1933 Act Registration No. 33-58401
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [X] Post-Effective
Amendment No. Amendment No. 1
THE EVERGREEN MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 694-2020
2500 Westchester Avenue
Purchase, New York 10577
----------------------------------------------------------------
(Address of Principal Executive Offices)
Joseph J. McBrien
2500 Westchester Avenue
Purchase, New York 10577
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940; accordingly, no fee is payable herewith. A Rule 24f-2
Notice for the Registrant's most recent fiscal year ended August 31, 1994 was
filed with the Commission on or about October 28, 1994.
It is proposed that this filing will become effective sixty days after
filing pursuant to Rule 485(a) of the Securities Act of 1933.
THE EVERGREEN MUNICIPAL TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Cross Reference Sheet; Cover Page
Registration Statement
and Outside Front
Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Synopsis and Risk Cover Page; Summary; Risks
Factors
4. Information about the Summary; Basis for the Board of
Transaction Trustees' Recommendation for
Approval of the Plan; Description
of the Acquisition Agreement;
Information about the
Reorganization; Description of
Shares of the Evergreen High Income
Fund and the ABT Fund; Federal
Income Tax Consequences;
Comparative Information on
Shareholders' Rights
5. Information about the Cover Page; Summary; Comparison of
Registrant Investment Objectives and Policies;
Description of Shares of the
Evergreen High Income Fund and the
ABT Fund; Federal Income Tax
Consequences; Comparative
Information on Shareholders'
Rights; Additional Information
6. Information about the Cover Page; Summary; Comparison of
Company Being Acquired Investment Objectives and Policies;
Description of Shares of the
Evergreen High Income Fund and the
ABT Fund; Federal Income Tax
Consequences; Comparative
Information on Shareholders'
Rights; Additional Information
7. Voting Information Cover Page; Summary; Information
about the Reorganization; Voting
Information
8. Interest of Certain Financial Statements and Experts;
Persons and Experts Legal Matters
9. Additional Information Inapplicable
Required for
Reoffering by Persons
Deemed to be Underwriters
Deemed to be
Item of Part B
Form N-14
================================================================================
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information Additional Information
About the Registrant Evergreen High Income Fund
13. Additional Information Statement of Additional Information
about the Company Being of the ABT Fund dated August 29,
Acquired 1994
14. Financial Statements Incorporated by reference; Pro
Forma Financial Statements
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part
A Caption "Comparative Information
on Shareholders' Rights -
Liability and Indemnification of
Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
ABT SOUTHERN MASTER TRUST
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
MAY 11, 1995
Dear Shareholder:
On March 3, 1995, we agreed to sell certain of the assets of Palm Beach
Capital Management, Inc. ("PBCM"), currently utilized in its business as
investment adviser, administrator and accounting agent for the ABT Florida High
Income Municipal Bond Fund ("the ABT Fund"), a portfolio of the ABT Southern
Master Trust, to First Union National Bank of North Carolina, a national
banking association ("FUNB"). The Board of Trustees is recommending that you
approve the Agreement and Plan of Reorganization (the "Plan") whereby
substantially all of the assets of the ABT Fund will be purchased by the
Evergreen Florida High Income Municipal Bond Fund (the "Evergreen High Income
Fund"), a portfolio of The Evergreen Municipal Trust, in exchange for Class A
Shares of the Evergreen High Income Fund. Class A Shares will be distributed to
you in exchange for your ABT Fund shares. In the opinion of counsel, the
exchange of your shares will be free from federal income tax to you and the ABT
Fund.
The Evergreen High Income Fund is a newly formed mutual fund with similar
investment objectives and policies which is advised by the Capital Management
Group of FUNB. As of December 31, 1994, FUNB and its subsidiaries served as
investment adviser to 33 mutual funds with aggregate net assets of
approximately $7 billion.
The Plan contains various terms and conditions which must be satisfied prior
to a closing. In addition, the agreement to sell certain assets of PBCM to FUNB
provides as a condition to the closing of the transaction, that shareholders of
the other ABT funds approve similar agreements and plans of reorganization for
the sale of their assets.
If shareholders approve the Plan, upon consummation of the transaction
contemplated in the Plan, you will receive Class A Shares of the Evergreen High
Income Fund with a value equal to the value of your then outstanding shares of
the ABT Fund. As a shareholder of the Evergreen High Income Fund, 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 ABT family of funds.
The Board of Trustees has called a special meeting of shareholders to be held
on June 19, 1995 to consider the Plan. WE STRONGLY URGE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Information about the Plan is contained in the enclosed proxy statement. I
thank you for your participation as a shareholder and urge you, please, to
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-
800-553-7838.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
LOGO
Edward W. Cook, President
ABT Southern Master Trust
<PAGE>
ABT SOUTHERN MASTER TRUST
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1995
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting")
of ABT Florida High Income Municipal Bond Fund (the "ABT Fund"), a portfolio of
ABT Southern Master Trust (the "Trust"), will be held at the offices of the
Trust, 340 Royal Palm Way, Palm Beach, Florida 33480 on June 19, 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 15, 1995 providing for the acquisition of
substantially all of the assets of the ABT Fund by the Evergreen Florida
High Income Municipal Bond Fund (the "Evergreen High Income Fund"), a
newly formed series of The Evergreen Municipal Trust, in exchange for
Class A Shares of the Evergreen High Income Fund and the assumption by
the Evergreen High Income Fund of certain identified liabilities of the
ABT Fund, and for distribution of such shares of the Evergreen High
Income Fund to shareholders of the ABT Fund in liquidation of the ABT
Fund. A vote in favor of the Plan is a vote in favor of liquidation and
dissolution of the ABT Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of the Trust have fixed the close of business on April 25, 1995
as the record date for the determination of shareholders of the ABT Fund
entitled to notice of and to vote at this Meeting or any adjournment thereof.
By order of the Board of Trustees
Timothy Cox
Secretary
May 11, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY
WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AND VOTED AT THE MEETING. YOUR PROMPT ATTENTION
TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
<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:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<S> <C>
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
<CAPTION>
TRUST ACCOUNTS
<S> <C>
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
<CAPTION>
CUSTODIAL OR ESTATE ACCOUNTS
<S> <C>
(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
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 11, 1995
ACQUISITION OF ASSETS OF
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
OF
ABT SOUTHERN MASTER TRUST
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
1-800-553-7838
BY AND IN EXCHANGE FOR SHARES OF
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
OF
THE EVERGREEN MUNICIPAL TRUST
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
This Prospectus/Proxy Statement is being furnished to shareholders of ABT
Florida High Income Municipal Bond Fund (the "ABT Fund"), a portfolio of ABT
Southern Master Trust (the "Trust"), in connection with a proposed Agreement
and Plan of Reorganization (the "Plan"), to be submitted to shareholders of the
Trust for consideration at a Special Meeting of Shareholders to be held on June
19, 1995 at 10:00 a.m. Eastern Daylight Time, at the offices of the Trust, 340
Royal Palm Way, Palm Beach, Florida 33480 and any adjournments thereof (the
"Meeting"). The Plan provides for substantially all of the assets of the ABT
Fund to be acquired by the Evergreen Florida High Income Municipal Bond Fund
(the "Evergreen High Income Fund"), a newly formed series of The Evergreen
Municipal Trust, in exchange for Class A Shares of the Evergreen High Income
Fund and the assumption by the Evergreen High Income Fund of certain identified
liabilities of the ABT Fund (hereinafter referred to as the "Reorganization").
Following the Reorganization, Class A Shares of the Evergreen High Income Fund
will be distributed to shareholders of the ABT Fund in liquidation of the ABT
Fund, and the ABT Fund will be terminated. As a result of the proposed
Reorganization, each shareholder of the ABT Fund will receive that number of
Class A Shares of the Evergreen High Income Fund having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's shares of
the ABT Fund, calculated as set forth in the Plan. The Reorganization is being
structured as a tax-free reorganization for federal income tax purposes.
The Evergreen Municipal Trust is an open-end diversified management
investment company comprised of five portfolios, one of which, the Evergreen
High Income Fund, is a party to the Reorganization.
The Evergreen High Income Fund seeks to provide a high level of current
income exempt from federal income taxes. The Fund will attempt to meet its
objective by investing under normal circumstances at least 80% of its assets in
municipal obligations, of which 90% are Florida municipal obligations. The Fund
will attempt to invest at least 65% of the value of its total assets in
municipal securities consisting of high yield (i.e. high risk), medium, lower
rated and unrated bonds. SUCH SECURITIES ARE COMMONLY CALLED JUNK BONDS AND ARE
SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL
THAN HIGHER RATED SECURITIES. LOWER RATED SECURITIES HAVE GREATER RISK OF
DEFAULT. SHARES OF THE EVERGREEN HIGH INCOME FUND ARE SPECULATIVE SECURITIES.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Evergreen High Income
Fund that shareholders of the ABT Fund should know before
<PAGE>
voting on the Reorganization or investing in the Evergreen High Income Fund.
Certain relevant documents noted 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 11, 1995,
relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of the ABT Fund dated April
30, 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 Evergreen High Income Fund at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241.
The Prospectus of the ABT Fund dated August 29, 1994 is incorporated herein
in its entirety by reference. A copy of the Prospectus, a Statement of
Additional Information dated the same date and the Annual Report for the fiscal
year ended April 30, 1994 are available upon request without charge by writing
the ABT Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-553-7838.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan for the proposed Reorganization.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST UNION NATIONAL BANK OF NORTH CAROLINA OR ITS SUBSIDIARIES, ARE NOT
ENDORSED OR GUARANTEED BY FIRST UNION OR ITS SUBSIDIARIES, AND ARE NOT INSURED
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF EXPENSES..................................................... 1
SUMMARY.................................................................... 2
Proposed Reorganization................................................... 2
Tax Consequences.......................................................... 2
Investment Objectives and Policies........................................ 2
Total Return Performances of the Funds.................................... 3
Management; Advisory Fees and Expense Ratios.............................. 3
Distribution; Sales Charges............................................... 3
Purchase and Redemption Procedures........................................ 4
Exchange Privileges....................................................... 5
Dividend Policy........................................................... 5
RISKS...................................................................... 5
MANAGEMENT OF THE EVERGREEN HIGH INCOME FUND............................... 7
DESCRIPTION OF THE ACQUISITION AGREEMENT................................... 8
Section 15(f) of the 1940 Act............................................. 8
INFORMATION ABOUT THE REORGANIZATION....................................... 9
Plan of Reorganization.................................................... 9
Capitalization............................................................ 10
BASIS FOR THE BOARD OF TRUSTEES' RECOMMENDATION FOR APPROVAL
OF THE PLAN............................................................... 10
DESCRIPTION OF SHARES OF THE EVERGREEN HIGH INCOME FUND AND
THE ABT FUND.............................................................. 11
FEDERAL INCOME TAX CONSEQUENCES............................................ 11
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................... 12
Investment Objective...................................................... 13
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS............................ 14
Form of Organization...................................................... 14
Capitalization............................................................ 14
Shareholder Liability..................................................... 14
Shareholder Meetings and Voting Rights.................................... 15
Liquidation or Dissolution................................................ 15
Liability and Indemnification of Trustees................................. 15
Rights of Inspection...................................................... 16
ADDITIONAL INFORMATION..................................................... 16
ABT Fund.................................................................. 16
Evergreen High Income Fund................................................ 16
OTHER BUSINESS............................................................. 27
VOTING INFORMATION......................................................... 27
FINANCIAL STATEMENTS AND EXPERTS........................................... 28
LEGAL MATTERS.............................................................. 28
APPENDICES
A--Note, Bond and Commercial Paper Ratings................................ A-1
B--Florida Risk Considerations............................................ B-1
</TABLE>
<PAGE>
COMPARISON OF EXPENSES
The following tables show for the ABT Fund and the Evergreen High Income Fund
the anticipated shareholder transaction costs associated with an investment in
Class A Shares of the Evergreen High Income Fund and the shares of the ABT
Fund.
<TABLE>
<CAPTION>
EVERGREEN HIGH
INCOME FUND ABT
CLASS A SHARES FUND
-------------- -----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................... 4.75% 4.75%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..................... None None
Contingent Deferred Sales Charge......................... None None
Exchange Fee............................................. None None
Redemption Fees.......................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.......................................... .30%* . 0%**
12b-1 Fees............................................... .25%*** .25%
Other Expenses........................................... .33% .28%+
----- -----
Total Fund Operating Expenses............................ .88% .53%
----- -----
</TABLE>
- --------
* The management fee has been reduced to reflect the voluntary waiver by
FUNB. This voluntary waiver may be terminated by FUNB at any time in its
sole discretion. The maximum management fee is .60%. It is FUNB's intention
that following the Reorganization, for at least one year, the management
fee will not exceed .30%.
** During the fiscal year ended April 30, 1994, PBCM waived its fees for the
ABT Fund. PBCM may charge up to .60% of average daily net assets under the
advisory agreement for the ABT Fund.
*** The 12b-1 distribution plan of the Evergreen High Income Fund permits
payments at an annual rate of up to .75% of the Fund's average daily net
assets attributable to Class A Shares. It is currently intended that annual
12b-1 fees will be limited for at least one year to .25%.
+ Net of voluntary expense reimbursements, by PBCM. Other expenses, absent
such voluntary reimbursements are estimated at .38% of average net assets.
The foregoing and following tables show for each Fund the annual operating
expenses (as a percentage of average daily net assets) attributable to the
Class A Shares of the Evergreen High Income Fund and the shares of the ABT
Fund, together with examples of the cumulative effect of such expenses 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. In these
examples, the expenses of the Class A Shares of the Evergreen High Income Fund
and the shares of the ABT Fund assume deduction of the 4.75% sales charge at
the time of purchase.
<TABLE>
<CAPTION>
EVERGREEN HIGH
INCOME FUND
CLASS A SHARES ABT FUND
-------------- ---------
<S> <C> <C>
After 1 year........................................... $ 56 $ 53
After 3 years.......................................... $ 74 $ 64
After 5 years.......................................... $ 94 $ 76
After 10 years......................................... $151 $111
</TABLE>
The purpose of the foregoing tables is to assist an ABT Fund shareholder in
understanding the various costs and expenses that an investor in the Class A
Shares of the Evergreen High Income Fund will bear directly and indirectly, as
compared with the various direct and indirect expenses that would be borne by
an ABT Fund shareholder. The amounts set forth in the foregoing tables and in
the examples with respect to the ABT Fund are based on the expenses of shares
of the ABT Fund for the fiscal year ended April 30, 1994, and with respect to
the Evergreen High Income Fund, are based on the estimated expenses in its
first year of operation. 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.
1
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT (INCLUDING
THE DOCUMENTS INCORPORATED THEREIN BY REFERENCE), THE PROSPECTUS OF THE ABT
FLORIDA HIGH INCOME MUNICIPAL BOND FUND DATED AUGUST 29, 1994 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 ABT Florida High Income Municipal Bond Fund ("the ABT
Fund"), a portfolio of ABT Southern Master Trust (the "Trust"), in exchange for
Class A Shares of the Evergreen Florida High Income Municipal Bond Fund (the
"Evergreen High Income Fund"), a portfolio of The Evergreen Municipal Trust,
and the assumption by the Evergreen High Income Fund of certain identified
liabilities of the ABT Fund. The Plan also calls for the distribution of Class
A Shares of the Evergreen High Income Fund to the ABT Fund shareholders in
liquidation of the ABT Fund. (The transaction is referred to in this
Prospectus/Proxy Statement as the "Reorganization.") As a result of the
Reorganization, each shareholder of record of the ABT Fund will become the
record holder of that number of full and fractional Class A Shares of the
Evergreen High Income Fund having an aggregate net asset value equal to the
aggregate net asset value of the shareholder's shares of the ABT Fund,
calculated as set forth in the Plan, as of the close of business on the date
that the ABT Fund's assets are exchanged for Class A Shares of the Evergreen
High Income Fund. See "Information About the Reorganization."
The Board of Trustees of the Trust, including the Trustees who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended (the "1940 Act"), has concluded that the interests of the
existing shareholders of the ABT Fund will not be diluted as a result of the
transactions contemplated by the Reorganization, and therefore has submitted
the Plan for the approval of the ABT Fund's shareholders.
THE BOARD OF TRUSTEES RECOMMENDS APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. THE BOARD OF TRUSTEES OF THE EVERGREEN MUNICIPAL TRUST HAS
APPROVED THE PLAN, AND ACCORDINGLY, THE EVERGREEN HIGH INCOME FUND'S
PARTICIPATION IN THE REORGANIZATION.
Approval of the Reorganization on the part of the ABT Fund will require the
affirmative vote of more than 50% of the outstanding voting securities. See
"Voting Information."
If the shareholders of the ABT Fund do not vote to approve the
Reorganization, the Trust's Board of Trustees will continue to operate the ABT
Fund under its existing arrangements.
TAX CONSEQUENCES. Prior to or at the completion of the Reorganization, the
ABT Fund will have received an opinion of counsel that the Reorganization has
been structured so that no gain or loss will be recognized by the ABT Fund or
its shareholders for federal income tax purposes as a result of the receipt of
shares of the Evergreen High Income Fund in the Reorganization. The holding
period and aggregate tax basis of shares of the Evergreen High Income Fund that
are received by the ABT Fund shareholders will be the same as the holding
period and aggregate tax basis of shares of the ABT Fund previously held by
such shareholders, provided that shares of the ABT Fund are held as capital
assets. In addition, the holding period and tax basis of the assets of the ABT
Fund in the hands of the Evergreen High Income Fund as a result of the
Reorganization will be the same as in the hands of the ABT Fund immediately
prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. Both Funds seek to provide a high level
of current income exempt from federal income taxes by investing at least 65% of
the value of their total assets in municipal securities consisting of high
yield (i.e. high risk), medium, lower rated and unrated bonds. Such securities
are commonly
2
<PAGE>
called junk bonds and are subject to greater market fluctuations and risk of
loss of income and principal than higher rated securities. Lower quality
securities involve a greater risk of default and, consequently, shares of each
Fund may be considered speculative securities. Under normal market conditions
the Evergreen High Income Fund will invest at least 80% of its assets in
municipal obligations, of which at least 90% are Florida municipal
obligations. There is no assurance the investment objective of either Fund
will be achieved.
TOTAL RETURN PERFORMANCES OF THE FUNDS. Because the Evergreen High Income
Fund is newly organized, there is no separate historical performance
information available for it. The total return for the ABT Fund for the year
ended December 31, 1994 was -9.43%. The average annual total return for the
period from commencement of operations (June 17, 1992) through December 31,
1994 was 3.42%. The calculations of total return assume the reinvestment of
all dividends and capital gains distributions on the reinvestment date and the
deduction of all recurring expenses (including sales charges) that were
charged to shareholder's accounts.
MANAGEMENT; ADVISORY FEES AND EXPENSE RATIOS. The business affairs of the
ABT Fund are managed by the Board of Trustees of the Trust and the business
affairs of the Evergreen High Income Fund are managed by the Board of Trustees
of The Evergreen Municipal Trust. Palm Beach Capital Management, Inc. ("PBCM")
serves as the investment adviser for the ABT Fund. The maximum fee payable to
PBCM by the ABT Fund is a total annual rate of .60% of the ABT Fund's average
daily net assets. The Capital Management Group of First Union National Bank of
North Carolina ("FUNB") serves as the investment adviser to the Evergreen High
Income Fund for a maximum annual fee of .60% of average daily net assets. It
is FUNB's intention that, following the Reorganization, for the foreseeable
future, the management fee will not exceed .30%. PBCM also acts as
administrator and fund accounting agent for the ABT Fund for an annual fee of
.12% of average daily net assets.
As of July 1, 1995, Evergreen Asset Management Corp., an indirect wholly-
owned subsidiary of FUNB ("EAMC"), will act as administrator pursuant to a
contract approved by the Trustees of The Evergreen Municipal Trust on April
20, 1995. Under the contract, EAMC will receive the following fees:
<TABLE>
<CAPTION>
Aggregate Daily Net Assets
Of Funds Administered by EAMC
For Which Either EAMC or FUNB
Administrative Fee Serves as Investment Adviser
------------------ ----------------------------------
<S> <C>
.050% on the first $7 billion
.035% on the next $3 billion
.030% on the next $5 billion
.020% on the next $10 billion
.015% on the next $5 billion
.010% on assets in excess of $30 billion
</TABLE>
Based on the current amount of assets of funds to be administered by EAMC,
the expected maximum annual fee for the Evergreen High Income Fund as a
percentage of net assets is .05%. The ratio of expenses to average daily net
assets was 0.14% for the ABT Fund (fiscal year ended April 30, 1994). Prior to
fee waiver and expense reimbursement by PBCM, the ratio of expenses to average
daily net assets for such period was 1.12%. Comparable information is not
available for the Evergreen High Income Fund because it is newly organized.
DISTRIBUTION; SALES CHARGES. Evergreen Funds Distributor, Inc. ("EFD"), a
wholly-owned subsidiary of Furman Selz Incorporated, will act as underwriter
of the Evergreen High Income Fund's shares, which will be issued in three
classes: Class A, Class B and Class Y Shares. Each class will have separate
distribution arrangements. No class bears the distribution expenses relating
to shares of any other class. Class A Shares, which will be received by the
ABT Fund's shareholders if the Reorganization is approved, are sold with an
initial sales charge ranging from 4.75% to .25%. No sales charge will be
imposed on the Class A Shares to be received by the ABT Fund's shareholders as
part of the Reorganization, but subsequent purchases of the Evergreen High
Income Fund's shares will be subject to any applicable sales charges. For a
description of the Class A, Class B and Class Y Shares to be issued by the
Evergreen High Income Fund see "Additional Information--
3
<PAGE>
Evergreen High Income Fund" below. Class Y Shares are sold without a sales load
or distribution fee only to certain eligible investors. The Class A Shares are
subject to a Rule 12b-1 plan under which the Evergreen High Income Fund may pay
for distribution-related and shareholder servicing-related expenses relating to
the Class A Shares at an annual rate which may not exceed .75% of aggregate
average daily net assets attributable to the Class A Shares. Payments under the
Rule 12b-1 plan with respect to Class A Shares are currently limited under the
Evergreen High Income Fund's distribution agreement to .25% of average daily
net assets attributable to Class A Shares. The level of Rule 12b-1 distribution
payments may be increased and the distribution agreement may be amended by The
Evergreen Municipal Trust's Board of Trustees without shareholder approval.
