pro-Forma
Market Fund Market Fund Adjustments Combined
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Assets:
Investments in Securities,
at value (amortized cost $799,747,833) $372,365,775 $427,082,058 $799,447,833
Cash .................................. 788,237 - 788,237
Interest receivable ................... 3,143,099 4,105,022 7,248,121
Receivable for investment
securities sold ...................... 14,389,849 - 14,389,849
Receivable for Fund shares Sold ....... - 140,639 140,639
Prepaid expenses ...................... 36,613 - 36,613
------------ ------------ ------------ ------------
Total assets ..................... 390,723,573 431,327,719 822,051,292
------------ ------------ ------------ ------------
Liabilities:
Payable for investments purchased ..... 2,360,635 13,102,038 15,462,673
Payable for Fund shares repurchased ... 1,335,538 - 1,335,538
Dividends payable ..................... 27,500 1,151,392 1,178,892
Payable to Bank ....................... - 694,608 694,608
Accrued Advisory fee .................. 124,310 - 124,310
Accrued expenses ...................... 136,148 131,708 267,856
------------ ------------ ------------ ------------
Total liabilities ................ 3,984,131 15,079,746 19,063,877
------------ ------------ ------------ ------------
Net Assets ............................ $386,739,442 $416,247,973 $802,987,415
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net Assets consist of:
Paid-in capital ....................... $397,097,109 $416,247,973 $803,345,082
Unrealized depreciation on
investments........................... (300,000) (300,000)
Accumulated net realized loss on
investment transactions .............. (57,667) - (57,667)
------------ ------------ ------------ ------------
Total ............................ $386,739,442 $416,247,973 $802,987,415
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Maximum Offering Price Per Share:
Class A Investment Shares ............. $1.00 $1.00 $1.00
----- ----- ------- -----
Class Y Investment Shares ............. $1.00 $1.00 $1.00
----- ----- ------- -----
Net Assets:
Class A Investment Shares ............. $1 $395,611,690 $395,611,691
------------ ------------ ------------ ------------
Class Y Investment Shares ............. $386,739,441 $20,636,283 $407,375,724
------------ ------------ ------------ ------------
Shares of Beneficial Interest
Outstanding:
Class A ............................... 1 395,611,690 395,611,691
------------ ------------ ------------ ------------
Class Y ............................... $386,797,109 20,636,283 407,433,392
------------ ------------ ------------ ------------
</TABLE>
(See Notes which are an integral part of the Pro Forma Statements)
<PAGE>
Evergreen Tax Exempt Money Market Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations
For the Year ended December 31, 1994
<TABLE>
<CAPTION>
Evergreen Tax First Union
Exempt Money Free Money Pro Forma
Market Fund Market Fund Adjustments Combined
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Interest income ................................ $13,058,689 $14,334,342 $ - $27,393,031
----------- ----------- -------- -----------
Expenses:
Investment advisory fee ........................ 2,081,817 1,580,216 677,235 (1) 4,339,268
Trustees' fees ................................. 16,161 6,267 (6,267) (2) 16,161
Administrative personnel and services fees ..... - 380,693 (380,693) (1) 0
Custodian and portfolio accounting fees ........ 86,421 130,533 (73,384) (3) 143,570
Transfer and dividend disbursing agent fees
and expenses ................................... 267,470 51,390 (13,679) (3) 305,181
Distribution services fee - Class A
Investment Shares............................... - 1,204,943 - 1,204,943
Fund share registration costs ................. 54,570 19,952 (19,952) (2) 54,570
Professional fees .............................. 82,159 20,139 (20,139) (2) 82,159
Printing and postage ........................... 42,687 18,586 (12,573) (2) 48,700
Insurance premiums ............................. 14,270 11,974 (11,974) (2) 14,270
Miscellaneous .................................. 21,551 4,689 (4,689) (2) 21,551
----------- ----------- -------- -----------
Total expenses ................................. 2,667,106 3,429,382 133,885 6,230,373
Deduct-waiver of investment advisory fee ....... 985,677 803,519 267,617 (4) 2,056,813
----------- ----------- -------- -----------
Net expenses ................................... 1,681,429 2,625,863 (133,732) 4,173,560
----------- ----------- -------- -----------
Net investment income ........................... 11,377,260 11,708,479 133,732 23,219,471
----------- ----------- -------- -----------
Net realized and unrealized
gain (loss) on investments:
Net realized loss on investments ............... ( 57,667) - - ($57,667)
Net increase in unrealized depreciation
of investments ................................ (300,000) - - (300,000)
----------- ----------- -------- -----------
Net loss on investments ........................ (357,667) - - (357,667)
----------- ----------- -------- -----------
Net increase in net assets resulting from
operations ..................................... $11,019,593 $11,708,479 $133,732 $23,161,804
----------- ----------- -------- -----------
----------- ----------- -------- -----------
(See Notes which are an integral part of the Pro Forma Financial Statements)
<FN>
- -----------
(1) Reflects an increase in investment
advisory fee and a decrease in administrative
personnel and service fees based on the
surviving Fund's fee schedule.