However, FUNB will not, for at least one year, recommend to The Evergreen
Municipal Trust's Board of Trustees that the Evergreen High Income Fund's Rule
12b-1 fees for the Class A Shares be increased in excess of .25%.
ABT Financial Services, Inc. ("ABT Distributor") acts as underwriter of ABT
Fund shares. There is only one class of shares outstanding. The shares are sold
with an initial sales charge ranging from 4.75% to 1%. The ABT Fund has adopted
a Rule 12b-1 plan under which the Fund may reimburse distribution expenses
incurred by ABT Distributor in amounts up to .25% of aggregate average daily
net assets. Currently, ABT Distributor is reimbursed for distribution-related
expenses of .25% of average daily net assets.
The sales charge schedules for the ABT Fund and the Evergreen High Income
Fund are as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
for the ABT Fund
-------------------------------
Public Net
Offering Amount Dealer
Amount of Investment Price Invested Reallowance
- -------------------- -------- -------- -------------
<S> <C> <C> <C>
Less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 4.25 4.44 3.60
$250,000 but less than $500,000................. 3.00 3.09 2.40
$500,000 but less than $1,000,000............... 2.25 2.30 1.85
$1,000,000 but less than $5,000,000............. 1.50 1.52 1.25
$5,000,000 or more.............................. 1.00 1.01 1.25
<CAPTION>
Initial Sales Charge for
the Evergreen High Income Fund
-------------------------------
Public Net
Offering Amount Commission to
Amount of Purchase Price Invested Dealer/Agent
- ------------------ -------- -------- -------------
<S> <C> <C> <C>
Less than $100,000.............................. 4.75% 4.99% 4.25%
$100,000--$249,999.............................. 3.75 3.90 3.25
$250,000--$499,999.............................. 3.00 3.09 2.50
$500,000--$999,999.............................. 2.00 2.04 1.75
$1,000,000--$2,499,999.......................... 1.00 1.01 1.00
Over $2,500,000................................. .25 .25 .25
</TABLE>
Since the Evergreen High Income Fund's Rule 12b-1 plan is a "compensation"
type plan as compared with the ABT Fund's plan, which is a "reimbursement" type
plan, future Rule 12b-1 fees may permit recovery of unreimbursed expenses by or
may result in a profit to EFD.
PURCHASE AND REDEMPTION PROCEDURES. EFD will distribute the Evergreen High
Income Fund shares through broker-dealers, banks (including FUNB) or other
financial intermediaries, or directly to investors. When the Class A Shares are
sold, EFD will normally pay a portion of the applicable sales charge to a
selling broker-dealer or other financial intermediary and may also pay fees to
banks from sales charges for services performed on behalf of the bank's
customers purchasing the Class A Shares. In addition, EFD may retain a portion
of the sales charge paid. In addition to the compensation at the time of sale,
entities whose clients have purchased Class A Shares may receive a fee equal to
.25% of the average daily net asset value on an
4
<PAGE>
annual basis of Class A Shares held by their clients. This fee will be paid by
EFD from Rule 12b-1 fees received from the Evergreen High Income Fund.
ABT Distributor, as agent for the ABT Fund, sells shares through broker-
dealers having sales agreements with ABT Distributor and retains a portion of
the sales charge.
The minimum initial purchase requirement for the Evergreen High Income Fund
is $1,000, which may be waived in certain situations. The ABT Fund has a
minimum initial purchase requirement of $10,000. The Evergreen High Income Fund
does not have a minimum for subsequent purchases. The minimum subsequent
purchase requirement for the ABT Fund is $100.
Each Fund provides for mail or wire redemption of shares at net asset value
next determined after receipt of the redemption request on each day the New
York Stock Exchange is open for business. The Evergreen High Income Fund also
permits redemptions by telephone (see "Additional Information--Evergreen High
Income Fund" below).
The ABT Fund, after prior notice, may involuntarily redeem shareholders'
accounts that have less than $500 of invested funds. The Evergreen High Income
Fund, after prior notice, may involuntarily redeem shareholders' accounts that
have less than $1,000 of invested funds.
EXCHANGE PRIVILEGES. Each Fund permits shareholders to exchange shares of the
Evergreen High Income Fund or the ABT Fund for shares of funds in the Evergreen
mutual fund family or other funds in the ABT mutual fund family, respectively.
Holders of shares of a class of the Evergreen High Income Fund generally may
exchange their shares for shares of the same Class of any other funds of the
Evergreen mutual fund family. Accordingly, with respect to shares of the
Evergreen High Income Fund received by ABT Fund shareholders in the
Reorganization, the exchange privilege is limited to the Class A Shares of
other funds in the Evergreen mutual fund family. In addition, exchanges in the
Evergreen mutual fund family may be limited to five exchanges per calendar
year, with a maximum of three per calendar quarter. No sales charge is imposed
on an exchange. An exchange which represents an initial investment in another
fund of the Evergreen family must amount to at least $1,000.
After July 1, 1995 (or as soon thereafter as is reasonably practicable
subject to applicable laws), it is expected, although it cannot be assured,
that shareholders in each of the funds in the Evergreen family and shareholders
in each of the portfolios of the First Union Funds will be permitted to
exchange their shares for shares of the same Class (to the extent available) of
all funds in the Evergreen family and all portfolios of the First Union Funds.
Although there is no present intention to do so, an exchange privilege may be
modified or terminated at any time. Currently, ABT Fund shareholders may
exchange their ABT Fund Shares for shares of Prime Cash Series ("PCS"), a money
market fund for which Federated Investors, Pittsburgh, Pennsylvania, is the
investment adviser. It is anticipated that this exchange privilege with PCS
will be terminated following the Reorganization. Exchange privileges, however,
will be offered into the money market funds managed by FUNB or EAMC.
DIVIDEND POLICY. For both the ABT Fund and the Evergreen High Income Fund,
income dividends are declared daily and paid monthly. Distributions of any net
realized gains are made at least annually. Income dividends and capital gain
distributions are automatically reinvested in additional shares, unless the
shareholder has made a written request for payment in cash. Shareholders of ABT
Fund that have elected, as of June 19, 1995, to receive dividends and/or
distributions in cash will continue to do so after the Reorganization. After
the Reorganization, former ABT Fund shareholders may change their election with
respect to receipt in cash or reinvestment of dividends or distributions of the
Evergreen High Income Fund.
RISKS
Since the investment objective of each Fund is identical and the policies and
investment restrictions of each Fund are substantially similar, PBCM believes
that there is no significant difference in the risks involved
5
<PAGE>
in investing in each Fund's shares. Each Fund will attempt to invest at least
65% of its total assets in municipal securities consisting of high yield (i.e.,
high risk), medium, lower rated and unrated bonds, commonly called junk bonds.
These securities are subject to greater market fluctuations and risk of loss of
income and principal than higher rated securities. Lower rated securities
involve a greater risk of default and, consequently, shares of both Funds may
be considered speculative securities.
The market for high yield, high risk debt securities rated in the medium and
lower rated categories or unrated is relatively new and its growth has
paralleled a long economic expansion. Past experience may not, therefore,
provide an accurate indication of future performance of this market,
particularly during periods of economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect, on this
market, the value of high yield debt securities in either Fund's portfolio,
either Fund's net asset value and the ability of the bond's issuers to repay
principal and interest, meet projected goals and obtain additional financing,
than on higher rated securities. These circumstances also may result in a
higher incidence of defaults than with respect to higher rated securities.
Yields on medium or lower rated municipal obligations may not currently fully
reflect the higher risk of such bonds. Therefore, the risk of negative effect
on their market value should interest rates increase or credit quality concerns
develop may be higher than has historically been experienced with such
investments. An investment in either Fund may be considered more speculative
than an investment in shares of another fund which invests primarily in higher
rated debt securities.
Prices of high yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments. Debt
securities with longer maturities, which may have higher yields, may increase
or decrease in value more than debt securities with shorter maturities. Market
prices of high yield debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may be
more volatile than securities which pay interest periodically and in cash.
Where either Fund deems it appropriate and in the best interests of its
shareholders, it may incur additional expenses to seek recovery on a debt
security on which the issuer has defaulted and to pursue litigation to protect
the interests of security holders of its portfolio investments.
Because the market for medium or lower rated securities may be thinner and
less active than the market for higher rated securities, there may be market
price volatility for these securities and limited liquidity in the resale
market. Unrated securities are usually not as attractive to as many buyers as
are rated securities, a factor which may make unrated securities less
marketable. These factors may have the effect of limiting the availability of
the securities for purchase by a fund and may also limit the ability of a fund
to sell such securities at their fair value either to meet redemption requests
or in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of medium or lower rated debt
securities, especially in a thinly traded market. To the extent either Fund
owns or may acquire illiquid or restricted high yield securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties. Changes in values of debt
securities which either Fund owns will affect that Fund's net asset value per
share. If market quotations are not readily available for either Fund's lower
rated or unrated securities, these securities will be valued by a method that
each Fund's respective Board of Trustees believes accurately reflects fair
value. Valuation becomes more difficult and judgment plays a greater role in
valuing high yield debt securities than with respect to securities for which
more external sources of quotations and last sale information are available.
The ability of the Funds to meet their investment objectives is necessarily
subject to the ability of municipal issuers to meet their payment obligations.
In addition, the portfolio of the Funds will be affected by general changes in
interest rates which will result in increases or decreases in the value of the
obligations held by the Funds. Investors should recognize that in periods of
declining interest rates, the yield of the Funds will tend to be somewhat
higher than prevailing market rates, and in periods of rising interest rates,
the yield of the Funds will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new
6
<PAGE>
money to each Fund from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the balance of
each Fund's portfolio, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
Special tax considerations are associated with investing in high yield debt
securities structured as zero coupon or pay-in-kind securities. A fund
investing in such securities accrues income on these securities prior to the
receipt of cash payments. Both Funds must distribute substantially all of their
income to their shareholders to qualify for pass through treatment under the
tax laws and may, therefore, have to dispose of their portfolio securities to
satisfy distribution requirements. While credit ratings are only one factor
each Fund's adviser relies on in evaluating high yield debt securities, certain
risks are associated with using credit ratings. Credit ratings evaluate the
safety of principal and interest payments, not market value risk. Credit rating
agencies may fail to change in a timely manner the credit ratings to reflect
subsequent events; however, each Fund's adviser continuously monitors the
issuers of high yield debt securities in the Fund's portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments.
Achievement of either Fund's investment objective may be more dependent upon
the adviser's credit analysis than is the case for higher quality debt
securities. Credit ratings for individual securities may change from time to
time and either Fund may retain a portfolio security whose rating has been
changed. See Appendix "A" for a description of bond and note ratings.
Each Fund's concentration in securities issued by Florida and Florida's
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. An expanded
discussion of the risks associated with the purchase of Florida's municipal
bonds is contained in Appendix "B". See also "Comparison of Investment
Objectives and Policies" herein for a discussion of the ratings of municipal
obligations which the Funds may purchase including investments in lower rated
obligations. There is no assurance that investment performances will be
positive and that the Funds will meet their investment objectives.
Both Funds also may enter into futures contracts and options on futures
contracts for hedging purposes. For a discussion of the risks involved in
entering into futures contracts and options on futures contracts, see
"Additional Information--Evergreen High Income Fund" below.
MANAGEMENT OF THE EVERGREEN HIGH INCOME FUND
The Capital Management Group of FUNB will provide investment advisory
services to the Evergreen High Income Fund. The address of FUNB is One First
Union Center, 301 S. College Street, Charlotte, North Carolina 28288. FUNB is a
subsidiary of First Union Corporation ("First Union"), one of the ten largest
bank holding companies in the United States.
First Union had $77.3 billion in 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. FUNB's Capital Management Group 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. The Capital Management Group has
been managing trust assets for over 50 years and currently oversees assets of
more than $51.2 billion. In addition, the Capital Management Group serves as
investment adviser to First Union Funds, which was organized in 1984.
Steven P. Eldredge, the current manager of the ABT Fund, has been offered a
portion with the Capital Management Group. As of the date of this
Prospectus/Proxy Statement, FUNB is negotiating with Mr. Eldredge. If Mr.
Eldredge joins FUNB following the Reorganization, it is anticipated that he
will manage the Evergreen High Income Fund.
7
<PAGE>
EAMC, together with its predecessors, has served as investment adviser to the
Evergreen family of funds since 1971.
DESCRIPTION OF THE ACQUISITION AGREEMENT
On March 3, 1995, Edward W. Cook ("Cook"), Edward W. Cook Revocable Trust,
dated September 26, 1989 ("Cook Trust"), Cook International, Inc., Palm Beach
Capital Management, Inc., a corporation organized under the laws of the State
of Florida and whose sole shareholder is Cook Trust ("PBCM"), entered into an
Asset Purchase Agreement (the "Agreement") with FUNB. The Agreement provides
for the acquisition by FUNB of substantially all of the assets and none of the
liabilities of PBCM, including the right to use the names "American Birthright
Trust" and "ABT." In exchange for the assets being acquired, FUNB has agreed to
pay PBCM the sum of $9,000,000, subject to certain adjustments.
The Agreement also contemplates that the ABT Fund, along with the ABT Utility
Income Fund, Inc., ABT Emerging Growth Fund, ABT Florida Tax-Free Fund and ABT
Growth and Income Trust will consolidate with certain other investment
companies managed by FUNB. The ABT Fund has entered into an Agreement and Plan
of Reorganization in the form attached hereto as Exhibit A. A similar Plan of
Reorganization has also been entered into by each of the ABT Utility Income
Fund, Inc., ABT Emerging Growth Fund, ABT Florida Tax-Free Fund and ABT Growth
and Income Trust (collectively, the "Other ABT Funds").
The consummation of the reorganizations contemplated by the Agreement is
subject to a number of conditions, which include: (i) the receipt of all
necessary regulatory approvals; (ii) the approval by the shareholders of the
ABT Fund, and the Other ABT Funds, of the reorganizations contemplated in the
Agreement; (iii) the accuracy of the representations and warranties contained
in the Agreement; (iv) the absence of pending or threatened litigation relating
to the reorganizations contemplated by the Agreement; and (v) the receipt of
various legal opinions and accountants' letters. The Agreement may be
terminated under certain circumstances, including the failure of the
reorganizations contemplated thereby to close by July 15, 1995.
SECTION 15(F) OF THE 1940 ACT. Section 15(f) of the 1940 Act provides that an
investment adviser to a registered investment company may receive any amount or
benefit in connection with a sale of any interest in such adviser which results
in an assignment of an investment advisory contract if two conditions are
satisfied. One condition is that, for a period of three years after such
assignment, at least 75% of the board of directors of the investment company
cannot be "interested persons" (as defined in the 1940 Act) of the new
investment adviser or its predecessor. The second condition is that no "unfair
burden" be imposed on the investment company as a result of the assignment or
any express or implied terms, conditions or understandings applicable thereto.
In connection with the first condition of Section 15(f), FUNB has agreed in
the Agreement that, for a period of three years after the Closing Date, it will
use its reasonable best efforts and will cause EAMC to use its reasonable best
efforts (recognizing that the compositions of Boards of Trustees/Directors
remain within the control of Trustees/Directors and shareholders of the First
Union family of funds and the Evergreen family of funds) so that at least 75%
of the Trustees/Directors of each of the First Union or Evergreen Funds
involved in the consolidations (or any successor thereto by reorganization or
otherwise) are not "interested persons" of FUNB, EAMC or PBCM.
With respect to the second condition of Section 15(f), an "unfair burden" on
an investment company is defined in the 1940 Act to include any arrangement
relating to the transaction during the two-year period after any such
transaction occurs whereby the investment adviser or its predecessor or
successor, or any "interested person" of such adviser, predecessor or
successor, receives or is entitled to receive any compensation of two types,
either directly or indirectly. The first type is compensation from any person
in
8
<PAGE>
connection with the purchase or sale of securities or other property to, from
or on behalf of the investment company, other than bona fide ordinary
compensation as principal underwriter for such company. The second type is
compensation from the investment company or its security holders for other than
bona fide investment advisory or other services. In the Agreement, FUNB
represents that there is no express or implied understanding or agreement or
intention to impose an "unfair burden" within the meaning of Section 15(f) on
the ABT Fund or the Other ABT Funds or any of their successors as a result of
the transactions contemplated in the Agreement and from the date of the
Agreement to two years after the consummation of the transactions contemplated
thereby it will not take or recommend any action that would constitute an
"unfair burden" within the meaning of Section 15(f) on the ABT Fund, any Other
ABT Fund, the Evergreen High Income Fund, any of the First Union or Evergreen
Funds involved in the consolidations or any successor thereto.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is qualified in its
entirety by reference to the Plan (Exhibit A hereto). The Plan provides that
the Evergreen High Income Fund will acquire substantially all of the assets of
the ABT Fund in exchange for Class A Shares of the Evergreen High Income Fund
and the assumption by the Evergreen High Income Fund of certain identified
liabilities of the ABT Fund on June 30, 1995 or such later date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date, the
ABT Fund will endeavor to discharge all of its known liabilities and
obligations. The Evergreen High Income Fund will not assume any liabilities or
obligations of the ABT Fund other than those liabilities reflected in an
unaudited statement of assets and liabilities of the ABT Fund prepared as of
the close of regular trading on the New York Stock Exchange, Inc. (the "NYSE"),
currently 4:00 pm. Eastern Time, on the Closing Date. The number of full and
fractional Class A Shares of the Evergreen High Income Fund to be issued to the
ABT Fund's shareholders will be determined on the basis of the relative net
asset values per share of the Evergreen High Income Fund's Class A Shares and
the ABT Fund's shares, computed as of the close of regular trading on the NYSE
on the Closing Date. The net asset value per share of such shares will be
determined by dividing the respective assets, less liabilities, by the total
number of outstanding shares.
State Street Bank & Trust Company, the custodian for the Evergreen High
Income Fund, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in this Prospectus/Proxy Statement and the Statement of
Additional Information, 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, the ABT Fund shall have declared a dividend
or dividends and distribution or distributions which, together with all
previous such dividends and distributions, shall have the effect of
distributing to the ABT Fund's shareholders all of the ABT Fund's investment
company taxable income for the taxable year ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable years ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the ABT Fund will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional Class A Shares of the
Evergreen High Income Fund received by the ABT Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the ABT Fund's shareholders on the share records of the Evergreen High
Income Fund's transfer agent. Each account will represent the respective pro
rata number of full and fractional Class A shares of the Evergreen High Income
Fund due to such ABT Fund's shareholders. After such distribution and the
winding up of its affairs, the ABT Fund will file an application with the SEC
seeking an order that it has ceased to be an investment company. Thereafter, it
will be terminated.
9
<PAGE>
The consummation of the Reorganization is subject to the conditions set forth
in the Plan, including approval by the ABT Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel
including those matters referred to in "Federal Income Tax Consequences."
Notwithstanding approval of the ABT Fund's shareholders, the Plan may be
terminated at any time by the mutual agreement of both parties. In addition,
either party may, at its option, terminate the Plan at or prior to the Closing
Date because (a) 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 (b) a condition to the obligation
of the terminating party cannot be met.
FUNB will bear all the expenses of the Evergreen High Income Fund in
connection with the Reorganization. Other than the fees and expenses of counsel
to the ABT Fund and counsel to the independent Trustees of the Trust and
expenses for officers and Trustees ongoing insurance coverage (which will be
paid by the ABT Fund), the expenses of the Reorganization (including the cost
of any proxy soliciting agents) will be borne by PBCM and FUNB. No portion of
such expenses shall be paid by the Evergreen High Income Fund. See "Voting
Information."
If the Reorganization is not approved by shareholders of the ABT Fund, the
Trust's Board of Trustees will continue to operate the ABT Fund under its
existing arrangements.
CAPITALIZATION. The following table shows the capitalization as of March 31,
1995 of the Evergreen High Income Fund (assuming it was capitalized as set
forth below) and the ABT Fund individually and on a pro forma combined basis as
of that date, giving effect to the proposed acquisition of the ABT Fund's net
assets at fair value or market value, as appropriate:
<TABLE>
<CAPTION>
Evergreen Class A Shares
High Income Pro Forma For
Class A Shares ABT Fund Reorganization*
-------------- ----------- ---------------
<S> <C> <C> <C>
Net Assets........................... $10.16 $65,972,579 $65,972,589
Net Asset Value per share............ $10.16 $ 10.16 $ 10.16
Shares outstanding................... 1 6,493,035 6,493,036
</TABLE>
- --------
* The figures in the table include the consolidation related expenses including
the insurance premiums described below in "Basis for the Board of Trustees'
Recommendation for Approval of the Plan."
As of April 25, 1995, (the "Record Date"), there were 6,434,734.321
outstanding shares of beneficial interest of the ABT Fund.
As of the Record Date, the officers and Trustees of the ABT Fund beneficially
owned as a group less than 1% of the outstanding shares of the ABT Fund. To the
best knowledge of the ABT Fund 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
the ABT Fund's outstanding shares.
BASIS FOR THE BOARD OF TRUSTEES'
RECOMMENDATION FOR APPROVAL OF THE PLAN.
The independent Trustees/Directors of the Board of Trustees/Directors of the
Trust and the Other ABT Funds requested and reviewed extensive information from
FUNB and EAMC in evaluating the effect of the consolidation on the shareholders
of the ABT Fund and the Other ABT Funds. The information described: performance
of FUNB and EAMC managed funds; the extensive investment research, including
credit analysis, available to FUNB and EAMC managed funds; the expenses of the
FUNB and EAMC managed funds in relation to other mutual funds and to the ABT
Fund and the Other ABT Funds; the possibility of a future reduction in expenses
per share as a result of the consolidation; the extensive marketing channels
available to the FUNB and EAMC managed funds; the quality and variety of
administrative services provided
10
<PAGE>
FUNB and EAMC managed funds and the financial condition of the service
providers; and the financial size of FUNB giving it the capital necessary to
develop the initiatives and responses required as financial markets change.
The Trustees/Directors of the Trust and the Other ABT Funds, including all of
the independent Trustees/Directors, visited the offices of FUNB. During the
visit, personnel from FUNB and EAMC were available to discuss operations of
their respective entities and to answer questions concerning the proposed
consolidation. The independent Trustees/Directors of the ABT Fund and the Other
ABT Funds retained independent counsel to advise such Trustees/Directors with
respect to their fiduciary duties in connection with approval of the proposed
consolidation.
The Trustees/Directors evaluated the consolidation for the ABT Fund, as well
as the Other ABT Funds. The Trustees/Directors considered the advantages to the
ABT Fund's and the Other ABT Funds' shareholders from being associated with a
considerably larger mutual fund complex that offers shareholders more depth in
investment management. The Trustees/Directors also considered the benefits to
the ABT Fund's shareholders of being part of a larger group of mutual funds
with significantly greater net assets and more diverse investment objectives.
In particular, the Trustees/Directors noted that shareholders of the ABT Fund
will, after consummation of the Reorganization, enjoy the same exchange
privileges available currently to shareholders of the other mutual funds
managed by FUNB and EAMC.
PBCM has informed the Evergreen High Income Fund that it has advised the ABT
Fund that after the closing, PBCM may pay the independent Trustees/Directors of
the Trust and the Other ABT Funds a fee in return for which the
Trustees/Directors will make themselves available for two years to consult on
former ABT family of funds' matters. PBCM is not obligated to pay such a fee.
If paid, the amount is expected to be at a rate of $10,000 per year/per
Trustee/Director.
The independent Trustees/Directors have voted to retain their ability to make
claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by
the ABT Fund and the Other ABT Funds and is expected to be approximately
$133,000 ($18,806 of which will be paid by the ABT Fund) for the three years.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS APPROVE THE
PLAN TO CONSOLIDATE THE ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND WITH THE
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND.
DESCRIPTION OF SHARES OF THE
EVERGREEN HIGH INCOME FUND AND THE ABT FUND
Full and fractional Class A Shares of beneficial interest of the Evergreen
High Income Fund will be distributed to the ABT Fund's shareholders in
accordance with the procedures detailed in the Plan. All issued and outstanding
shares of the ABT Fund, including those represented by certificates, if any,
will be canceled. The Evergreen High Income Fund does not intend to issue share
certificates to shareholders. Instead, the transfer agent for the Evergreen
High Income Fund will maintain a share account for each shareholder of record.
The Class A Shares of the Evergreen High Income Fund to be issued will have no
pre-emptive or conversion rights and are transferable without restriction. See
"Summary--Distribution; Sales Charges."
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 Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the
11
<PAGE>
closing of the Reorganization, the ABT Fund 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 the ABT Fund
solely in exchange for Class A Shares of the Evergreen High Income Fund and
the assumption by the Evergreen High Income Fund of certain liabilities,
followed by the distribution of the Evergreen High Income Fund's Class A
Shares by the ABT Fund in dissolution and liquidation of the ABT Fund, will
constitute a "reorganization" within the meaning of section 368(a)(1)(F) of
the Code, and the Evergreen High Income Fund and the ABT Fund 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 to the ABT Fund on the transfer of
its assets to the Evergreen High Income Fund (except, possibly, with
respect to certain options, futures and forward contracts included in the
assets ("Contracts")), solely in exchange for the Evergreen High Income
Fund's Class A Shares and the assumption by the Evergreen High Income Fund
of liabilities or upon the distribution (whether actual or constructive) of
the Evergreen High Income Fund's Class A Shares to the ABT Fund's
shareholders in exchange for their shares of the ABT Fund;
(3) The tax basis of the assets transferred (with the possible exception
of the Contracts) will be the same to the Evergreen High Income Fund as the
tax basis of such assets to the ABT Fund immediately prior to the
Reorganization, and the holding period of such assets (with the possible
exception of the Contracts) in the hands of the Evergreen High Income Fund
will include the period during which the assets were held by the ABT Fund;
(4) No gain or loss will be recognized by the Evergreen High Income Fund
upon the receipt of the assets from the ABT Fund solely in exchange for the
Class A Shares of the Evergreen High Income Fund and the assumption by the
Evergreen High Income Fund of certain liabilities;
(5) No gain or loss will be recognized by the ABT Fund's shareholders
upon the issuance of the Class A Shares of the Evergreen High Income Fund
to them, provided they receive solely such Class A Shares (including
fractional shares) in exchange for their shares of the ABT Fund; and
(6) The aggregate tax basis of the Class A Shares of the Evergreen High
Income Fund, including any fractional shares, received by each of the
shareholders of the ABT Fund pursuant to the Reorganization will be the
same as the aggregate tax basis of the shares of the ABT Fund held by such
shareholder immediately prior to the Reorganization, and the holding period
of the Class A Shares of the Evergreen High Income Fund, including
fractional shares, received by each such shareholder will include the
period during which the shares of the ABT Fund exchanged therefor were held
by such shareholder (provided that the shares of the ABT Fund 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, the consequences described above would not be
applicable. Shareholders of the ABT Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the ABT
Fund should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
It is not expected that the securities of the combined portfolio will be sold
in significant amounts to comply with the policies and investment practices of
the Evergreen High Income Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion compares the investment objectives, policies and
restrictions of the ABT Fund and the Evergreen High Income Fund. This
discussion is based upon and qualified in its entirety by the
12
<PAGE>
investment objectives, policies and restrictions stated in the Prospectus and
Statement of Additional Information of the ABT Fund and the investment
objectives, policies and restrictions of the Evergreen High Income Fund
contained in "Additional Information--Evergreen High Income Fund" and the
Statement of Additional Information. For a full discussion of the investment
objectives, policies and restrictions of the ABT Fund, refer to the Prospectus
of the ABT Fund under the caption "Investment of the Fund's Assets."
The Evergreen High Income Fund is a new series of The Evergreen Municipal
Trust established for the purpose of acquiring substantially all of the assets
of the ABT Fund. Accordingly, the investment objectives of both Funds are
identical and their policies and investment restrictions are substantially
similar. Both Funds may use futures contracts as a possible means to protect
the asset value of each Fund during changing interest rate markets. It is the
policy of the ABT Fund not to purchase futures or futures options if
immediately thereafter more than 10% of the ABT Fund's total assets would be so
invested. This policy is a fundamental policy of the ABT Fund and cannot be
changed without shareholder approval. The Evergreen High Income Fund will
maintain the same policy, but as a nonfundamental policy, which means that it
can be changed by the Evergreen High Income Fund's adviser without shareholder
approval.
INVESTMENT OBJECTIVE. Both Fund's investment objective is to provide a high
level of current income exempt from federal income taxes. Under normal market
conditions, both Funds attempt to meet this objective by investing at least 80%
of their assets in municipal obligations, of which at least 90% are Florida
municipal obligations. Furthermore, under normal market conditions, both Funds
attempt to invest 65% of the value of their total assets in municipal
obligations consisting of high yield (i.e. high risk), medium and lower rated
bonds or, unrated bonds which, in the opinion of the Fund's adviser, are of
comparable quality to municipal obligations rated in these categories. In
assessing the risk of purchasing medium and lower rated and unrated securities,
each Fund's adviser will use nationally recognized statistical rating
organizations and will also rely heavily on credit analysis it develops
internally. To varying degrees, medium and lower rated municipal bonds may be
considered speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. Each Fund may for
temporary, defensive purposes, invest up to 100% of its total assets in higher
quality municipal obligations, at times when, for example, yield spreads are
narrow and the higher yields available on lower quality municipal bonds do not
justify the increased risk or when there is a lack of medium and lower quality
issues in which to invest. This may result in yields lower than those available
on medium and lower quality municipal bonds. Under normal circumstances, each
Fund invests in long-term securities and has a dollar-weighted average maturity
of generally 15 years or more, although each Fund may invest in securities of
any maturity. If the adviser of either Fund determines that market conditions
warrant a shorter average maturity, each Fund's investments will be adjusted
accordingly. Medium and lower ratings categories are rated Baa through C by
Moody's Investor Services, Inc. ("Moody's") or BBB through D by Standard and
Poor's Ratings Group ("S&P"). Each Fund will not invest in municipal bonds
rated below C1 by S&P or C by Moody's. For these purposes, the term "bond"
means a debt instrument. Each Fund will not invest in municipal bonds which are
in default.
In addition to the investments described in the foregoing paragraph, each
Fund may invest in certain other types of investments. Each Fund may invest in
securities subject to the alternative minimum tax. See "Additional
Information--Evergreen High Income Fund--Investment Practices and Restrictions;
Special Risk Considerations--Alternative Minimum Tax." In addition to Florida
obligations, each Fund may also invest in tax-exempt obligations of the
government of Puerto Rico, the Virgin Islands and Guam to the extent that the
values of these obligations are exempt from the Florida intangibles tax.
Accordingly, the Funds may be adversely affected by local, political and
economic conditions and developments within Puerto Rico, the Virgin Islands and
Guam.
Subject to certain limitations, each Fund may also invest in taxable short-
term obligations and in futures contracts and options on futures contracts for
protective, (i.e., hedging) purposes. Each Fund defines taxable short-term
obligations as those obligations maturing in one year or less from the date of
purchase by the Fund and which are either (i) obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities; (ii) commercial
paper rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P; or (iii)
13
<PAGE>
bank obligations, such as certificates of deposit, banker's acceptance and
fixed time deposits issued by domestic banks subject to regulation by the U.S.
government having total assets of at least $1.5 billion.
Each Fund may also invest in municipal and Florida obligations with demand
features, including floating or variable rate demand notes which meet the
quality standards set forth above. Although there may be no active secondary
market with respect to a particular variable rate demand note, either Fund may,
upon notice specified in the note, demand payment in full of the principal of
and accrued interest on the note at any time and may resell the note at any
time to a third party. The absence of an active secondary market could make it
difficult to dispose of the variable rate demand note in the event the issuer
of the note defaulted on its payment obligation.
For the purposes of protecting (i.e., hedging) the value of assets, each Fund
may purchase and sell various kinds of futures contracts and may enter into
closing purchase and sale transactions with respect to such contracts. The
futures contracts may be based on various debt securities (such as U.S.
government), securities indices and other financial instruments.
Each Fund may also purchase and write call and put options on futures which
are traded on an Exchange or Board of Trade and enter into closing transactions
with respect to such options to terminate an existing position. A futures
option gives the purchaser the right and the obligation in return for the
premium paid to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the futures option. The
purchase of put futures options is a means of hedging against the risk of
rising interest rates. The purchase of call futures options is a means of
hedging against a market advance when a Fund is not fully invested. Each Fund
may use such futures options only in connection with hedging strategies.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION. The Evergreen Municipal Trust and the Trust are open-
end management investment companies registered with the SEC under the 1940 Act
which continuously offer to sell shares at their current net asset value plus
any applicable sales loads. Each is organized as a Massachusetts business trust
and is governed by a Declaration of Trust, By-Laws, Board of Trustees, and
applicable Massachusetts law. The ABT Fund is a portfolio of the Trust. The
Evergreen High Income Fund is a newly formed series of The Evergreen Municipal
Trust.
CAPITALIZATION. The beneficial interests in the Funds are represented by
shares with $.01 par value per share for the ABT Fund and $.0001 par value per
share for the Evergreen High Income Fund. The Declarations of Trust permit the
respective Board of Trustees to issue an unlimited number of shares of
beneficial interest. The Declaration of Trust of The Evergreen Municipal Trust
permits the Board of Trustees, without shareholder approval, to divide its
shares into an unlimited number of series and classes with the rights of such
series and classes to be determined by the Board of Trustees. The Evergreen
High Income Fund consists of three classes of shares as described above. See
"Summary--Distribution; Sales Charges." Fractional shares may be issued. Each
Fund's shares have equal voting rights and represent equal proportionate
interests in the assets belonging to each Fund, and are entitled to receive
dividends and other amounts as determined by The Evergreen Municipal Trust's or
Trust's Board of Trustees, except in the case of the Evergreen High Income
Fund, where there are different voting and other rights applicable to different
classes of shares in connection with or as a result of the classes'
distribution and shareholder servicing arrangements.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of a business
trust could, under certain circumstances, be held personally liable for the
obligations of the business trust. However, the Declarations of Trust of The
Evergreen Municipal Trust and the Trust disclaim shareholder liability for acts
or obligations of The Evergreen Municipal Trust or the Trust and require that
notice of such disclaimer be given in each
14
<PAGE>
agreement, obligation or instrument entered into or executed by The Evergreen
Municipal Trust's or the Trust's Board of Trustees. The Declarations of Trust
provide for indemnification out of The Evergreen Municipal Trust's or the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of The Evergreen Municipal Trust and the Trust.
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 Evergreen Municipal Trust or the
Trust itself would be unable to meet its respective obligations. A substantial
number of mutual funds in the United States are organized as Massachusetts
business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Neither The Evergreen Municipal Trust
nor the Trust are required to hold annual meetings of shareholders. Trustees of
The Evergreen Municipal Trust may be removed by a two-thirds vote of the number
of Trustees prior to such removal or by two-thirds vote of the shareholders at
a special meeting. The Evergreen Municipal Trust is required to call a meeting
of shareholders for the purpose of voting upon the question of removal of a
Trustee when requested in writing to do so by the holders of at least 25% of
The Evergreen Municipal Trust's outstanding shares. The Declaration of Trust of
the Trust provides for the removal of a Trustee by a vote of two-thirds of the
outstanding shares. In addition, the Trust and The Evergreen Municipal Trust
are required to call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office were elected by shareholders. If Trustees of the Trust fail or refuse to
call a meeting as required by the Declaration of Trust for a period of 30 days
after a request in writing by shareholders holding an aggregate of at least 10%
of the shares outstanding, then shareholders holding 10% may call and give
notice of a shareholders meeting. The Trust and The Evergreen Municipal Trust
currently do not intend to hold regular shareholder meetings. Neither 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 present and entitled to vote is sufficient to act on a
matter (unless otherwise specifically required by the applicable governing
documents or other law, including the 1940 Act). All shares of all classes of
each series in The Evergreen Municipal Trust have equal voting rights, except
that in matters affecting only a particular series or class (for example, a
Rule 12b-1 plan of that class) only shares of that series or class are entitled
to vote.
LIQUIDATION OR DISSOLUTION. In the event of the liquidation of a Fund the
shareholders are entitled to receive, when, and as declared by the Trustees,
the excess of the assets belonging to such Fund over the liabilities belonging
to the Fund. In either case, the assets so distributable to shareholders of the
respective Fund will be distributed among the shareholders pro rata based on
the shares of the Fund held by them and recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES. The Declaration of Trust of The
Evergreen Municipal Trust provides generally that no Trustee of The Evergreen
Municipal Trust shall be personally liable to any person for any action or
failure to act, except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties. The By-Laws of The Evergreen
Municipal Trust provide that present and former Trustees or officers generally
are entitled to indemnification against liabilities and expenses with respect
to claims related to their position with The Evergreen Municipal Trust unless,
in the case of any liability to The Evergreen Municipal Trust 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 provides that no Trustee or officer of the Trust
shall be personally liable to any person for any action or failure to act,
except for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. The Declaration of Trust provides that a
Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his position with the Trust, 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 Trust. The Declaration of Trust of
the Trust also provides that a Trustee or officer is not entitled to
indemnification against liabilities in the event of settlement unless
15
<PAGE>
there has been a determination that such Trustee or officer has engaged in
willful misfeasance, bad faith, gross negligence, or reckless disregard of his
duties.
RIGHTS OF INSPECTION. Shareholders of the respective Funds have the same
right to inspect in Massachusetts the governing documents, records of meetings
of shareholders, shareholder lists, share transfer records, accounts and books
of the Fund as are permitted shareholders of a corporation under the
Massachusetts corporation law. The purpose of inspection must be for interests
of shareholders relevant to the affairs of the Fund.
The foregoing is only a summary of certain characteristics of the operations
of the Declarations of Trust and By-Laws of The Evergreen Municipal Trust and
the Trust, and of Massachusetts and federal law. The foregoing is not a
complete description of those documents or laws. Shareholders should refer to
the provisions of the respective Declarations of Trust, By-Laws, and
Massachusetts and federal law directly for more complete information.
ADDITIONAL INFORMATION
ABT FUND. Information about the ABT Fund is included in its current
Prospectus dated August 29, 1994, and in the Statement of Additional
Information of the same date that has been filed with the SEC, both of which
are incorporated herein by reference. A copy of the Prospectus and the
Statement of Additional Information and the Fund's Annual Report dated April
30, 1994 are available upon request and without charge by writing to the ABT
Fund at the address listed on the cover page of this Prospectus/Proxy Statement
or by calling toll-free 1-800-553-7838.
EVERGREEN HIGH INCOME FUND The following additional information supplements
information about the Evergreen High Income Fund contained elsewhere in this
Prospectus/Proxy Statement.
ORGANIZATION
The Evergreen Municipal Trust is a Massachusetts business trust organized in
1988. The Evergreen Municipal Trust currently has five investment series,
Evergreen National Tax-Free Fund, Evergreen High Income Fund, Evergreen Short-
Intermediate Municipal Fund, Evergreen Short-Intermediate Municipal Fund-
California and Evergreen Tax-Exempt Money Market Fund. The Evergreen High
Income Fund was formed as a separate series of The Evergreen Municipal Trust in
March, 1995.
INVESTMENT OBJECTIVES AND POLICIES
The Evergreen High Income Fund seeks to provide a high level of current
income which is exempt from federal income taxes. The term "high-level"
indicates that the Fund seeks to achieve an income level that exceeds that
which an investor would expect from an investment grade portfolio with similar
maturity characteristics. The Evergreen High Income Fund invests primarily in
high yield, medium and lower rated (Baa through C by Moody's and BBB through C1
by S&P) and unrated municipal securities. To varying degrees, medium and lower
rated municipal securities are considered to have speculative characteristics
and are subject to greater market fluctuations and risk of loss of income and
principal than higher and investment grade securities. To the extent that an
investor realizes a yield in excess of that which could be expected from a fund
which invests primarily in investment grade securities, the investor should
expect to bear increased risk due to the fact that the risk of principal and/or
interest not being repaid with respect to the high yield securities described
above is significantly greater than that which exists in connection with
investment grade securities. In assessing the risk involved in purchasing
medium and lower rated and unrated securities, the Fund's investment adviser
will use nationally recognized statistical rating organizations such as Moody's
and S&P, and will also rely heavily on credit analysis it develops internally.
In pursuit of its investment objective, the Evergreen High Income Fund will,
under normal market conditions, invest at least 65% in such medium and lower
rated municipal securities or unrated municipal securities of comparable
quality to such rated
16
<PAGE>
municipal bonds. Investors should note that such a policy is not a fundamental
policy of the Fund and shareholder approval is not necessary to change such
policy. There is no assurance that the Evergreen High Income Fund can achieve
its investment objective.
The Evergreen High Income Fund will not invest in municipal securities which
are in default, i.e., securities rated D by S&P. Investments may also be made
by the Evergreen High Income Fund in higher quality Municipal Securities (as
hereinafter defined) and, for temporary defensive purposes, the Fund may invest
less than 65% of its total assets in the medium and lower quality Municipal
Securities described above. The Fund may assume a defensive position if, for
example, yield spreads between lower grade and investment grade Municipal
Securities are narrow and the yields available on lower quality Municipal
Securities do not justify the increased risk associated with an investment in
such securities or when there is a lack of medium and lower quality issues in
which to invest. The Evergreen High Income Fund may also invest primarily in
higher quality Municipal Securities until its net assets reach a level that
would permit the Fund to begin investing in medium and lower rated Municipal
Securities and at the same time maintain adequate diversification and
liquidity. Investing in this manner may result in yields lower than those
normally associated with a fund that invests primarily in medium and lower
quality Municipal Securities.
Under normal circumstances, it is anticipated that the dollar-weighted
average maturity of the Evergreen High Income Fund will generally be 15 years
or more, although it may invest in securities of any maturity. If the Fund's
investment adviser determines that market conditions warrant a shorter average
maturity, the Fund's investments will be adjusted accordingly.
The Fund may purchase industrial development bonds only if the interest on
such bonds is, in the opinion of bond counsel, exempt from federal income
taxes. It is anticipated that the annual portfolio turnover rate for the Fund
may exceed 100%. The Fund may buy and sell Futures or Options on Futures (as
hereinafter defined), which involve investment risks different from those of
Municipal Securities. See "Investment Practices and Restrictions; Special Risk
Considerations" below.
INVESTMENT PRACTICES AND RESTRICTIONS; SPECIAL RISK CONSIDERATIONS
As stated above, the Evergreen High Income Fund invests primarily in high
yield, medium and lower rated (Baa through C by Moody's and BBB through C1 by
S&P) and unrated securities.
In addition, since Evergreen High Income Fund invests primarily in Florida
Municipal Securities, it is subject to certain specific factors and
considerations concerning Florida which may affect the credit and market risk
of the Municipal Securities that it purchases. Additional risk factors relating
to the investment by the Evergreen High Income Fund in high yield, medium and
lower rated (Baa through C by Moody's and BBB through C1 by S&P) and unrated
securities as discussed below.