(2) Reflects elimination of duplicate service
fees.
(3) Reflects an increase in waiver of
investment advisory fee based on the
surviving Fund's voluntary advisory fee
waiver in effect for the year ended
December 31, 1994.
(4) Reflects an increase in waiver of investment
advisory fee based on the surviving Fund's voluntary
advisory fee waiver in effect for the year ended
December 31, 1994.
</FN>
</TABLE>
<PAGE>
Evergreen Tax Exempt Money Market Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
1. Basis of Combination - The Pro forma Statement of Assets and Liabilities,
including the Portfolio of Investments, and the related Statement of Operations
("Pro forma Statements") reflect the accounts of Evergreen Tax Exempt Money
Market Fund ("Evergreen") and First Union Tax Free Money Market Fund ("First
Union") at December 31, 1994 and for the year then ended.
The Pro forma Statements give effect to the proposed transfer of all assets and
liabilities of First Union in exchange for shares of Evergreen. The Pro forma
Statements do not reflect the expense of either Fund in carrying out its
obligations under the Agreement and Plan of Reorganization. The actual fiscal
year end of the combined Fund will be August 31, the fiscal year end of
Evergreen.
The Reorganization will be accomplished through the acquisition of substantially
all of the assets of First Union by Evergreen, and the assumption by Evergreen
of certain identified liabilities of First Union. Thereafter there will be a
distribution of such shares of Evergreen to shareholders of First Union in
liquidation of and subsequent termination of First Union. The information
contained herein is based on the experience of each fund for the period ended
December 31, 1994 and is designed to permit shareholders of First Union to
evaluate the financial effect of the proposed Reorganization. The expenses of
Evergreen in connection with the Reorganization (including the cost of any proxy
soliciting agents), will be borne by Evergreen Asset. The expenses of First
Union incurred in connection with the Reorganization will be borne by FUNB-NC.
No portion of such expenses shall be borne directly indirectly by First Union or
its shareholders.
The Pro forma Statements should be read in conjunction with the historical
financial statements of each Fund included in or incorporated by reference in
the Statement of Additional Information.
2. Shares of Beneficial Interest - The pro forma net asset value per share
assumes the issuance of additional shares of Evergreen Class A and Class Y which
would have been issued at December 31, 1994 in connection with the proposed
reorganization. The amount of additional shares assumed to be issued was
calculated based on the December 31, 1994 net assets of First Union
($416,247,973) and the net asset value per share of Evergreen of $1.
The pro forma shares outstanding of 803,045,083 consist of 416,247,973
additional shares to be issued in proposed reorganization, as calculated
above, plus 386,797,110 shares of Evergreen outstanding as of
December 31, 1994.
3. Pro Forma Operations - The Pro Forma Statement of Operations assumes similar
rates of gross investment income for the investments of each Fund. Accordingly,
the combined gross investment income is equal to the sum of each Fund's gross
investment income. Pro forma operating expenses include the actual expenses of
the Funds and the combined Fund, with certain expenses adjusted to reflect the
expected expenses of the combined entity. The investment advisory fee has been
charged to the combined Fund based on the fee schedule in effect for Evergreen
at the combined level of average net assets for the year ended December 31,
1994. In accordance with the fee schedule in effect for Evergreen, Evergreen
Asset Management Corp. (the "Adviser"), will reimburse the combined Fund to the
extent that the Fund's aggregate annual operating expenses (including the
advisory fee but excluding interest, taxes, brokerage commissions, Rule 12b-1
distribution fees and shareholder service fees, and extraordinary expenses)
exceed 1.00% of the average net assets for any fiscal year. Additionally, the
Adviser may, at its discretion, waive its fee or reimburse the Fund for certain
of its expenses in order to reduce the Fund's expense ratio. An adjustment has
been made to the combined Fund expenses to increase the waiver of investment
advisory fee based on the voluntary advisory fee waiver in effect for Evergreen
(0.237% of average net assets) for the year ended December 31, 1994. The Adviser
may, at its discretion, revise or cease this voluntary fee waiver at any time.