MUNICIPAL SECURITIES. As noted above, the Fund will invest substantially all
of its assets in Municipal Securities. These include Municipal Securities,
short-term municipal notes and tax exempt commercial paper. "Municipal
Securities" are debt obligations issued to obtain funds for various public
purposes that are exempt from federal income tax in the opinion of issuer's
counsel. The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific source such as from
the user of the facility being financed. The term "Municipal Securities" also
includes "moral obligation" issues which are normally issued by special purpose
authorities. Industrial development bonds ("IDBs") and private activity bonds
("PABs") are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the corporate user of the
facilities being financed. Participation interests are interests in Municipal
Securities, including IDBs and PABs, and floating and variable rate obligations
that are owned by banks. These interests carry a demand feature permitting the
holder to tender them back to the bank, which demand feature is backed by an
irrevocable letter of credit or
17
<PAGE>
guarantee of the bank. A put bond is a municipal bond which gives the holder
the unconditional right to sell the bond back to the issuer at a specified
price and exercise date, which is typically well in advance of the bond's
maturity date. "Short-term municipal notes" and "tax exempt commercial paper"
include tax anticipation notes, bond anticipation notes, revenue anticipation
notes and other forms of short-term loans. Such notes are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements and other revenues.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. Municipal Securities also
include certain variable rate and floating rate municipal obligations with or
without demand features. These variable rate securities do not have fixed
interest rates; rather, those rates fluctuate based upon changes in specified
market rates, such as the prime rate, or are adjusted at predesignated periodic
intervals. Certain of these obligations may carry a demand feature that gives
the 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. The Fund will limit
the value of its investments in any floating or variable rate securities which
are not readily marketable to 10% or less of its total assets.
WHEN-ISSUED SECURITIES. The Fund may purchase Municipal Securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). The Fund generally would not pay for such securities
or start earning interest on them until they are received. However, when the
Fund purchases Municipal Securities on a when-issued basis, it assumes the
risks of ownership at the time of purchase, not at the time of receipt. Failure
of the issuer to deliver a security purchased by the Fund on a when-issued
basis may result in the Fund incurring a loss or missing an opportunity to make
an alternative investment. Commitments to purchase when-issued securities will
not exceed 25% of the Fund's total assets. The Fund will maintain cash or
liquid high grade debt obligations in a segregated account with its custodian
in an amount equal to such commitments. The Fund does not intend to purchase
when-issued securities for speculative purposes but only in the furtherance of
its investment objectives.
STAND-BY COMMITMENTS. The 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. Failure of the dealer to purchase
such Municipal Securities may result in the Fund incurring a loss or missing an
opportunity to make an alternative investment. The Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, the Fund may pay
for stand-by commitments either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities).
The total amount paid in either manner for outstanding stand-by commitments
held in the Fund's portfolio will not exceed 10% of the value of the Fund's
total assets calculated immediately after each stand-by commitment is acquired.
The Fund will maintain cash or liquid high grade debt obligations in a
segregated account with its custodian in an amount equal to such commitments.
The Fund will enter into stand-by commitments only with banks and broker-
dealers that, in the judgement of the Fund's investment adviser, present
minimal credit risks.
TAXABLE INVESTMENTS. The Evergreen High Income Fund may temporarily invest up
to 20% of its 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. The Fund
may invest for defensive purposes during periods when the Fund's assets
available for investment exceed the available Municipal Securities that meet
the Fund's quality and other investment criteria. Taxable securities in which
the Fund may invest on a short-term basis include obligations of the United
States Government, its agencies or instrumentalities, including repurchase
agreements with banks or securities dealers involving such securities; time
deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by any major rating service; commercial
paper rated in the
18
<PAGE>
highest grade by Moody's, S&P or any nationally recognized statistical rating
organization; and certificates of deposit issued by United States branches of
United States banks with assets of $1 billion or more.
ALTERNATIVE MINIMUM TAX. Under current tax law, a distinction is drawn
between Municipal Securities issued to finance certain "private activities" and
other Municipal Securities. Such private activity bonds include bonds issued to
finance such projects as airports, housing projects, resource recovery
programs, solid waste disposal facilities, student loan programs, and water and
sewage projects. Interest income from such "private activity bonds" ("AMT-
Subject Bonds") becomes an item of "tax preference" which is subject to the
alternative minimum tax when received by a person in a tax year during which he
is subject to that tax. Because interest income on AMT-Subject Bonds is taxable
to certain investors, it is expected, although there can be no guarantee, that
such Municipal Securities generally will provide somewhat higher yields than
other Municipal Securities of comparable quality and maturity. The Evergreen
High Income Fund may invest up to 20% of its total assets, in AMT-Subject
Bonds.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Fund's custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
United States Government securities. A repurchase agreement is an arrangement
pursuant to which a buyer purchases a security and simultaneously agrees to
resell it to the vendor at a price that results in an agreed-upon market rate
of return which is effective for the period of time (which is normally one to
seven days, but may be longer) the buyer's money is invested in the security.
The arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The Fund requires continued
maintenance of collateral with its Custodian in an amount equal to, or in
excess of, the market value of the securities, including accrued interest,
which are the subject of a repurchase agreement. In the event a vendor defaults
on its repurchase obligation, the Fund might suffer a loss to the extent that
the proceeds from the sale of the collateral were less than the repurchase
price. If the vendor becomes the subject of bankruptcy proceedings, the Fund
might be delayed in selling the collateral. The Fund's investment adviser will
review and continually monitor the creditworthiness of each institution with
which the Fund enters into a repurchase agreement to evaluate these risks. The
Fund may not enter into repurchase agreements if, as a result, more than 10% of
the Fund's net assets would be invested in repurchase agreements maturing in
more than seven days.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities and other securities which are not readily marketable,
except that it may only invest up to 10% of its assets in repurchase agreements
with maturities longer than seven days. Securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be illiquid
or not readily marketable and, therefore, are not subject to the aforementioned
15% limit. The inability of the Fund to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair the Fund's
ability to raise cash for redemptions or other purposes. The liquidity of
securities purchased by the Fund which are eligible for resale pursuant to Rule
144A will be monitored by the Fund's investment adviser on an ongoing basis,
subject to the oversight of the Trustees. In the event that such a security is
deemed to be no longer liquid, the Fund's holdings will be reviewed to
determine what action, if any, is required to ensure that the retention of such
security does not result in the Fund having more than 15% of its assets
invested in illiquid or not readily marketable securities.
OTHER INVESTMENT POLICIES. The Fund may borrow funds and agree to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed upon date and price (a "reverse
repurchase agreement") for temporary or emergency purposes in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing. At the time the Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, United States Government
securities or liquid high grade debt obligations having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by
19
<PAGE>
the Fund may decline below the repurchase price of those securities. The Fund
will not enter into reverse repurchase agreements exceeding 5% of the value of
its total assets.
In order to generate income and to offset expenses, the Fund may lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities by the Fund, if and when made, may not exceed 30 percent of
the Fund's total assets and will be collateralized by cash, letters of credit
or U.S. Government securities that are maintained at all times in an amount
equal to at least 100 percent of the current market value of the loaned
securities, including accrued interest. While such securities are on loan, the
borrower will pay the Fund any income accruing thereon, and the Fund may invest
the cash collateral, thereby increasing its return. The Fund will have the
right to call any such loan and obtain the securities loaned at any time on
five days' notice. Any gain or loss in the market price of the loaned
securities which occurs during the term of the loan would affect the Fund and
its investors. The Fund may pay reasonable fees in connection with such loans.
FUTURES CONTRACTS. For the purpose of protecting (hedging) the value of its
assets, the Evergreen High Income Fund may purchase and sell various kinds of
futures contracts ("Futures") and may enter into closing purchase and sale
transactions with respect to such contracts. The Futures may be based on
various debt securities (such as U.S. government securities), indices and other
financial instruments and indices.
In instances involving the purchase or sale of Futures by the Evergreen High
Income Fund, an amount of cash or cash equivalents equal to the market value of
the Futures will be deposited in a segregated account with the Fund's Custodian
to collateralize the position and thereby insure that the use of such Futures
is unleveraged. The primary risks associated with the use of Futures are: (i)
imperfect correlation between the change in the market value of the securities
held in the Fund's portfolio and the prices of Futures purchased or sold by the
Fund; (ii) incorrect forecasts by the Fund's investment adviser concerning
interest rates which may result in the hedge being ineffective; (iii) possible
lack of a liquid secondary market for Futures; and (iv) the risk of potentially
unlimited losses. The resulting inability to close a Futures position could
adversely affect the Fund's hedging ability. For a hedge to be completely
effective, the price change of the hedging instrument should equal the price
change of the security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of a Fund's portfolio is
divergent from the debt securities underlying the index.
OPTIONS ON FUTURES. The Evergreen High Income Fund may purchase and write
call and put options on Futures which are traded on an exchange or board of
trade and enter into closing transactions with respect to such options to
terminate an existing position ("Futures Options"). A Futures Option gives the
purchaser the right, and the writer the obligation, in return for the premiums
paid, to assume a position in a Future (a long position if the option is a call
and short position if the option is a put) at a specified exercise price at any
time during the period of the Futures Option. The purchase of put Futures
Options is a means of hedging against the risk of rising interest rates. The
purchase of put Futures Options is a means of hedging against a market advance
when the Fund is not fully invested.
The Evergreen High Income Fund may use Futures Options only in connection
with hedging strategies. While hedging can provide protection against an
adverse movement in interest rates, it can also preclude a hedger's opportunity
to benefit from a favorable interest rate movement. Thus, writing a call
Futures Option results in receipt of an option premium which may effect a
portion of any loss from a decline in the prices of Municipal Securities held
by the Fund; however if the prices of Municipal Securities increase, all or
part of any capital appreciation on portfolio securities would be offset by a
loss incurred in closing out the sell option. In addition, use of Futures and
Futures Options causes the Fund to incur additional brokerage commissions, and
may cause an increase in the Fund's portfolio turnover rate. Use of Futures
Options would subject to the Fund to risks similar to these described above
relating to Futures, but any losses incurred in connection with the use of
Futures Options would be limited to the amount of premiums paid.
The Evergreen High Income Fund will deposit in a segregated account with its
custodian bank cash, U.S. government securities or other appropriate high grade
and readily marketable debt obligations, in an
20
<PAGE>
amount equal to (i) the fluctuating market value of long positions it has
purchased less any margin deposited on long positions, or (ii) the fluctuating
market value of the options written less any margin deposited on such options.
LIMITATIONS ON FUTURES AND FUTURES OPTIONS. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the Futures and Futures Options
trading activities described herein will not result in the Evergreen High
Income Fund being deemed to be a "commodity pool," as defined under such
regulations, provided the Fund adheres to certain restrictions. In particular,
the Fund may purchase and sell Futures and related Futures Options only for
bona fide hedging purposes, as defined under CFTC regulations, and may not
purchase or sell any such Futures or related Futures Options if immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
Futures positions and the premiums paid for related Futures Options does not
exceed 5% of the Fund's assets. Margin deposits may consist of cash of
securities acceptable to the broker and the relevant contract market. As a
matter of fundamental policy, the Evergreen High Income Fund will not purchase
a Future or Futures Option if immediately thereafter more than 10% of the
Fund's total assets would be so invested. The Fund's ability to engage in
transactions in Futures and related Futures Options may also be limited by
provisions of the Code. See "Dividends, Distributions and Taxes"' below and the
Statement of Additional Information for further information concerning tax
aspects of Futures and Futures Options.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT. State Street Bank
and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as the
Evergreen High Income Fund's registrar, transfer agent and dividend-disbursing
agent for a fee based upon the number of shareholder accounts maintained for
the Fund. The transfer agency fee with respect to Class B shares will be higher
than the transfer agency fee with respect to Class A shares.
FUND EXPENSES
Under its investment advisory agreement with the Evergreen High Income Fund,
FUNB has agreed to furnish reports, statistical and research services and
recommendations with respect to the Fund's portfolio of investment. In
addition, as described previously, EAMC acts as administrator of the Fund and
performs a variety of administrative services. The Fund pays the cost of all of
its other expenses and liabilities, including expenses and liabilities incurred
in connection with maintaining its registration under the Securities Act of
1933, as amended, and the 1940 Act, printing prospectuses (for existing
shareholders) as they are updated, state qualifications, share certificates,
mailings, brokerage, custodian and stock transfer charges, printing, legal and
auditing expenses, expenses of shareholder meetings and reports to
shareholders. Notwithstanding the foregoing, FUNB will pay the costs of
printing and distributing prospectuses used for prospective shareholders.
PURCHASE OF SHARES
You can purchase shares of the Evergreen High Income Fund through broker-
dealers, banks or other financial intermediaries, or directly through EFD. The
minimum initial investment is $1,000, which may be waived in certain
situations. There is no minimum for subsequent investments. Investments of $25
or more are allowed under the systematic investment program. Share certificates
are not issued for Class A shares. In states where EFD is not registered as a
broker-dealer shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered. Only Class A shares are
offered through this Prospectus/Proxy Statement (see "Capital Stock--Other
Classes of Shares").
When Class A shares are sold, EFD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EFD may also pay fees to
banks from sales charges for services performed on behalf of the bank's
customers in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale,
21
<PAGE>
entities whose clients have purchased Class A shares may receive a trailing
commission equal to .25 of 1% of aggregate average daily net assets
attributable to Class A shares of the Evergreen High Income Fund held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Combined Purchase Privilege, Cumulative
Quantity Discount, Statement of Intention, Privilege for Certain Retirement
Plans and Reinstatement Privilege.
In addition to the discount or commission paid to dealers, EFD will from time
to time pay to dealers additional cash or other incentives that are conditioned
upon the sale of a specified minimum dollar amount of shares of the Fund and/or
other Evergreen mutual funds. Such incentives will take the form of payment for
attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer and their immediate
family members to urban or resort locations within or outside the United
States. Such a dealer may elect to receive cash incentives of equivalent amount
in lieu of such payments.
HOW THE FUNDS VALUE THEIR SHARES. The net asset value of each Class of shares
of the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the outstanding shares of that Class.
Shares are valued each day the NYSE is open as of the close of regular trading
(currently 4:00 p.m. Eastern time). The securities in the Fund are valued at
their current market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as The Evergreen
Municipal Trust's Trustees believe would accurately reflect fair market value.
ADDITIONAL PURCHASE INFORMATION. If a purchase of Fund shares is canceled due
to nonpayment or because an investor's check does not clear, the investor will
be responsible for any loss the Fund or its investment adviser incurs. If such
investor is an existing shareholder, the Fund may redeem shares from an
investor's account to reimburse the Fund or its investment adviser for any
loss. In addition, such investors may be prohibited or restricted from making
further purchases in any of the Evergreen funds.
REDEMPTION OF SHARES
You may "redeem", i.e., sell your Class A shares in the Evergreen High Income
Fund to the Fund on any day the NYSE is open, either directly or through your
financial intermediary. The price you will receive is the net asset value next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check, the Fund will not send proceeds until it is reasonably
satisfied that the check has been collected (which may take up to 15 days).
Once a redemption request has been telephoned or mailed, it is irrevocable and
may not be modified or canceled.
REDEEMING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY. The Evergreen High
Income Fund must receive instructions from your financial intermediary before
4:00 p.m. Eastern time for you to receive that day's net asset value. Your
financial intermediary is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service.
REDEEMING SHARES DIRECTLY BY MAIL OR TELEPHONE. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend-disbursing agent
for the Evergreen High Income Fund. Stock power forms are available from your
financial intermediary, State Street, and many commercial banks. Additional
documentation is required for the sale of shares by corporations, financial
intermediaries, fiduciaries and surviving joint owners. Signature guarantees
are required for all redemption requests for shares with a value of more than
$10,000 or where the redemption proceeds are to be mailed to an address other
than that shown in the account registration. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more than their accounts by
calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00
p.m. (Eastern time) each business day (i.e., any weekday
22
<PAGE>
exclusive of days on which the NYSE or State Street's offices are closed). The
NYSE is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption
requests made after 4:00 p.m. (Eastern time) will be processed using the net
asset value determined on the next business day. Such redemption requests must
include the shareholder's account name, as registered with the Fund, and the
account number. During periods of drastic economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions.
Shareholders who are unable to reach the Fund or State Street by telephone
should follow the procedures outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service
should contact the Fund for information about signing up for the privilege.
Redemption proceeds will either (i) be mailed by check to the shareholder at
the address in which the account is registered or (ii) be wired to an account
with the same registration as the shareholder's account in the Evergreen High
Income Fund at a designated commercial bank. State Street currently deducts a
$5 wire charge from all redemption proceeds wired. This charge is subject to
change without notice. A shareholder who decides later to use this service, or
to change instructions already given, should fill out a Shareholder Services
Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, with such shareholder's signature guaranteed by a
bank or trust company (not a Notary Public), a member firm of a domestic stock
exchange or by other financial institutions whose guarantees are acceptable to
State Street. Shareholders should allow approximately ten days for such form to
be processed. The Fund will employ reasonable procedures to verify that
telephone requests are genuine. These procedures include requiring some form of
personal identification prior to acting upon instructions and tape recording of
conversations. If the Fund fails to follow such procedures, it may be liable
for any losses due to unauthorized or fraudulent instructions. The Fund shall
not be liable for following telephone instructions reasonably believed to be
genuine. Also, the Fund reserves the right to refuse a telephone redemption
request, if it is believed advisable to do so. Financial intermediaries may
charge a fee for handling telephone requests. The telephone redemption option
may be suspended or terminated at any time without notice.
GENERAL. Class B shares, which are not offered through this Prospectus/Proxy
Statement, are subject to a contingent deferred sales charge ("CDSC") upon
redemption. See "Capital Stock; Other Classes of Shares" below. The sale of
shares is a taxable transaction for federal tax purposes. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
seven days or longer, as permitted by federal securities law. The Evergreen
High Income Fund reserves the right to close an account that through redemption
has remained below $1,000 for 30 days. Shareholders will receive 60 days'
written notice to increase the account value before the account is closed. The
Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash, up to the lesser
of $250,000 or 1% of the Fund's total net assets during any ninety day period
for any one shareholder. See the Statement of Additional Information for
further details.
EXCHANGE PRIVILEGE
HOW TO EXCHANGE SHARES. You may exchange some or all of your Class A shares
for shares of the same Class in the other Evergreen funds through your
financial intermediary, or by telephone or mail as described below. An exchange
which represents an initial investment in another Evergreen fund must amount to
at least $1,000. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. Exchanges are subject to minimum
investment and suitability requirements.
Each of the Evergreen funds have different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be real prior to the exchange. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in
23
<PAGE>
the realization of a capital gain or loss. Shareholders are limited to five
exchanges per calendar year, with a maximum of three per calendar quarter. This
exchange privilege may be modified or discontinued at any time by the Fund upon
sixty days' notice to shareholders and is only available in states in which
shares of the fund being acquired may lawfully be sold.
EXCHANGES THROUGH YOUR FINANCIAL INTERMEDIARY. The Evergreen High Income Fund
must receive exchange instructions from your financial intermediary before 4:00
p.m. Eastern time for you to receive that day's net asset value. Your financial
intermediary is responsible for furnishing all necessary documentation to the
Evergreen High Income Fund and may charge you for this service.
EXCHANGES BY TELEPHONE AND MAIL. You may exchange shares with a value of
$1,000 or more by telephone by calling State Street (800-423-2615). Exchange
requests made after 4:00 p.m. (Eastern time) will be processed using the net
asset value determined on the next business day. During periods of drastic
economic or market changes, shareholders may experience difficulty in effecting
telephone exchanges. You should follow the procedures outlined below for
exchanges by mail if you are unable to reach State Street by telephone. If you
wish to use the telephone exchange service you should contact the Fund. As
noted above, the Evergreen High Income Fund will employ reasonable procedures
to confirm that instructions for the redemption or exchange of shares
communicated by telephone are genuine. A telephone exchange may be refused by
the Fund or State Street if it is believed advisable to do so. Procedures for
exchanging Fund shares by telephone may be modified or terminated at any time.
Written requests for exchanges should follow the same procedures outlined for
written redemption requests in the section entitled "Redemption of Shares,"
however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Evergreen High Income Fund offers the following shareholder services. For
more information about these services or your account, contact your financial
intermediary, EFD or the toll-free number for the Fund, 800-326-3241. Some
services are described in more detail in the Share Purchase Application which
is available from the Fund. Certain additional conditions may apply with
respect to Class B and Class Y shares, which are not offered hereby.
SYSTEMATIC INVESTMENT PLAN. You may make monthly or quarterly investments
into an existing account automatically in amounts of not less than $25.
TELEPHONE INVESTMENT PLAN. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
SYSTEMATIC CASH WITHDRAWAL PLAN. When an account of $10,000 or more is opened
or when an existing account reaches that size, you may participate in the
Evergreen High Income Fund's Systematic Cash Withdrawal Plan by filling out the
appropriate part of the Share Purchase Application. Under this plan, you may
receive (or designate a third party to receive) a monthly or quarterly check in
a stated amount of not less than $100. Fund shares will be redeemed as
necessary to meet withdrawal payments. All participants must elect to have
their dividends and capital gain distributions reinvested automatically.
AUTOMATIC REINVESTMENT PLAN. For the convenience of investors, all dividends
and distributions are automatically reinvested in full and fractional shares of
the Evergreen High Income Fund at the net asset value per share on the last
business day of each month, unless otherwise requested by a shareholder in
writing. If the transfer agent does not receive a written request for
subsequent dividends and/or distributions to be paid in cash at least three
full business days prior to a given record date, the dividends and/or
distributions to be paid to a shareholder will be reinvested. If you elect to
receive dividends and distributions in cash and the U.S. Postal Service cannot
deliver the checks, or if the checks remain uncashed for six months, the checks
will be reinvested into your account at the then current net asset value.
24
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND OTHER TAXES
Income dividends are declared daily and paid monthly. Distributions of any
net realized gains of the Evergreen High Income Fund will be made at least
annually. Shareholders will begin to earn dividends on the first business day
after shares are purchased unless shares were not paid for, in which case
dividends are not earned until the next business day after payment is received.
The Fund intends to continue to qualify to be treated as a regulated investment
company under the Code. While so qualified, so long as the Fund distributes all
of its investment company 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. A 4% nondeductible excise tax will be imposed on the Fund
if it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
The Fund will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of the Fund from their gross income
for federal income tax purposes, however (1) all or a portion of such exempt-
interest dividends may be a specific preference item for purposes of the
federal individual and corporate alternative minimum taxes to the extent that
they are derived from certain types of private activity bonds issued after
August 7, 1986, and (2) all exempt-interest dividends will be a component of
the "adjusted current earnings" for purposes of the federal corporate
alternative minimum tax.
Dividends paid from taxable income, if any, and distributions of any net
realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investor's holding period
relating to the shares with respect to which such gains are distributed. Market
discount recognized on taxable and tax-exempt bonds is taxable as ordinary
income, not as excludable income. Under current law, the highest federal income
tax rate applicable to net long-term gains realized by individuals is 28%. The
rate applicable to corporations is 35%.
Since the Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax adviser.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Fund. These statements will set
forth the amount of income exempt from federal and, if applicable, state
taxation, and the amount, if any, subject to federal and state taxation.
Moreover, to the extent necessary, these statements will indicate the amount of
exempt-interest dividends which are a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes. The exemption
of interest income for federal income tax purposes does not necessarily result
in exemption under the income or other tax law of any state or local taxing
authority. Investors should consult their own tax advisers about the status of
distributions from the Fund in their states and localities. The Fund notifies
shareholders annually as to the interest exempt from federal taxes earned by
the Fund.
A shareholder who acquires Class A shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain and loss realized upon a sale or exchange of shares of the
Fund.
25
<PAGE>
CAPITAL STOCK; OTHER CLASSES OF SHARES.
OTHER CLASSES OF SHARES. The Evergreen High Income Fund will offer three
classes of shares, Class A, Class B and Class Y, and may in the future offer
additional classes. Class Y and B shares are not offered by this
Prospectus/Proxy Statement. Class Y shares are offered without any sales
charge or Rule 12b-1 distribution/shareholders servicing fees. Class Y shares
are only available to (i) all shareholders of record in one or more of the
Evergreen funds as of December 30, 1994, (ii) certain institutional investors
and (iii) investment advisory clients of FUNB and its affiliates. The
dividends payable with respect to Class A and Class B shares will be less than
those payable with respect to Class Y shares due to the distribution and
distribution related expenses borne by Class A and Class B shares and the fact
that such expenses are not borne by Class Y shares.
Class B shares are offered at net asset value without an initial sales
charge. Class B shareholders will pay a CDSC of up to 5%, declining to 0%
after seven years, if such shareholder redeems shares within seven years
(after which it is expected they will convert into Class A shares). Class B
shares are subject to ongoing distribution and shareholder servicing fees of
1.00% of the aggregate average daily net assets attributable to the Class B
shares, pursuant to the Rule 12b-1 plan relating to Class B shares.
The different sales and expenses relating to the various Classes of shares
of the Evergreen High Income Fund may impact the performance of such Classes.
To obtain information concerning the other Classes of shares of the Evergreen
High Income Fund not offered through this Prospectus/Proxy Statement, please
call 1-800-326-3241.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Evergreen
High Income Fund. Such laws and regulations also prohibit banks from issuing,
underwriting or distributing securities in general. However, under the Glass-
Steagall Act and such other laws and regulations, a Member Bank or an
affiliate thereof may act as investment adviser, transfer agent or custodian
to a registered open-end investment company and may also act as agent in
connection with the purchase of shares of such an investment company upon the
order of their customer. FUNB and EAMC, since it is a subsidiary of FUNB, is
subject to and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and EAMC being prevented from
continuing to perform the services required under the investment advisory and
administrative services contracts or from acting as agent in connection with
the purchase of shares of the Evergreen High Income Fund by its customers. If
FUNB and EAMC were prevented from continuing to provide the services called
for under these agreements, it is expected that the Trustees would identify,
and call upon the Fund's shareholders to approve, a new investment adviser or
administrator. If this were to occur, it is not anticipated that the
shareholders of the Fund would suffer any adverse financial consequences.
The Trust and The Evergreen Municipal Trust are each subject to the
informational requirements of the Exchange Act and the 1940 Act, and in
accordance therewith files reports and other information including proxy
material, reports and charter documents with the SEC. These items can be
inspected and copies obtained at the Public Reference Facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
26
<PAGE>
OTHER BUSINESS
The Trustees of the Trust do not intend to present any other business at the
Meeting. If, however, any other matters are properly brought before the
Meeting, the persons named in the accompanying form of proxy will vote thereon
in accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Trust to be used at the
Special Meeting of Shareholders of the ABT Fund, a portfolio of the Trust to be
held at 10:00 a.m. June 19, 1995, at 340 Royal Palm Way, Palm Beach, Florida
33480 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 11, 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. Since shares represented by
"broker non-votes" are considered outstanding shares, a "broker non-vote" has
the same effect as a vote against the Reorganization. A proxy may be revoked at
any time at or before the Meeting by written notice to the Secretary of the
Trust, 340 Royal Palm Way, Palm Beach, Florida 33480. 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 the ABT Fund. 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 Board of
Trustees of the Trust will continue to operate the ABT Fund under existing
arrangements.
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 PBCM, its affiliates or officers and Trustees of the
Trust (who will not be paid for their solicitation activities). 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. PBCM has retained Shareholder Communications
Corporation to assist in the proxy solicitation process.
The ABT Fund will be responsible for the fees and expenses of its counsel and
counsel for the independent Trustees in connection with the Reorganization,
whether or not the Reorganization is consummated. With respect to the costs of
preparing this Prospectus/Proxy Statement and soliciting shareholders of the
ABT Fund, PBCM has agreed to bear such costs and FUNB shall reimburse PBCM 50%
of its costs up to a maximum reimbursement of $85,000.
In the event that sufficient votes to approve the Plan are not received by
June 19, 1995, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further
27
<PAGE>
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 transaction will not be entitled
under either Massachusetts law or the Declaration of Trust of the Trust to
demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated,
shareholders will be free to redeem the Class A Shares of the Evergreen High
Income Fund which they received in the transaction at their then-current net
asset value. Shares of the ABT Fund may be redeemed at any time prior to the
consummation of the Reorganization. ABT Fund shareholders may wish to consult
their tax advisers as to any differing consequences of redeeming ABT Fund
shares prior to the Reorganization or exchanging such shares in the
Reorganization.
The Trust does not hold annual shareholder meetings. If the Reorganization is
not approved, shareholders wishing to submit proposals for consideration for
inclusion in a proxy statement for a subsequent shareholder meeting, if any,
should send their written proposals to the Secretary of the Trust at the
address set forth on the cover of this Prospectus/Proxy Statement such that
they will be received by the Trust in a reasonable period of time prior to any
such meeting.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise the Trust 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.
The votes of the shareholders of the Evergreen High Income Fund are not being
solicited by the Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of ABT Fund as of April 30, 1994 and the
financial highlights for the periods indicated therein, have been incorporated
by reference into this Prospectus/Proxy Statement in reliance on the reports
Tait, Weller & Baker, independent accountants for the ABT Fund, given on the
authority of the firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Evergreen High
Income Fund will be passed upon by Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, New York 10022.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE "NON-INTERESTED" TRUSTEES,
RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS
TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
----------------
May 11, 1995
28
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
this 15th day of March, 1995, by and between Evergreen Municipal Trust, a
Massachusetts business trust (the "Evergreen Trust"), with its principal place
of business at 2500 Westchester Avenue, Purchase, New York 10577, with respect
to its Evergreen Florida High Income Municipal Bond Fund series (the "Acquiring
Fund"), and ABT Southern Master Trust (the "ABT Trust"), a Massachusetts
business trust, with respect to its ABT Florida High Income Municipal Bond Fund
series, with its principal place of business at 340 Royal Palm Way, Palm Beach,
Florida 33480 (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)(F) of the United
States Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial
interest, no par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of certain stated liabilities
of the Selling Fund and the distribution, after the Closing Date hereinafter
referred to, of the Acquiring Fund Shares to the shareholders of the Selling
Fund in liquidation of the Selling Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
Whereas, the Selling Fund and the Acquiring Fund are separate investment
series of open-end, registered investment companies of the management type and
the Selling Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
Whereas, both Funds are authorized to issue their shares of beneficial
interest;
Whereas, the Trustees of the 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 ABT 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
1
<PAGE>
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.
Such transactions shall take place at the closing provided for in paragraph 3.1
(the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including without limitation
all cash, securities, commodities and futures interests and dividends or
interest receivable, which is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date. The Selling Fund has provided the Acquiring Fund with its most
recent audited financial statements which contain a list of all of Selling
Fund's assets as of the date thereof. The Selling Fund hereby represents that
as of the date of the execution of this Agreement there have been no changes in
its financial position as reflected in said financial statements other than
those occurring in the ordinary course of its business in connection with the
purchase and sale of securities and the payment of its normal operating
expenses. The Selling Fund reserves the right to sell any of such securities
but will not, without the prior written approval of the Acquiring Fund, acquire
any additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Selling Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Selling Fund's list
referred to in the second sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies, and restrictions. In the
event that the Selling Fund holds any investments which the Acquiring Fund may
not hold, the Selling Fund will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose
of a sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges
and reserves reflected on a Statement of Assets and Liabilities of the Selling
Fund prepared by Palm Beach Capital Management, Inc., the investment adviser
and administrator 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.
2
<PAGE>
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Selling Fund
shares on the books of the Selling Fund as of that time shall, as a condition
of such issuance and transfer, be paid by the person to whom such Acquiring
Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following the
Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
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 an Acquiring Fund Share 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 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
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of an Acquiring Fund Share 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. The Bank of New York, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of
an authorized officer stating that: (a) the Selling Fund's portfolio
securities, cash, and any other assets shall have been delivered in proper form
to the Acquiring Fund on the Closing Date and (b) all necessary taxes including
all applicable Federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities.
3
<PAGE>
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 ABT Trust , or provide
evidence satisfactory to the Selling Fund that such Acquiring Fund Shares have
been credited to the Selling Fund's account on the books of the Acquiring Fund.
At the Closing each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts and other documents
as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under
the laws of The Commonwealth of Massachusetts;
(b) The Selling Fund is a separate investment series of a registered
investment company classified as a management company of the open-end type
and its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the Investment Company Act of
1940 (the "1940 Act") is in full force and effect;
(c) The current prospectus and statement of additional information of the
Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended, (the "1933 Act")
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and performance
of this Agreement (subject to shareholder approval) will not, result in
violation of any provision of the ABT 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
4
<PAGE>
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 April 30, 1994 have
been audited by Tait, Weller & Baker, 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 April 30, 1994, there has not been any material adverse change
in the Selling Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed
to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of
the Selling Fund required by law to have been filed by such dates shall
have been filed, and all Federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof and
to the best of the Selling Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(j) For each of the preceding six fiscal years of its operation the
Selling Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and has
distributed in each such year all net investment income and realized
capital gains;
(k) All issued and outstanding shares of the Selling Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could, under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued
and outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares;
(l) At the Closing Date, the Selling Fund will have good and marketable
title to the Selling Fund's assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the 1933 Act,
other than as disclosed to the Acquiring Fund and accepted by the Acquiring
Fund;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Selling Fund
and, subject to approval by the Selling Fund's shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(n) The information to be furnished by the Selling Fund for use in no-
action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with Federal
securities and other laws and regulations thereunder applicable thereto;
(o) The proxy statement of the Selling Fund to be included in the
Registration Statement referred to in paragraph 5.7 (other than information
therein that relates to the Acquiring Fund) will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement
5
<PAGE>
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) Other than actions taken in connection with its designation as an
investment series of Evergreen Trust, the Acquiring Fund has had no
operations as of the date of the Agreement and has no net assets or
liabilities;
(g) Since its designation as an investment series of Evergreen Trust,
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,
6
<PAGE>
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 ABT Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 Investment Representation. The Selling Fund covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of this
Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement, including any actions required to be taken after the Closing
Date.
7
<PAGE>
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 ABT
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 4.1(o),
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
8
<PAGE>
may be bound or to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty, under any
agreement, judgment, or decree to which the Acquiring Fund is a party or by
which it is bound; (e) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of
the United States or the Commonwealth of Massachusetts, is required for the
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and such as may be required under state securities laws; (f) only
insofar as they relate to the Acquiring Fund, the descriptions in the
Prospectus and Proxy Statement of statutes, legal and governmental
proceedings and material contracts, if any, are accurate and fairly present
the information required to be shown; (g) such counsel does not know of any
legal or governmental proceedings, only insofar as they relate to the
Acquiring Fund, existing on or before the effective date of the
Registration Statement or the Closing Date required to be described in the
Registration Statement or to be filed as exhibits to the Registration
Statement which are not described as required; (h) the Acquiring Fund is a
separate investment series of a Massachusetts business trust registered as
an investment company under the 1940 Act and to such counsel's best
knowledge, such registration with the Commission as an investment company
under the 1940 Act is in full force and effect; and (i) to the knowledge of
such counsel, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or
threatened as to the Acquiring Fund or any of its properties or assets and
the Acquiring Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business, other than as previously
disclosed in the Registration Statement. In addition, such counsel shall
also state that they have participated in conferences with officers and
other representatives of the Acquiring Fund at which the contents of the
Prospectus and Proxy Statement and related matters were discussed and,
although they are not passing upon and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Prospectus and Proxy Statement (except to the extent indicated in paragraph
(f) of their above opinion), on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of the 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 ABT 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:
9
<PAGE>
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 ABT 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 ABT Trust; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Charles Moore, Esq., 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 ABT 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
10
<PAGE>
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 ABT 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 Charles
Moore, Esq. 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.
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 ABT 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;
11
<PAGE>
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)(F) of the Code and
the Acquiring Fund and the Selling Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (b) no
gain or loss will be recognized by the Acquiring Fund upon the receipt of
the assets of the Selling Fund solely in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; (c) no gain or loss will be recognized by
the Selling Fund upon the transfer of the Selling Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption
by the Acquiring Fund of certain identified liabilities of the Selling Fund
or upon the distribution (whether actual or constructive) of the Acquiring
Fund Shares to Selling Fund Shareholders in exchange for their shares of
the Selling Fund; (d) no gain or loss will be recognized by Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund; (e) the aggregate
tax basis for the Acquiring Fund Shares received by each Selling Fund
Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the Selling Fund shares held by such shareholder
immediately prior to the Reorganization, and the holding period of the
Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor
were held by such shareholder (provided the Selling Fund shares were held
as capital assets on the date of the Reorganization); and (f) the tax basis
of the Selling Fund assets acquired by the Acquiring Fund will be the same
as the tax basis of such assets to the Selling Fund immediately prior to
the Reorganization, and the holding period of the assets of the Selling
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Selling Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Selling Fund may
waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from Tait, Weller & Baker 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 1933 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 ABT Trust responsible for financial and accounting
12
<PAGE>
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 Tait, Weller & Baker in writing by the
Acquiring Fund).
In addition, the Acquiring Fund shall have received from Tait, Weller & Baker
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 1933 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 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
13
<PAGE>
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
Tait, Weller & Baker a letter addressed to the Acquiring Fund and the Selling
Fund, dated on the Closing Date in form and substance satisfactory to the
Funds, setting forth the Federal income tax implications relating to Capital
Loss Carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all or substantially all of the assets of the
Selling Fund to the Acquiring Fund and the ultimate dissolution of the Selling
Fund, upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 (a) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquiring Fund will
be borne by First Union National Bank of North Carolina ("FUNB"). The Selling
Fund will bear the expense of its own counsel and counsel to its Trustees in
connection with the transactions contemplated by this Agreement. All other
expenses of the transactions contemplated by this Agreement incurred by the
Selling Fund will be borne by Palm Beach Capital Management, Inc., subject to
the undertaking of FUNB to reimburse up to $85,000 of such expenses incurred by
Palm Beach Capital Management, Inc. in connection with this and all other
related transactions between investment companies for which it serves as
investment adviser and investment companies for which FUNB or its affiliates
serve as investment adviser. 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.
14
<PAGE>
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not
cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful default,
there shall be no liability for damages on the part of either the Acquiring
Fund or the Selling Fund, the Evergreen Trust or the ABT 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 ABT 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
ABT Southern Master Trust
340 Royal Palm Way
Palm Beach, Florida
Attention: Timothy Cox, Esq.
15
<PAGE>
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 Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and
the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Evergreen Trust
or the ABT 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 ABT Trust. The execution and delivery of this Agreement
have been authorized by the Trustees of the Evergreen Trust and the ABT Trust
on behalf of the Acquiring Fund and the Selling Fund, respectively, and signed
by authorized officers of the Selling Fund and the Acquiring Fund, 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 ABT Trust as
provided in their Declarations of Trust.
In Witness Whereof, the parties have duly executed and sealed this Agreement,
all as of the date first written above.
Evergreen Municipal Trust
on behalf of Evergreen Florida High
Income Municipal Bond Fund
/s/ John J. Pileggi
By: _________________________________
Name: John J. Pileggi
Title: President
(Seal)
ABT Southern Master Trust
on behalf of ABT Florida High
Income Municipal Bond Fund
/s/ Edward W. Cook
By: _________________________________
Name: Edward W. Cook
Title: President
(Seal)
16
<PAGE>
APPENDIX A--NOTE, BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
STANDARD & POOR'S CORPORATION. A Standard & Poor's corporate or municipal
bond rating is a current assessment of the credit worthiness of an obligor with
respect to a specific obligation. This assessment of credit worthiness may take
into consideration obligors such as guarantors, insurers or lessees. The debt
rating is not a recommendation to purchase, sell or hold a security, inasmuch
as it does not comment as to market price or suitability for a particular
investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with the
ratings and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA--Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the
majority of instances they differ from AAA issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than is higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB-rating.
B--Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely
A-1
<PAGE>
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC--Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC--The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
C1--The rating C1 is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon
a filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-)--To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
NR--indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the credit worthiness of the obligor but do not take into
account currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
MOODY'S INVESTORS SERVICE. A brief description of the applicable Moody's
Investors Service rating symbols and their meanings follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered
A-2
<PAGE>
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the
rating.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issue
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE RATINGS
MOODY'S INVESTORS SERVICE: MIG-1--the best quality. MIG-2--high quality, with
margins of protection ample though not so large as in the preceding group. MIG-
3--favorable quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grades. Market access for refinancing, in
particular, is likely to be less well established.
STANDARD & POOR'S RATINGS GROUP: SP-1--Very strong or strong capacity to pay
principal and interest. SP-2--Satisfactory capacity to pay principal and
interest.
MUNICIPAL NOTE RATINGS. A Standard & Poor's note rating reflects the
liquidity concerns and market access risks unique to notes. Notes due in three
years or less will likely receive a note rating. Notes maturing beyond three
years will most likely receive a long-term debt rating. The following criteria
will be used making that assessment.
. Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
. Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.)
Note rating symbols are as follows:
. SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
. SP-2 Satisfactory capacity to pay principal and interest.
. SP-3 Speculative capacity to pay principal and interest.
A-3
<PAGE>
MOODY'S SHORT-TERM LOAN RATINGS. Moody's ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
. MIG 1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
. MIG 2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
. MIG 3--This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
. MIG 4--This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
A-4
<PAGE>
APPENDIX B--FLORIDA RISK CONSIDERATIONS
The following is a summary of economic factors which may affect the ability
of the municipal issuers of Florida Municipal Securities to repay general
obligation and revenue bonds. Such information is derived from sources that are
generally available to investors and is believed by the Evergreen High Income
Fund to be accurate, but has not been independently verified and may not be
complete. Under current law, the State of Florida is required to maintain a
balanced budget such that current expenses are met from current revenues.
Florida does not currently impose a tax on personal income but does impose
taxes on corporate income derived from activities within the state. In
addition, Florida imposes an ad valorem tax as well as sales and use taxes.
These taxes are the principal sources of funds to meet state expenses,
including repayment of, and interest on, obligations backed solely by the full
faith and credit of the state, without recourse to any specific project or
related sources.
On November 3, 1992, Florida voters approved an amendment to the state
constitution which limits the annual growth in the assessed valuation of
residential property and which, over time, could constrain the growth in
property taxes, a major revenue source for local governments. The amendment
restricts annual increases in assessed valuation to the lesser of 3% or the
Consumer Price Index. The amendment applies only to residential properties
eligible for the homestead exemption and does not affect the valuation of
rental, commercial, or industrial properties. When sold, residential property
would be reassessed at market value. The amendment became effective January 1,
1993. While no immediate ratings implications are expected, the amendment could
have a negative impact on the financial performance of local governments over
time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
Many of the bonds in which the Evergreen High Income Fund invests were issued
by various units of local government in the State of Florida. In addition, most
of these bonds are revenue bonds where the security interest of the bond
holders typically is limited to the pledge of revenues or special assessments
flowing from the project financed by the bonds. Projects include, but are not
limited to, water and waste water utilities, drainage systems, roadways, and
other development-related infrastructures. Therefore, the capacity of these
issuers to repay their obligations may be affected by variations in the Florida
economy.
Since 1970, Florida has been one of the fastest growing states in the nation.
Average annual population growth over the last 20 years was 320,000. During
this period only California and Texas grew more rapidly. In terms of total
population, Florida moved from the ninth most populous state in 1970 to fourth
today.
This rapid and sustained pace of population growth has given rise to sharp
increases in construction activity and to the need for roads, drainage systems,
and utilities to serve the burgeoning population. In turn this has driven the
growth in volume of revenue bond debt outstanding.
The pace of growth, however, has not been steady. During economic expansions,
Florida's population growth has exceeded 500,000 people per year, but in
recessions growth has slowed to 120,000 per year. The variations in
construction activity over the course of business cycles is also very large.
Although the amplitude of the swings during business cycles is large, the
duration of downturns in Florida's growth has been short. Historically,
depressed levels of growth have lasted only a year or two at most. Furthermore,
Florida's cycles have not been periods of growth or decline. Instead, what has
occurred are periods of more growth or less growth.
Florida's ability to meet increasing expenses will be dependent in part upon
the state's ability to foster business and economic growth. During the past
decade, Florida has experienced significant increases in the technology-based
and other light industries and in the service sector. This growth has
diversified the state's overall economy, which at one time was dominated by the
citrus and tourism industries. The state's economic and business growth could
be restricted, however, by natural limitations of environmental resources and
the state's ability to finance adequate public facilities such as roads and
schools.
B-1
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
Please detach at perforation before mailing.
ABT SOUTHERN MASTER TRUST
SPECIAL MEETING OF SHAREHOLDERS -- JUNE 19, 1995
The undersigned hereby appoints Timothy W. Cox and Steven Eldredge and each of
them, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the ABT Florida High Income Muncipal Bond Fund
(the "Fund"), a portfolio of ABT Southern Master Trust (the"Trust"), which the
undersigned is entitled to vote at a Meeting of Shareholders of the Fund to be
held at 340 Royal Palm Way, Palm Beach, Florida 33480 on June 19, 1995 at 10:00
a.m. and any adjournments thereof (the "Meeting"). The undersigned hereby
acknowledges receipt of the Notice of Meeting and Prospectus/Proxy Statement,
and hereby instructs said attorneys and proxies to vote said shares as indicated
hereon. In their discretion, the proxies are authorized to vote upon such other
matters as may propertly come before the Meeting. A majority of the proxies
present and acting at the Meeting in person or by substitute (or, if only one
shall be so present, than that one) shall have and may exercise all of the
powers and authority of said proxies hereunder.
The undersigned hereby revoked any proxy previously given.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY IS
- -----------------------------------------------------------------------------
Solicited ON BEHALF OF THE BOARD OF TRUSTEE.
- ------------------------------------------
Please sign exactly as your name appears on this Proxy. If joint owners, EITHER
may sign this Proxy. When signing as attorney, executor, administrator, trustee,
guardian, or corporate officer, please give your full title.
Date: _____________________ 1995
- ---------------------------
- ---------------------------
Signature(s)
- ---------------------------
Title(s) if applicable A
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
In order to hold the Meeting, a quorum of a Fund's shares must be present in
person or by proxy. You can help reduce the cost of additional mailings by
promptly returning your signed proxy. No matter how many shares you own, your
vote counts!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION
TO BE TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION,
THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
1. To approve the proposed Agreement and Plan of Reorganization with
the Evergreen Florida High Income Municipal Bond Fund.
For [_] Against [_] Abstain [_]
2. To consider and vote upon such other matters as may properly come before
said meeting or any adjournments thereof.
For [_] Against [_] Abstain [_]
These items are discussed in greater detail in the attached Prospectus/Proxy
Statement. The Board of Trustees of the Trust has fixed the close of business
on April 25, 1995, as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE WHICH
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
Timothy W. Cox
Secretary
May 3, 1995
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain the
requisite quorums and for approvals.
A
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 10, 1995
Acquisition of the Assets of
ABT FLORIDA HIGH INCOME
MUNICIPAL BOND FUND
of
ABT Southern Master Trust
340 Royal Palm Way
Palm Beach, Florida 33480
1-800-553-7838
By and in Exchange for Shares of
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL FUND
of
The Evergreen Municipal Trust
2500 Westchester Avenue
Purchase, New York 10577
1-800-[_____________]
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the ABT Florida High Income Municipal Bond
Fund, a portfolio of ABT Southern Master Trust, in exchange for Class A Shares
of the Evergreen Florida High Income Municipal Fund (the Evergreen High Income
Fund), a series of The Evergreen Municipal Trust, (the "Trust") and the
assumption by the Evergreen High Income Fund of certain identified liabilities
of the ABT Florida High Income Municipal Bond Fund, is not a prospectus. A
Prospectus/Proxy Statement dated May 10, 1995 relating to the above-referenced
matter may be obtained from The Evergreen Municipal Trust, 2500 Westchester
Avenue, Purchase, New York 10577. This Statement of Additional Information
relates to and should be read in conjunction with such
Prospectus/Proxy Statement.
In addition to the information set forth below pertaining to
the Evergreen High Income Fund, this Statement of Additional Information
incorporates by reference the following documents, a copy of each of which
accompanies this Statement of Additional Information:
1. The Prospectus of the ABT Florida High Income Municipal Bond Fund, dated
August 29, 1994 (Contained in Post-Effective Amendment No. 14 to the
Registration Statement of ABT Southern Master Trust, File No. 33-14202).
2. The Statement of Additional Information of the ABT Florida High Income
Municipal Bond Fund, dated August 29, 1994 (Contained in Post-Effective
Amendment No. 14 to the Registration Statement of ABT Southern Master Trust,
File No. 33-14202).
3. The Annual Report of the ABT Florida High Income Municipal Bond Fund,
dated April 30,1994.
<PAGE>
TABLE OF CONTENTS
Page
EVERGREEN FLORIDA HIGH INCOME FUND
ADDITIONAL INFORMATION
INVESTMENT OBJECTIVES AND POLICIES..........................................
MUNICIPAL BONDS....................................................
FUTURES CONTRACTS ................................................
INVESTMENT RESTRICTIONS.....................................................
NON-FUNDAMENTAL OPERATING POLICIES..........................................
CERTAIN ADDITIONAL RISK CONSIDERATIONS......................................
MANAGEMENT..................................................................
INVESTMENT ADVISER..........................................................
DISTRIBUTION PLANS..........................................................
ALLOCATION OF BROKERAGE.....................................................
ADDITIONAL TAX INFORMATION..................................................
NET ASSET VALUE.............................................................
PURCHASE OF SHARES..........................................................
Alternative Purchase Arrangements..................................
Class A Shares.....................................................
Combined Purchase Privilege........................................
Cumulative Quantity Discount (Right of Accumulation)...............
Statement of Intention.............................................
GENERAL INFORMATION.........................................................
PERFORMANCE INFORMATION.....................................................
ADDITIONAL INFORMATION......................................................
APPENDIX - FLORIDA MUNICIPAL OBLIGATIONS....................................
PRO FORMA FINANCIAL STATEMENTS...............................................
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Evergreen Florida High Income Fund (also
referred to as the "Fund") and a description of the securities in which it may
invest is set forth under "Summary - Investment Objectives and Policies" and
"Investment Objective and Policies" in the Prospectus/Proxy Statement.
The Fund may not invest more than 25% of its net assets in any one
industry, except that the Fund may, subject to the Investment Restrictions set
forth below, invest 25% or more of its total assets in Municipal Securities, as
that term is defined in the Prospectus that are related in such a way that an
economic, business, or political development or change affecting one such
security could also affect the other securities (for example, securities whose
issuers are located in the same state).
As a matter of non-fundamental investment policy, the Fund may invest up
to 15% of its net assets in illiquid securities and other securities which are
not readily marketable. Repurchase agreements with maturities longer than seven
days will be included for the purpose of the foregoing 15% limit. Securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933,
which the Trustees/Directors of the Fund have determined to be liquid, will not
be considered by the Fund to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. The inability of the
Fund to dispose of illiquid or not readily marketable investments readily or at
a reasonable price could impair the Fund's ability to raise cash for redemptions
or other purposes. The liquidity of securities purchased by the Fund which are
eligible for resale pursuant to Rule 144A will be monitored by the Adviser on an
ongoing basis, subject to the oversight of the Trustees. Notwithstanding the
fact that a favorable liquidity determination was made at the time of purchase
of such a security, subsequent developments affecting the market for such
securities held by the Fund could have a negative effect on their liquidity. In
the event that such a security is deemed to be no longer liquid, the Fund's
holdings will be reviewed to determine what action, if any, is required to
ensure that the retention of such security does not result in the Fund exceeding
the applicable limit on assets invested in illiquid or not readily marketable
securities.
A portion of the assets of the Fund may be invested in health care bonds
issued for public and non-profit hospitals. Since 1983, the U.S. hospital
industry has been under significant pressure from third party payors to reduce
expenses and limit length of stay, a phenomenon which has negatively affected
the financial health of many hospitals.
The Fund may write covered call options to a limited extent on its
portfolio securities ("covered options") in an attempt to earn additional
income. A call option gives the purchaser of the option the right to buy a
security from the writer at the exercise price at any time during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents such a profit. The Fund
retains the risk of loss should the price of the underlying security decline.
The Fund will write only covered call option contracts and will receive premium
income from the writing of such contracts.
Subject to the limits described in the Prospectus/Proxy Statement and
this Statement of Additional Information the Fund may, to a limited extent,
enter into financial futures contracts including futures contracts based on
securities indices, purchase and write put and call options on such futures
contracts, and engage in related closing transactions.
The Fund may invest in variable and floating rate securities. The terms
of variable and floating rate instruments provide for the interest rate to be
adjusted according to a formula on certain predetermined dates. Variable and
floating rate instruments that are repayable on demand at a future date are
deemed to have a maturity equal to the time remaining until the principal will
be received on the assumption that the demand feature is exercised on the
earliest possible date. For the purposes of evaluating the interest-rate
sensitivity of the Fund, variable and floating rate instruments are deemed to
have a maturity equal to the period remaining until the next interest-rate
readjustment. For the purposes of evaluating the credit risks of variable and
floating rate instruments, these instruments are deemed to have a maturity equal
to the time remaining until the earliest date the Fund is entitled to demand
repayment of principal. The Fund amy invest no more than 10% of its total
assets, at the time of investment, in variable nd floating rate securities that
are not readily marketable.
Fixed Income Ratings. The ratings assigned by nationally recognized
statistical rating organizations ("NRSROs") such as Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") represent their
respective opinions of the quality of the municipal bonds and notes and Taxable
Short Term Obligations which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of quality.
Consequently, obligations with the same maturity, stated interest rate and
rating may have different yields, while obligations of the same maturity and
stated interest rate with different ratings may have the same yield. While the
Fund's investment adviser intends to use NRSROs such as Moody's or S&P to
evaluate the risk involved in purchasing medium and lower rated and unrated
instruments, it will also rely heavily on its internal credit analysis. See
Appendix A for further information about the ratings of Moody's and S&P as to
the various rated Municipal Obligations which the Fund may purchase.
When-Issued and Delayed Delivery obligations. The Fund may purchase
obligations on a when-issued or delayed delivery basis. The purchase price and
the interest rate payable on the obligations are fixed on the transaction date.
At the time the Fund makes the commitment to purchase obligations on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value each day of such obligations in determining its net
asset value. The Fund will make commitments for such when-issued transactions
only when it has the intention of actually acquiring the obligations. The Fund
will make commitments for such when-issued transactions only when it has the
intention of actually acquiring the obligations. On delivery dates for such
transactions, the Fund will meet its commitments by selling the obligations held
in the separate account and/or from cash flow. At the time of settlement, the
market values of the securities purchased may vary from the purchase prices.
Although the Fund will only purchase obligations on a when-issued basis with the
intention of actually acquiring the obligations, it may sell these securities
before the settlement date if it is deemed advisable.
MUNICIPAL BONDS. The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and unlimited taxing
power for the payment of principal and interest. Revenue or special tax bonds
are payable only from the revenues derived from the proceeds of a special excise
or other tax, but are not supported by the issuer's power to levy general taxes.
There are, of course, variations in the security of municipal bonds, both within
a particular classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other things, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligations and rating of the
issue.
Since the Fund may invest in industrial development bonds, the Fund may not
be an appropriate investment for entities which are "substantial users" of
facilities financed by industrial development bonds or for investors who are
"related persons". Generally, an individual will not be a "related person" under
the Internal Revenue Code of 1986, as amended (the "Code") unless such investor
or his immediate family (spouse, brothers, sisters and lineal descendants) own
directly or indirectly in the aggregate more than 50 percent of the value of the
equity of a corporation or partnership which is a "substantial user" of a
facility financed from proceeds of "industrial development bonds". A
"substantial user" of such facilities is defined generally as a "non-exempt
person who regularly uses a part of a facility" financed from the proceeds of
industrial development bonds.
The Code establishes new unified volume caps for most "private purpose"
municipal bonds (such as industrial development bonds and obligations to finance
low-interest mortgages on owner-occupied housing and student loans). The unified
volume cap is not expected to affect adversely the availability of Municipal
Obligations for investment by the Fund; however, it is possible that proposals
will be introduced before Congress to further restrict or eliminate the federal
income tax exemption for interest on Municipal Obligations. Any such proposals,
if enacted, could adversely affect the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio might be affected.
In that event, the Fund might reevaluate its investment policies and
restrictions and consider recommending to its shareholders changes in both.
FUTURES CONTRACTS. The Fund is permitted to use futures contracts ("Futures") as
a possible means of hedging the Fund's exposure to the equity or fixed income
markets. The following discussion is intended to explain briefly the workings of
Futures.
Unlike when the Fund purchases or sells a portfolio security, no money
is paid or received by the Fund upon the purchase or sale of a Future.
Initially, however, when such transactions are entered into, the Fund will be
required to deposit with the futures commission merchant ("broker") an amount of
cash or portfolio securities equal to a varying specified percentage of the
contract amount. This amount is known as initial margin. Subsequent payments,
called variation margin, to and from the broker, will be made on a daily basis
as the price of the underlying securities fluctuate making the Future more or
less valuable, a process known as mark to market. Insolvency of the broker may
make it more difficult to recover initial or variation margin. Changes in
variation margin are recorded by the Fund as unrealized gains or losses. Margin
deposits do not involve borrowing by the Fund and may not be used to support any
other transactions. At any time prior to the expiration of the Future, the Fund
may elect to close the position by taking an opposite position which will
operate to terminate such Fund's position in the Future. A final determination
of variation margin is then made. Additional cash is required to be paid or
released to the Fund and it realizes a gain or a loss. Although Futures by their
terms call for the actual delivery or acceptance of cash or securities, in most
cases the contractual obligation is fulfilled without having to make or take
delivery. All transactions in the futures markets are subject to commissions
payable and are offset or fulfilled through a clearing house associated with the
exchange on which the contracts are traded. Although the Fund intends to buy and
sell Futures only on an exchange where there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular Future at any particular time. In such event, or in the event of an
equipment failure at a clearing house, it may not be possible to close a Futures
position.
The "sale" of a Future means the acquisition by the Fund of an
obligation to deliver an amount of cash equal to a specified dollar amount times
the difference between the index value at the close of the last trading day of
the Future and the price at which the Future is originally struck (which the
Fund anticipates will be lower because of a subsequent rise in interest rates
and a corresponding decline in the index value). This is referred to as having a
"short" Futures position. The "purchase" of a Future means the acquisition by
the Fund of an obligation to take delivery of such an amount of cash. In this
case, the Fund anticipates that the closing index value will be higher than the
price at which the Future is originally struck. This is referred to as having a
"long" Futures position. No physical delivery of the securities making up the
index is made as to either a long or a short Futures position.
Risks Relating to Futures Contracts. One risk in employing Futures to
attempt to protect against the price volatility of the Fund's portfolio
securities is that the Fund's investment adviser could be incorrect in its
expectations as to the extent of various interest rate movements or the time
span within which the movements take place. For example, if the Fund sold a
Future in anticipation of an increase in interest rates, and then interest rates
went down instead, the Fund would lose money on the sale.
Another risk as to Futures arises because of the imperfect correlation
between movement in the price of the Future and movements in the prices of the
portfolio securities which are the subject o the hedge. The risk of imperfect
correlation increases as the composition of the Fund's portfolio diverges from
the securities underlying the Futures. The price of the Future may move more
than or less than the price of the portfolio securities being hedged. If the
price of the Future moves less than the price of the portfolio securities which
are the subject of the hedge, the hedge will not be fully effective but, if the
price of the portfolio securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged at
all. If the price of the portfolio securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the Future. If
the price of the Future moved more than the price of the portfolio securities,
the Fund will experience either a loss or gain on the Future which will not be
completely offset by movements in the price of the portfolio securities which
are the subject of the hedge. To compensate for the imperfect correlation of
movements in the price of the portfolio securities being hedged and movements in
the price of the Futures, the Fund may buy or sell Futures in a greater dollar
amount than the dollar amount of the Obligations being hedged if the historical
volatility of the prices of the Obligations being hedged is less than the
historical volatility of the debt securities underlying the Futures. It is also
possible that, where the Fund has sold Futures to hedge its portfolio against
decline in the market, the market may advance and the value of the portfolio
securities held in the Fund's portfolio may decline. If this occurred, the Fund
would lose money on the Future and also experience a decline in value of its
portfolio securities.
Where Futures are purchased to hedge against a possible increase in the
price of portfolio securities before the Fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead; if the Fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, the Fund will realize a
loss on the Futures that is not offset by a reduction in the price of the
portfolio securities which it had anticipated purchasing.
There are daily price fluctuation limits established by contract markets
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached on a contract, no
trades may be entered into at prices beyond the limit, thus preventing the
liquidation of open Futures positions.
Risks Relating to Futures Options. In addition to the risks which apply
to Futures, there are several special risks relating to Futures Options. The
ability to establish and close out a position in Futures Options is subject to
the development and maintenance of a liquid secondary market.
Compared to the purchase or sale of Futures, the purchase of call or put
Futures Options involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the Futures Options (plus transaction
costs). There may be circumstances, however, when the purchase of a call or put
Futures Option would result in a loss, and the purchase or sale of a Future
would not result in a loss, such as when there is no movement in the prices of
the underlying securities. The writing of a put or call Futures Option involves
risks similar to those relating to transactions in Futures as described above.
During the option period, the Fund as a call writer, in return for the
premium on the Futures Option, has given up the opportunity for capital
appreciation above the exercise price should the market price of the Future
increase, but has retained the risk of depreciation should the price of the
Future decline. As a secured put writer, the Fund also retains the risk of loss
should the market value of the Future decline below the exercise price of the
Futures Option. In both cases, the Fund has no control over the time when it may
be required to fulfill its obligations as a writer of the Futures Option.
If the Fund as a call Future Option writer is unable to effect a closing
purchase transaction, it would continue to bear the risk of an increase in the
market price of the Future until the Futures Option expires or is exercised. If
the Fund as a secured put Futures Option writer is unable to effect a closing
purchase transaction, it would continue to bear the risk of decline in the
market price of the Future until the Futures Option expires or is exercised.
In purchasing a put Futures Option, the Fund would realize a loss if the
price of the Future subject to the Futures Option increased or remained the same
or did not decrease during the option period by more than the amount of the
premium. In purchasing a call Futures Option, the Fund would realize a loss if
the price of the Future subject to the Futures Option decreased or remained the
same or did not increase during the option period by more than the amount of the
premium. In purchasing Futures Options, the Fund relies on a clearing
corporation to purchase or deliver the Future if the Futures Option is
exercised. Failure of a clearing corporation to do so may cause the Fund to lose
the opportunity to effect a profitable transaction.
Regulatory Aspects of Futures Contracts. The Fund, due to requirements
under the Investment Company Act of 1940 (the "1940 Act"), will deposit in a
segregated account with its custodian bank portfolio securities maturing in one
year or less or cash, in an amount equal to the fluctuating market value of long
Futures it has purchased, less any margin deposited on long positions.
The Fund must operate within certain restrictions as to its long and short
positions in Futures under a rule (the "CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange Act (the "CEA")
to be eligible for the exclusion provided by the CFTC Rule as a "commodity pool
operator" (as defined under the CEA), and must represent to the CFTC that it
will operate within such restrictions. The Fund will use commodity futures or
commodity options contracts solely for bona fide hedging purposes within the
meaning and intent of Section 1.3(z)(1) of the General Regulations under the Act
(the "Regulations"); provided, however, that in addition, with respect to
positions in commodity futures or commodity option contracts which do not come
within the meaning and intent of Section 1.3(z)(i) of the Regulations, the Fund
represents that the aggregate initial margin and premiums required to establish
such positions will not exceed five percent (5%) of the fair market value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; and, provided, further, that
in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount as defined in Section 190.01(x) of the Regulations may be
excluded in computing such five percent
INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to the Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears the relevant policy is non-fundamental with
respect to the Fund and may be changed by the Fund's investment adviser without
shareholder approval, subject to review and approval by the Trustees. As used in
this Statement of Additional Information and in the Prospectus, "a majority of
the outstanding voting securities of the Fund" means the lesser of (1) the
holders of more than 50% of the outstanding shares of beneficial interest of the
Fund or (2) 67% of the shares present if more than 50% of the shares are present
at a meeting in person or by proxy.
1. Concentration of Assets in Any One Issuer
The Fund may not invest more than 5% of its total assets, at the time of
the investment in question, in the securities of any one issuer other than the
United States Government and its agencies or instrumentalities, except that up
to 25% of the value of the Fund's total assets may be invested without regard to
such 5% limitation. For this purpose each political subdivision, agency, or
instrumentality and each multi-state agency of which a state is a member, and
each public authority which issues industrial development bonds on behalf of a
private entity, will be regarded as a separate issuer for determining the
diversification of the Fund's portfolio.
2. 10% Limit on Securities of Any One Issuer*
The Fund may not purchase more than 10% of the voting securities of any
one issuer other than the United States Government and its agencies or
instrumentalities.
3. Investment for Purposes of Control or Management*
The Fund may not invest in companies for the purpose of exercising
control or management.
4. Purchase of Securities on Margin*
The Fund may not purchase securities on margin, except that the Fund may
obtain such short-term credits as may be necessary for clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
5. Unseasoned Issuers*
The Fund may not invest more than 5% of its total assets in taxable
securities of unseasoned issuers that have been in continuous operation for less
than three years, including operating periods of their predecessors, except that
the Fund may invest in (i) obligations issued or guaranteed by the United States
Government and its agencies or instrumentalities and (ii) Municipal Securities.
6. Underwriting*
The Fund may not engage in the business of underwriting the securities
of other issuers, provided that the purchase of Municipal Securities or other
permitted investments, directly from the issuer thereof (or from an underwriter
for an issuer) and the later disposition of such securities in accordance with
the Fund's investment program shall not be deemed to be an underwriting.
7. Interests in Oil, Gas or Other Mineral Exploration or
Development Programs*
The Fund may not purchase, sell or invest in interests in oil, gas or
other mineral exploration or development programs.
8. Concentration in Any One Industry
The Fund may not invest more than 25% of its total assets in the
securities of issuers conducting their principal business activities in any one
industry; provided, that this limitation shall not apply to obligations issued
or guaranteed by the United States Government or its agencies or
instrumentalities or Municipal Securities.
9. Warrants*
The Fund may not invest more than 5% of its net assets in warrants, and,
of this amount, no more than 2% of the its net assets may be invested in
warrants that are listed on neither the New York nor the American Stock
Exchange.
10. Ownership by Trustees*
The Fund may not purchase or retain the securities of any issuer if (i) one
or more officers or Trustees of the Trust or the investment adviser individually
owns or would own, directly or beneficially, more than 1/2% of the securities of
such issuer, and (ii) in the aggregate, such persons own or would own, directly
or beneficially, more than 5% of such securities.
11. Short Sales*
The Fund may not make short sales of securities unless, at the time of
each such sale and thereafter while a short position exists, the Fund owns an
equal amount of securities of the same issue or owns securities which, without
payment by the Fund of any consideration, are convertible into, or are
exchangeable for, an equal amount of securities of the same issue (and provided
that transactions in futures contracts and options are not deemed to constitute
selling securities short).
12. Lending of Funds*
The Fund may not lend its funds to other persons, provided that the Fund
may purchase issues of debt securities, acquire privately negotiated loans made
to municipal borrowers and enter into repurchase agreements.
13. Lending of Securities*
The Fund may not lend its portfolio securities, unless the borrower is a
broker, dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the
United States Government having a value at all times not less than 100% of the
current market value of the loaned securities, including accrued interest,
provided that the aggregate amount of such loans shall not exceed 30% of the
Fund's total assets.
14. Commodities*
The Fund may not purchase, sell or invest in physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
15. Real Estate*
The Fund may not purchase, sell or invest in real estate or interests in
real estate, except that the Fund may purchase, sell or invest in marketable
securities of companies holding real estate or interests in real estate,
including real estate investment trusts.
16. Borrowing, Senior Securities, Reverse Repurchase Agreements*
The Fund may not borrow money or enter into reverse repurchase
agreements except for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 10% of the value of the Fund's total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of such borrowing. The Fund will not enter into reverse
repurchase agreements exceeding 5% of the value of its total assets.
17. Joint Trading*
The Fund may not participate on a joint or joint and several basis in any
trading account in any securities. (The "bunching" of orders for the purchase or
sale of portfolio securities with the investment adviser or accounts under its
management to reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in securities
for purposes of this restriction).
18. Investment in Municipal Securities*
The Fund will invest, under normal market conditions, at least 80% of
its net assets in municipal securities and at least 90% of such assets will be
invested in Florida obligations.
19. Other Investment Companies.*
The Fund may purchase the securities of other investment companies, except
to the extent such purchases are not permitted by applicable law.
CERTAIN ADDITIONAL RISK CONSIDERATIONS
There can be no assurance that the Fund will achieve its investment
objective and an investment in the Fund involves certain risks which are
described under "Comparison of Investment Objectives and Policies" in the
Prospectus/Proxy Statement.
In addition, the ability of the Fund to achieve its investment objective is
dependent on the continuing ability of the issuers of Municipal Securities in
which the Fund invests -- and of banks issuing letters of credit backing such
securities -- to meet their obligations with respect to the payment of interest
and principal when due. The ratings of Moody's, S&P and other nationally
recognized rating organizations represent their opinions as to the quality of
Municipal Securities which they undertake to rate. Ratings are not absolute
standards of quality; consequently, Municipal Securities with the same maturity,
coupon, and rating may have different yields. There are variations in Municipal
Securities, both within a particular classification and between classifications,
resulting from
numerous factors.
Unlike other types of investments, Municipal Securities have traditionally
not been subject to regulation by, or registration with, the Securities and
Exchange Commission, although there have been proposals which would provide for
regulation in the future.
The federal bankruptcy statutes relating to the debts of political
subdivisions and authorities of states of the United States provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in the rights of
holders of their obligations. In addition, there have been lawsuits challenging
the issuance of pollution control revenue bonds or the validity of their
issuance under state or federal law which could ultimately affect the validity
of those Municipal Securities or the tax-free nature of the interest thereon.
While not anticipated, it is conceivable that substantial redemptions could
result in the realization by the Fund of gains. Short-term gains would be
taxable as ordinary income when distributed to the Fund's shareholders.
Long-term gains would be treated as capital gains.
MANAGEMENT
The following is information concerning the Trustees and executive
officers of the Trust:
Laurence B. Ashkin (67), 180 East Pearson Street, Chicago, IL Trustee. Real
estate developer and construction consultant since 1980; President of
Centrum Equities since 1987 and Centrum Properties, Inc. since 1980.
Foster Bam *(68), Greenwich Plaza, Greenwich, CT Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
James S. Howell (70), 4124 Crossgate Road, Charlotte, NC Trustee. Retired
Vice President of Lance Inc.; Chairman of the Distribution Comm.
Foundation for the Carolinas from 1989 to 1993; Chairman of the First
Union Funds since 1984.
Robert J. Jeffries (72), 2118 New Bedford Drive, Sun City Center, FL
Trustee. Corporate consultant since 1967.
Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC Trustee. Sales
Representative with Nucor-Yamoto Inc. since 1988; Trustee of the First
Union Funds since 1988.
Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC Trustee. Senior
executive and advisor to the Board of Directors of Rexham Corporation
from 1973 to 1980; Director of Carolina Cooperative Federal Credit
Union since 1990 and Rexham Corporation from 1988 to 1990; Vice
President of Rexham Industries, Inc. from 1989 to 1990; Vice
President-Finance and Resources, Rexham Corporation from 1979 to 1990;
Trustee of the First Union Funds since October 1993.
William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St.,
Charlotte, NC Trustee. Partner in the law firm Holcomb and Pettit, P.A.
since 1990; Attorney, Clontz and Clontz from 1980 to 1990; Trustee of
the First Union Funds since 1988.
Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird
Lane, Charlotte, NC Trustee. President, Primary Physician Care since
1990; President, Metrolina Family Practice Group, P.A. from 1982
to 1989; Trustee of the First Union Funds since 1984.
Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC Trustee.
Attorney, Law Offices of Michael S. Scofield since prior to 1989;
Trustee of the First Union Funds since 1984.
John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY President and
Treasurer. Senior Managing Director, Furman Selz Incorporated since
1992, Managing Director from 1984 to 1992.
Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY Secretary.
Managing Director and Counsel, Furman Selz Incorporated since 1991;
Staff Attorney, Securities and Exchange Commission from 1986 to 1991.
Donald E. Brostrom (35), 237 Park Avenue, Suite 910, New York, NY Assistant
Treasurer. Director of Fund Services, Furman Selz Incorporated since
1992, Associate Director from 1986 to 1992.
Sheryl A. Hirschfeld (34), 237 Park Avenue, Suite 910, New York, NY Assistant
Secretary. Director, Corporate Secretary Services, Furman Selz
Incorporated since 1994; Assistant to the Corporate Secretary, The
Dreyfus Corporation since prior to 1989.
Stephen W. St. Clair (36), 237 Park Avenue, Suite 910, New York, NY Assistant
Treasurer. Associate Director of Fund Services, Furman Selz
Incorporated since 1994, Administrator from 1992 to 1994; Assistant
Treasurer of J. W. Seligman Co., Inc. from 1989 to 1992.
The Trustees/Directors and officers listed above hold the same positions
with a total of ten registered investment companies offering a total of sixteen
investment portfolios funds within the Evergreen mutual fund complex.
The officers of the Trust are all officers and/or employees of Furman Selz
Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds
Distributor, Inc., the distributor of each Class of shares of the Fund.
- ---------------
(*) An "interested person" within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act").
The Fund does not pay any direct remuneration to any officer or Trustee who
is an "affiliated person" of Evergreen Asset Management Corp. ("Evergreen
Asset"), First Union National Bank of North Carolina ("FUNB") or their
affiliates. Currently, none of the Fund's Trustees is an "affiliated person".
One of the Trustees, Mr. Pettit, is considered an "interested person" of the
Funds by virtue of the fact that he and his firm provide legal services to FUNB.
Another Trustee Mr. Bam, is considered an "interested person" of the Fund by
virtue of the fact that his son is employed by Evergreen Asset. However, Mr. Bam
and Mr. Pettit are not considered "affiliated persons" of Evergreen Asset or
FUNB as defined in the 1940 Act. The Evergreen Municipal Trust pays each Trustee
who is not an "affiliated person" an annual retainer of $4,000 and the Fund pays
each Trustee a fee of $100 per meeting attended, plus expenses (and $50 for each
telephone conference meeting).
The Trustees who were not affiliated with the Adviser during the Fund's
last fiscal year received total Trustees/Directors' fees and expenses as
follows:
COMPENSATION OF TRUSTEES
AGGREGATE AGGREGATE COMPENSATION
COMPENSATION RECIEVED FROM ALL
RECIEVED EVERGREEN MUTUAL FUNDS
FROM FOR THE YEAR ENDED
NAME REGISTRANT DECEMBER 31, 1994
- ----- ---------- ----------------------
Laurence Ashkin $2,000 28,800
Foster Bam $2,000 28,850
James S. Howell 0 12,000
Robert J. Jefferies $2,000 29,800
Gerald M. McDonnel 0 14,200
Thomas L. McVerry 0 14,250
William Walt Pettit 0 14,200
Russell A. Salton, III, M.D. 0 14,200
Michael S. Scofield 0 14,200
--------- ---------
$8,000 170,500
========= =========
The Trust has no retirement or pension plan for directors. The Evergreen
family of funds consists of ten registered investment companies that offer a
total of sixteen investment portfolios.
No officer or Trustee owned shares of the Fund as of the date of this
Statement of Additional Information. As of the date of this Statement of
Additional Information, all of the shares of the Fund were owned by Evergreen
Asset Management Corp.
INVESTMENT ADVISER
(See also "Management of the Evergreen High Income Fund"
in the Prospectus/Proxy Statement)
The Fund's investment adviser is FUNB. It provides investment advisory
services through its Capital Management Group. First Union is a subsidiary of
First Union Corporation, a bank holding company headquartered in Charlotte,
North Carolina.
FUNB's Capital Management Group 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. The Capital Management Group has
been managing trust assets for over 50 years and currently oversees assets of
more than $51.2 billion. In addition, the Capital Management Group has advised
the Fund since its inception.
As part of its regular banking operations, FUNB may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund to
hold or acquire the securities of issuers which are also lending clients of
FUNB. The lending relationship will not be a factor in the selection of
securities.
FUNB shall not be liable to the Fund or any shareholder thereof for any
losses that may be sustained in the purchase, holding, or sale of any security,
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by FUNB to restrict the
flow of non-public information, the Fund's investments are typically made
without any knowledge of FUNB's or its affiliates' lending relationships with an
issuer.
The investment advisory agreement is terminable, without the payment of
any penalty, on sixty days' written notice, by a vote of the holders of a
majority of the Fund's outstanding shares, or by a vote of a majority of the
Trustees or by FUNB. The investment advisory agreement will automatically
terminate in the event of their assignment. The investment advisory agreement
provides in substance that FUNB shall not be liable for any action or failure to
act in accordance with its duties thereunder in the absence of willful
misfeasance, bad faith or gross negligence on the part of FUNB or of reckless
disregard of its obligations thereunder. The investment advisory agreement was
approved by the Fund's sloe shareholder on April 20, 1995, is expected to become
effective on July 1, 1995, and will continue in effect until June 30, 1996, and
thereafter from year to year provided that its continuance is approved annually
by a vote of a majority of the Trustees who are not parties thereto or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting duly called for the purpose of voting on such approval, and
by a vote of the Trustees or a majority of the outstanding voting shares of the
Fund.
ADVISORY FEES
For its advisory services, FUNB receives an annual investment advisory
fee as described in the Fund's Prospectus/Proxy Statement.
ADMINISTRATIVE SERVICES
Evergreen Asset provides administrative personnel and services to the
Fund and manages its business affairs for a fee as described in the
Prospectus/Proxy Statement of the Fund.
DISTRIBUTION PLANS
Reference is made to "Summary - Distribution; Sales Charges" and
"Additional Information - Evergreen High Income Fund" in the Prospectus/Proxy
Statement for additional disclosure regarding the Fund's distribution
arrangements.
Distribution fees are accrued daily and paid monthly on the Class A, B and
C shares and are charged as class expenses, as accrued. The distribution fees
attributable to the Class B shares and Class C shares are designed to permit an
investor to purchase such shares through broker-dealers without the assessment
of an initial sales charge, and, in the case of Class C shares, without the
assessment of a contingent deferred sales charge after the first year following
purchase, while at the same time permitting Evergreen Funds Distributor, Inc.
(the "Distributor") Distributor to compensate broker-dealers in connection with
the sale of such shares. In this regard the purpose and function of the combined
contingent deferred sales charge and distribution services fee on the Class B
shares and the Class C shares, are the same as those of the initial sales charge
and distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans with respect to each of its
Class A, Class B and Class C shares (to the extent that the Fund offers such
classes) (each a "Plan" and collectively, the "Plans"), the Treasurer of the
Trust will report the amounts expended under the Plan and the purposes for which
such expenditures were made to the Trustees for their review on a quarterly
basis. Also, each Plan provides that the selection and nomination of Trustees
who are not interested persons of the Trust (as defined in the 1940 Act) are
committed to the discretion of such disinterested Trustees then in office.
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
make payments for distribution services to the Distributor; the latter may in
turn pay part or all of such compensation to brokers or other persons for their
distribution assistance.
As of the date of this Statement of Additional Information, the Fund has
not offered its shares other than with respect to the Reorganization as
discussed in the Prospectus/Proxy Statement.
The Plan for the Class A shares of the Fund was approved by the sole
shareholder of the Class on April 20, 1995 and by the unanimous vote of the
Trustees, including the disinterested Trustees voting separately, at a meeting
called for that purpose and held on April 20, 1995. The Distribution Agreement
with respect to the Fund between the Trust and Evergreen Funds Distributors,
Inc., was approved at the April 20, 1995 meeting by the Trustees, including the
disinterested Trustees voting separately. The Plan and Distribution Agreement
will continue in effect for successive twelve-month periods provided, however,
that such continuance is specifically approved at least annually by the Trustees
or by vote of the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Class, and, in either case, by a majority of the
Trustees who are not parties to the Agreement or interested persons, as defined
in the 1940 Act, of any such party (other than as trustees of the Trust) and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more Classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to that Class or Classes, and
(ii) the Fund would not be obligated to pay the Distributor for any amounts
expended under the Distribution Agreement not previously recovered by the
Distributor from distribution services fees in respect of shares of such Class
or Classes through deferred sales charges.
All material amendments to the Plan or Distribution Agreement must be
approved by a vote of the Trustees and by a majority of the disinterested
Trustees, cast in person at a meeting called for the purpose of voting on such
approval; the Plan may not be amended in order to increase materially the costs
that the Class A shares of the Fund may bear pursuant to the Plan without the
approval of a majority of the holders of the outstanding Class A shares. The
Plan or Distribution Agreement may be terminated (a) by the Fund without penalty
at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by
the Distributor. To terminate any Distribution Agreement, any party must give
the other parties 60 days' written notice; to terminate a Plan only, the Fund
need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment.
ALLOCATION OF BROKERAGE
Decisions regarding the portfolio of the Fund are made by FUNB, subject
to the supervision and control of the Trustees. Orders for the purchase and sale
of securities and other investments are placed by employees of FUNB, the same
individuals perform the same functions for the other funds managed by FUNB. The
Fund will not effect any brokerage transactions with any broker or dealer
affiliated directly or indirectly with the Adviser unless such transactions are
fair and reasonable, under the circumstances, to the Fund's shareholders.
Circumstances that may indicate that such transactions are fair or reasonable
include the frequency of such transactions, the selection process and the
commissions payable in connection with such transactions.
It is anticipated that most purchase and sale transactions involving the
Fund will be with the issuer or an underwriter or with major dealers in such
securities acting as principals. Such transactions are normally on a net basis
and generally do not involve payment of brokerage commissions. However, the cost
of securities purchased from an underwriter usually includes a commission paid
by the issuer to the underwriter. Purchases or sales from dealers will normally
reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of the Fund shall be prompt execution at the most favorable price.
The Fund will also consider such factors as the price of the securities and the
size and difficulty of execution of the order. If these objectives may be met
with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. Any such research and analysis is not expected to reduce the costs of the
Adviser.
The transactions in which the Fund engages do not involve the payment
of brokerage commissions and are executed with brokers other than Lieber &
Company.
ADDITIONAL TAX INFORMATION
(See also "Additional Information - Evergreen
High Income Fund" in the Prospectus)
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code. (Such
qualification does not involve supervision of management or investment practices
or policies by the Internal Revenue Service.) In order to qualify as a regulated
investment company, the Fund must, among other things, (a) derive at least 90%
of its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities
and other income (including gains from options) derived with respect to its
business of investing in such securities; (b) derive less than 30% of its gross
income from the sale or other disposition of securities of any of the following:
options, futures or forward contracts (other than those on foreign currencies),
or foreign currencies (or options, futures or forward contracts thereon) that
are not directly related to the RIC's principal business of investing in
securities (or options and futures with respect thereto) held less than three
months; and (c) diversify its holdings so that, at the end of each quarter of
its taxable year, (i) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. Government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities). By so
qualifying, the Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain distribution requirements by the end of each calendar
year. The Fund anticipates meeting such distribution requirements.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of
the Fund have been held by such shareholders. Short-term capital gains are
taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of the Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net long-term
capital gains will be taxable as ordinary income to shareholders (who are not
exempt from tax), whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for Federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive,
what in effect is, a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or losses
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
All distributions of taxable income or gains, whether received in shares
or cash, must be reported by each shareholder on his or her Federal income tax
return. Each shareholder should consult his or her own tax adviser to determine
the state and local tax implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
To the extent that the Fund distributes exempt interest dividends to a
shareholder, interest on indebtedness incurred or continued by such shareholder
to purchase or carry shares of the Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or related persons) of facilities
financed by "private activity" bonds (some of which were formerly referred to as
"industrial development" bonds) should consult their tax advisers before
purchasing shares of the Fund. "Substantial user" is defined generally as
including a "non-exempt person" who regularly uses in its trade or business a
part of a facility financed from the proceeds of industrial development bonds.
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to federal, state and local consequences of investing in shares of the
Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
a U.S. withholding tax at a rate of 30% (or at a lower rate under a tax treaty)
on amounts treated as income from U.S. sources under the Code.
NET ASSET VALUE
The following information supplements that set forth in the
Prospectus/Proxy Statement under the subheading "Additional Information -
Evergreen High Income Fund - How the Evergreen High Income Fund Values Its
Shares" in the section entitled "Additional Information - Evergreen High Income
Fund - Purchase and Redemption of Shares".
The public offering price of shares of the Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus/Proxy Statement. On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types of securities
in which the Fund invests might materially affect the value of Fund shares, the
per share net asset value of the Fund is computed in accordance with the Trust's
Declaration of Trust as applicable, and By-Laws as of the next close of regular
trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.
Eastern time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding. A Fund business
day is any weekday, exclusive of national holidays on which the Exchange is
closed and Good Friday. Exchange-listed securities and over-the-counter
securities admitted to trading on the NASDAQ National List are valued at the
last quoted sale or, if no sale, at the mean of closing bid and asked prices and
portfolio bonds are presently valued by a recognized pricing service when such
prices are believed to reflect the fair value of the security. Unlisted
securities for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
PURCHASE OF SHARES
The following information supplements that set forth in the Prospectus
/Proxy Statement under the heading "Summary - Purchase and Redemption
Procedures" and "Additional Information - Evergreen High Income Fund - Purchase
and Redemption of Shares."
Shares of the Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "initial sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), as described below. Class
Y shares which, as described below, are not offered to the general public, are
offered without any initial or contingent sales charges. Shares of the Fund are
offered on a continuous basis through (i) investment dealers that are members of
the National Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Distributor ("selected dealers"), (ii)
depository institutions and other financial intermediaries or their affiliates,
that have entered into selected agent agreements with the Distributor ("selected
agents"), or (iii) the Distributor. The minimum for initial investments is
$1,000; there is no minimum for subsequent investments. The subscriber may use a
Share Purchase Application available from the Distributor for his or her initial
investment. Sales personnel of selected dealers and agents distributing the
Fund's shares may receive differing compensation for selling Class A or Class B
shares.
Investors may purchase shares of the Fund in the United States either
through selected dealers or agents or directly through the Distributor. The Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
The Fund will accept unconditional orders for its shares to be executed
at the public offering price equal to the net asset value next determined (plus
for Class A shares, the applicable sales charges), as described below. Orders
received by the Distributor prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of the Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("ACH"). If a shareholder's
telephone purchase request is received before 4:00 p.m. New York time on the
Fund business day, the order to purchase shares is automatically placed the same
Fund business day for non-money market funds, and two days following the day the
order is received for money market funds, and the applicable public offering
price will be the public offering price determined as of the close of business
on such business day. Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, stock certificates
will not be issued. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
In addition to the discount or commission amount paid to selected
dealers or agents, the Distributor may from time to time pay additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares, other than Class Y shares, of the Fund. On some occasions, such bonuses
or incentives may be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Evergreen Mutual Funds, as defined
below, during a specific period of time. At the option of the dealer such
bonuses or other incentives may take the form of payment for travel expenses,
including lodging incurred in connection with trips taken by persons associated
with the dealer and members of their families to places within or outside of the
United States.
Alternative Purchase Arrangements
The Fund issues three classes of shares: (i) Class A shares, which are
sold to investors choosing the initial sales charge alternative; (ii) Class B
shares, which are sold to investors choosing the deferred sales charge
alternative and which are not currently offered by the Fund; and (iii) Class Y
shares, which are offered only to (a) shareholders in one or more of the
Evergreen Mutual Funds prior to December 30, 1994., (b) certain investment
advisory clients of the Adviser and its affiliates, and (c) institutional
investors. The three classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and are identical in
all respects, except that (I) only Class A and Class B shares are subject to a
Rule 12b-1 distribution fee, (II) Class A shares bear the expense of the initial
sales charge and Class B shares bear the expense of the deferred sales charge,
(III) Class B shares each bear the expense of a higher Rule 12b-1 distribution
fee than Class A shares and higher transfer agency costs, (IV) with the
exception of Class Y Shares, each Class has exclusive voting rights with respect
to provisions of the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid which relates to a specific Class and other matters for which
separate Class voting is appropriate under applicable law, provided that, if the
Fund submits to a simultaneous vote of Class A and Class B shareholders an
amendment to the Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, the Class A shareholders and
the Class B shareholders will vote separately by Class, and (V) only the Class B
shares are subject to a conversion feature. Each Class has different exchange
privileges and certain different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services fee and
contingent deferred sales charges on Class B shares prior to conversion would be
less than the initial sales charge and accumulated distribution services fee on
Class A shares purchased at the same time, and to what extent such differential
would be offset by the higher return of Class A shares. Class B shares will
normally not be suitable for the investor who qualifies to purchase Class A
shares at the lowest applicable sales charge. For this reason, the Distributor
will reject any order (except orders for Class B shares from certain retirement
plans) for more than $2,500,000 for Class B shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares.
However, because initial sales charges are deducted at the time of purchase,
investors purchasing Class A shares would not have all their funds invested
initially and, therefore, would initially own fewer shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on Class B shares
may exceed the initial sales charge on Class A shares during the life of the
investment. Again, however, such investors must weigh this consideration against
the fact that, because of such initial sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares in order to have all their funds
invested initially, although remaining subject to higher continuing distribution
charges and being subject to a contingent deferred sales charge for a seven-year
period. For example, based on current fees and expenses, an investor subject to
the 4.75% initial sales charge would have to hold his or her investment
approximately seven years for the B distribution services fee, to exceed the
initial sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
The Trustees have determined that currently no conflict of interest
exists between or among the Class A, Class B, and Class Y shares. On an ongoing
basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and
state laws, will seek to ensure that no such conflict arises.
Class A Shares
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus/Proxy Statement.
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to any sales charges. The Fund
receives the entire net asset value of its Class A shares sold to investors. The
Distributor's commission is the sales charge set forth in the Prospectus/Proxy
Statement for the Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act of 1933, as amended.
Set forth below is an example of the method of computing the offering
price of the Class A shares of the Fund to be offered pursuant to the
Prospectus/Proxy Statement. The example assumes a purchase of Class A shares of
the Fund aggregating less than $100,000 subject to the schedule of sales charges
set forth above at a price based upon the net asset value of Class A shares of
the Fund at March 31, 1995.
Net Per Offering
Asset Share Price Per
Value Sales Share
Charge
Florida High
Income $ 10.16 - - $ 10.16
Prior to the date of this Statement of Additional Information, shares of
the Fund have not been offered to the public and, accordingly, no underwriting
commissions have been paid in respect of sales of shares of the Fund or retained
by the Distributor.
Investors choosing the initial sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
Mutual Funds into a single "purchase," if the resulting "purchase" totals at
least $100,000. The term "purchase" refers to: (i) a single purchase by an
individual, or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his or her spouse and their
children under the age of 21 years purchasing shares for his, her or their own
account(s); (ii) a single purchase by a trustee or other fiduciary purchasing
shares for a single trust, estate or single fiduciary account although more than
one beneficiary is involved; or (iii) a single purchase for the employee benefit
plans of a single employer. The term "purchase" also includes purchases by any
"company," as the term is defined in the 1940 Act, but does not include
purchases by any such company which has not been in existence for at least six
months or which has no purpose other than the purchase of shares of the Fund or
shares of other registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card holders of
a company, policy holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected dealer or agent, of
any Evergreen Mutual Fund. Including the Fund and the Evergreen Aggressive
Growth Fund (which is expected to be available after July 1, 1995), the
Evergreen Mutual Funds include:
The Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Florida High Income Municipal Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen National Tax-Free Fund
Evergreen Tax Exempt Money Market Fund
The Evergreen Money Market Trust
Evergreen U.S. Government Securities Fund
Evergreen Foundation Fund
Prospectuses for the Evergreen Mutual Funds may be obtained without
charge by contacting the Distributor or the Adviser at 1- 800-326-3241.
Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of
additional Class A shares of the Fund may qualify for a Cumulative Quantity
Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous day)
of (a) all Class A and Class B shares of the Fund held by the investor and (b)
all such shares and Class C of any other Evergreen Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described in paragraph (ii)
owned by another shareholder eligible to combine his or her purchase with that
of the investor into a single "purchase" (see above).
For example, if an investor owned Class A, B or C shares of an Evergreen
Mutual Fund worth $200,000 at their then current net asset value and,
subsequently, purchased Class A shares of the Fund worth an additional $100,000,
the sales charge for the $100,000 purchase would be at the 3.00% rate applicable
to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Statement of Intention. Class A investors may also obtain the reduced
sales charges shown in the table in the Prospectus/Proxy Statement by means of a
written Statement of Intention, which expresses the investor's intention to
invest not less than $100,000 within a period of 13 months in Class A shares (or
Class A and/or Class B shares) of the Fund or any other Evergreen Mutual Fund.
Each purchase of shares under a Statement of Intention will be made at the
public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Statement of Intention.
At the investor's option, a Statement of Intention may include purchases of
Class A or B shares of the Fund or any other Evergreen Mutual Fund made not more
than 90 days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the Statement of Intention is in
effect will begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the Evergreen Mutual Funds under a single Statement of
Intention. For example, if at the time an investor signs a Statement of
Intention to invest at least $100,000 in Class A shares of the Fund, the
investor and the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to invest a total of
$60,000 during the following 13 months in shares of the Fund or any other
Evergreen Mutual Fund, to qualify for the 3.75% sales charge on the total amount
being invested (the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. Shares purchased with the first 5%
of such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention can obtain a
form of Statement of Intention by contacting the Fund at the [add address or
telephone numbers].
Reinstatement Privilege. A Class A shareholder who has caused any or all
of his or her shares of the Fund to be redeemed or repurchased may reinvest all
or any portion of the redemption or repurchase proceeds in Class A shares of the
Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal tax purposes except that no loss will
be recognized to the extent that the proceeds are reinvested in shares of the
Fund. The reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with transactions whose sole
purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. The Fund may sell its Class A shares at net
asset value, i.e., without any sales charge, to certain categories of investors
including: (i) certain investment advisory clients of the Adviser or its
affiliates; (ii) officers and present or former Trustees of the Trust; present
or former directors and trustees of other investment companies managed by the
Adviser; present or retired full-time employees of the Adviser; officers,
directors and present or retired full-time employees of the Adviser, the
Distributor, and their affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling, direct ancestor
or direct descendant (collectively "relatives") of any such person; or any
trust, individual retirement account or retirement plan account for the benefit
of any such person or relative; or the estate of any such person or relative, if
such shares are purchased for investment purposes (such shares may not be resold
except to the Fund); (iii) certain employee benefit plans for employees of the
Adviser, the Distributor. and their affiliates; and (iv) persons participating
in a fee-based program, sponsored and maintained by a registered broker-dealer
and approved by the Distributor, pursuant to which such persons pay an
asset-based fee to such broker-dealer, or its affiliate or agent, for service in
the nature of investment advisory or administrative services. These provisions
are intended to provide additional job-related incentives to persons who serve
the Evergreen Mutual Funds or work for companies associated with the Fund and
selected dealers and agents of the Fund. Since these persons are in a position
to have a basic understanding of the nature of an investment company as well as
a general familiarity with the Fund, sales to these persons, as compared to
sales in the normal channels of distribution, require substantially less sales
effort. Similarly, these provisions extend the privilege of purchasing shares at
net asset value to certain classes of institutional investors who, because of
their investment sophistication, can be expected to require significantly less
than normal sales effort on the part of the Fund and the Distributor.
GENERAL INFORMATION
Capitalization and Organization.
The Fund, is a series of The Evergreen Municipal Trust, a Massachusetts
business trust (the "Trust"). National, Short-Intermediate,
Short-Intermediate-CA and Tax Exempt, are the other series ofThe Evergreen
Municipal Trust, which was organized as a Massachusetts business trust in 1988.
Liability Under Massachusetts Law
Under Massachusetts law, trustees and shareholders of a business trust
may, in certain circumstances, be held personally liable for its obligations.
The Declaration of Trust under which the Fund operates provides that no trustee
or shareholder will be personally liable for the obligations of the Trust and
that every written contract made by the Trust contain a provision to that
effect. If any Trustee or shareholder were required to pay any liability of the
Trust, that person would be entitled to reimbursement from the general assets of
the Trust.
The Fund may issue an unlimited number of shares of beneficial interest
with a $0.0001 par value. All shares of the Fund have equal rights and
privileges. Each share is entitled to one vote, to participate equally in
dividends and distributions declared by the Fund and on liquidation to their
proportionate share of the assets remaining after satisfaction of outstanding
liabilities. Shares of the Fund are fully paid, nonassessable and fully
transferable when issued and have no pre-emptive, conversion or exchange rights.
Fractional shares have proportionally the same rights, including voting rights,
as are provided for a full share.
The Trustees of The Evergreen Municipal Trust were elected by the
shareholders of the Trust at a Joint Special Meeting of Shareholders of the
Evergreen Funds held on June 23, 1994. Under the Trust's Declaration of Trust,
each Trustee will continue in office until the termination of the Trust or his
or her earlier death, incapacity, resignation or removal. Shareholders can
remove a Trustee upon a vote of two-thirds of the outstanding shares of
beneficial interest of the Trust. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. As a result, normally no annual or
regular meetings of shareholders will be held, unless otherwise required by the
Declaration of Trust of the Trust or the 1940 Act.
Shares of the Trust have noncumulative voting rights, which means that
the holders of more than 50% of the Trust's shares voting for the election of
Trustees can elect 100% of the Trustees if they choose to do so and in such
event the holders of the remaining shares so voting will not be able to elect
any Trustees.
The Trustees of the Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by the
Trust. Any issuance of shares of another series or class would be governed by
the 1940 Act and the law of the State of Massachusetts. If shares of another
series of the Trust were issued in connection with the creation of additional
investment series, each share of the newly created series would normally be
entitled to one vote for all purposes. Generally, shares of all series would
vote as a single series on matters, such as the election of Trustees, that
affected all series in substantially the same manner. As to matters affecting
each series differently, such as approval of the investment advisory agreement
and changes in investment policy, shares of each series would vote separately.
In addition the Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related an other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of the Fund.
Procedures for calling a shareholders' meeting for the removal of the
Trustees of the Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of the Trust. The rights of the holders of
shares of a series of the Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in the Fund. In the event the Fund were to issue additional Classes of
shares, no further relief from the Securities and Exchange Commission would be
required.
Custodian and Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian for the securities and cash of the Fund
but plays no part in deciding the purchase or sale of portfolio securities.
Distributor
Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue,
New York, New York 10169, serves as the Fund's principal underwriter, and as
such may solicit orders from the public to purchase shares of the Fund. The
Distributor is not obligated to sell any specific amount of shares and will
purchase shares for resale only against orders for shares. Under the Agreement
between the Trust and the Distributor, the Fund has agreed to indemnify the
Distributor, in the absence of its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations thereunder, against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
Counsel
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York,
New York 10022 serves as counsel to the Fund.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors of
the Fund.
PERFORMANCE INFORMATION
Total Return
From time to time the Fund may advertise its "total return" . Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the Securities
and Exchange Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been paid. The Fund
will include performance data for Class A and Class B shares in any
advertisement or information including performance data of the Fund.
The Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and its expenses. Total return information is
useful in reviewing the Fund's performance but such information may not provide
a basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in the Fund
is not fixed and will fluctuate in response to prevailing market conditions.
Yield Calculations
The yields used by the Fund in advertising are computed by dividing the
Fund's interest income (as defined in the SEC yield formula) for a given 30-day
or one month period, net of expenses, by the average number of shares entitled
to receive distributions during the period, dividing this figure by the Fund's
net asset value per share at the end of the period and annualizing the result
(assuming compounding of income) in order to arrive at an annual percentage
rate. The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Gains and losses
generally are excluded from the calculation. Income calculated for purposes of
determining the Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
the Fund may differ from the rate of distributions the Fund paid over the same
period, or the net investment income reported in the Fund's financial
statements.
Tax Equivalent Yield
The Fund will invest principally in obligations the interest from which
is exempt from federal income tax other than the AMT. However from time to time
the Fund may make investments which generate taxable income. The Fund's
tax-equivalent yield is the rate an investor would have to earn from a fully
taxable investment in order to equal the Fund's yield after taxes.
Tax-equivalent yields are calculated by dividing the Fund's yield by the result
of one minus a stated federal or combined federal and state tax rate. If only a
portion of the Fund's yield is tax-exempt, only that portion is adjusted in the
calculation. Of course, no assurance can be given that the Fund will achieve any
specific tax-exempt yield.
The following formula is used to calculate Tax Equivalent Yield without taking
into account state tax:
Fund's Yield
1 - Fed Tax Rate
The following formula is used to calculate Tax Equivalent Yield taking into
account state tax:
Fund's Yield
1 - Fed Tax Rate + (State Tax Rate - [State Tax Rate x Fed Tax Rate])
General
From time to time, the Fund may quote its performance in advertising
and other types of literature as compared to the performance of the S & P Index,
the Dow Jones Industrial Average, Russell 2000 Index, or any other commonly
quoted index of common stock prices. The S & P Index, the Dow Jones Industrial
Average and the Russell 2000 Index are unmanaged indices of selected common
stock prices. The Fund's performance may also be compared to those of other
mutual funds having similar objectives. This comparative performance would be
expressed as a ranking prepared by Lipper Analytical Services, Inc., an
independent service which monitors the performance of mutual funds. The Fund's
performance will be calculated by assuming, to the extent applicable,
reinvestment of all capital gains distributions and income dividends paid. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the shareholder's broker or
to the Adviser. at the address or telephone numbers shown on the front cover of
this Statement of Additional Information.
<PAGE>
APPENDIX A
APPENDIX B -- FLORIDA RISK CONSIDERATIONS
The following is a summary of economic factors which may affect the
ability of the municipal issuers of Florida Obligations to repay general
obligation and revenue bonds. Such information is derived from sources that are
generally available to investors and is believed by the Funds to be accurate,
but has not been independently verified and may not be complete. Under current
law, the State of Florida is required to maintain a balanced budget such that
current expenses are met from current revenues. Florida does not currently
impose a tax on personal income but does impose taxes on corporate income
derived from activities within the state. In addition, Florida imposes an ad
valorem tax as well as sales and use taxes. These taxes are the principal
sources of funds to meet state expenses, including repayment of, and interest
on, obligations backed solely by the full faith and credit of the state, without
recourse to any specific project or related revenue source.
On November 3, 1992, Florida voters approved an amendment to the state
constitution which limits the annual growth in the assessed valuation of
residential property and which, over time, could constrain the growth in
property taxes, a major revenue source for local governments. The amendment
restricts annual increases in assessed valuation to the lesser of 3% or the
Consumer Price Index. The amendment applies only to residential properties
eligible for the homestead exemption and does not affect the valuation of
rental, commercial, or industrial properties. When sold, residential property
would be reassessed at market value. The amendment became effective January 1,
1993. While no immediate ratings implications are expected, the amendment could
have a negative impact on the financial performance of local governments over
time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
Many of the bonds in which the Funds invest were issued by various
units of local government in the State of Florida. In addition, most of these
bonds are revenue bonds where the security interest of the bond holders
typically is limited to the pledge of revenues or special assessments flowing
from the project financed by the bonds. Projects include, but are not limited
to, water and waste water utilities, drainage systems, roadways, and other
development-related infrastructures. Therefore, the capacity of these issuers to
repay their obligations may be affected by variations in the Florida economy.
Since 1970, Florida has been one of the fastest growing states in the
nation. Average annual population growth over the last 20 years was 320,000.
During this period only California and Texas grew more rapidly. In terms of
total population, Florida moved from the ninth most populous state in 1970 to
fourth today.
This rapid and sustained pace of population growth has given rise to
sharp increases in construction activity and to the need for roads, drainage
systems, and utilities to serve the burgeoning population. In turn this has
driven the growth in the volume of revenue bond debt outstanding.
The pace of growth, however, has not been steady. During economic
expansions, Florida's population growth has exceeded 500,000 people per year,
but in recessions growth has slowed to 120,000 per year. The variations in
construction activity over the course of business cycles is also very large.
Although the amplitude of the swings during business cycles is large, the
duration of downturns in Florida's growth has been short. Historically,
depressed levels of growth have lasted only a year or two at most. Furthermore,
Florida's cycles have not been periods of growth or decline. Instead, what has
occurred are periods of more growth or less growth.
Florida's ability to meet increasing expenses will be dependent in part
upon the state's ability to foster business and economic growth. During the past
decade, Florida has experienced significant increases in the technology-based
and other light industries and in the service sector. This growth has
diversified the state's overall economy, which at one time was dominated by the
citrus and tourism industries. The state's economic and business growth could be
restricted, however, by the natural limitations of environmental resources and
the state's ability to finance adequate public facilities such as roads and
schools.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following pro forma financial information relates to the ABT
Florida High Income Municipal Bond Fund and the Evergreen Florida High Income
Municipal Fund:
<PAGE>
PRO FORMA COMBINING PORTFOLIOS OF INVESTMENTS OF
EVERGREEN FLORIDA HIGH INCOME FUND AND
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
DECEMBER 31, 1994
(unaudited)
<TABLE>
<CAPTION>
ABT ABT
EVERGREEN FLORIDA EVERGREEN FLORIDA
FLORIDA HIGH FLORIDA HIGH
HIGH INCOME HIGH INCOME
INCOME MUNICIPAL PRO FORMA INCOME MUNICIPAL PRO FORMA
FUND BOND FUND COMBINED FUND BOND FUND COMBINED
- ----------------------------------------------------------------- INTEREST MATURITY ------------------------------------
PRINCIPAL AMOUNT MUNICIPAL BONDS RATE* DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 500,000 $ 500,000 Alachua County Health 6.000% 11/15/09 $ $ 428,125 $ 428,125
Facilities Authority Rev.
(Santa Fe Healthcare)
660,000 660,000 Alachua County Health 7.600 11/15/13 663,300 663,300
Facilities Authority Rev.
(Santa Fe Healthcare)
1,000,000 1,000,000 Bay County Hospital System 8.000 10/01/12 1,006,250 1,006,250
Rev. (Bay Medical Center
Project)
400,000 400,000 Baytree Community Development 8.750 05/01/12 398,500 398,500
District Rev.
1,875,000 1,875,000 Brevard County Health 7.500 11/15/12 1,755,469 1,755,469
Facilities Authority Rev.
(Coutney Springs Village)
3,500,000 3,500,000 Brevard County Tourist 6.875 03/01/13 3,198,125 3,198,125
Development Tax Rev.
(Marlins Spring Training
Project)
250,000 250,000 Broward County Educ. 7.500 04/01/17 275,312 275,312
Facilities Authority Rev.
(Nova University)
120,000 120,000 Broward County HFA, 7.350 03/01/11 123,000 123,000
Home Mortgage Rev.,
GNMA Collateralized
1,000,000 1,000,000 Broward County HFA, 7.350 03/01/23 1,021,250 1,021,250
Home Mortgage Rev.,
GNMA/FNMA Collateralized
650,000 650,000 Charlotte County Health 7.559 08/30/27 502,937 502,937
Facilities Authority Rev.,
RIBS, (Bon Secours Hospital)
-- FSA +
500,000 500,000 City of Atlantis 6.500 09/01/22 464,375 464,375
Water & Sewer Rev.
1,545,000 1,545,000 City of Hialeah Gardens 7.875 12/01/07 1,463,888 1,463,888
IDR (The Waterford
Convalescent Project)
1,000,000 1,000,000 City of Largo Health 6.200 03/01/13 840,000 840,000
System Rev. (Suncoast
Hospital)
3,000,000 3,000,000 City of Tampa Rev. 7.750 05/01/27 2,966,250 2,966,250
(The Florida Aquarium Inc.
Project)
1,695,000 1,695,000 Collier County Special 5.375 11/01/07 1,502,194 1,502,194
Assessment Rev. (Pine Ridge
Industrial Park & Naples
Production Park)
925,000 925,000 Collier County Special 5.600 11/01/13 778,156 778,156
Assessment Rev. (Pine
Ridge Industrial Park &
Naples Production Park)
1,125,000 1,125,000 Crossing at Fleming Island 7.375 10/01/19 1,008,281 1,008,281
Community Development
District Rev.
535,000 535,000 Escambia County Health 9.250 01/01/06 555,731 555,731
Facilities Authority Rev.
(Azalea Trace Inc.)
75,000 75,000 Escambia County Health 9.250 01/01/12 78,562 78,562
Facilities Authority Rev.
(Azalea Trace Inc.)
350,000 350,000 Escambia County Health 8.500 01/01/19 357,438 357,438
Facilities Authority Rev.
(Azalea Trace Inc.)
250,000 250,000 Escambia County Health 6.750 10/01/14 230,000 230,000
Facilities Authority Rev.
(Baptist Hospital and Baptist
Manor, Inc.)
3,000,000 3,000,000 Escambia County Health 6.000 10/01/14 2,520,000 2,520,000
Facilities Authority Rev.
(Baptist Hospital and Baptist
Manor, Inc.).
150,000 150,000 Escambia County Health 13.250 01/15/15 155,055 155,055
Facilities Authority Rev.
(Baptist Manor Inc.)
1,000,000 1,000,000 Hillsborough County Aviation 6.800 01/01/24 875,000 875,000
Authority Rev. (Delta Airlines)
1,150,000 1,150,000 Hillsborough County Capital 6.750 07/01/22 1,145,688 1,145,688
Improvement Rev.
3,500,000 3,500,000 Homestead IDR (Community 7.950 11/01/18 3,154,375 3,154,375
Rehabilitation Providers
Program)
750,000 750,000 Jacksonville Health 7.000 12/01/14 690,000 690,000
Facilities Authority Rev.
(Cypress Village Project)
1,000,000 1,000,000 Jacksonville Health 7.000 12/01/22 897,500 897,500
Facilities Authority Rev.
(Cypress Village Project)
2,965,000 2,965,000 Leon County Educ. Facilities 8.250% 05/01/14 2,853,813 2,853,813
Authority Rev (Student Housing)
675,000 675,000 Martin County IDR Rev. 7.875% 12/15/25 680,906 680,906
(Indiantown Cogeneration PJ-A)
400,000 400,000 Nassau County PCR, (ITT 6.250 06/01/10 375,000 375,000
Rayonier Inc. Project)
500,000 500,000 North Palm Beach Water 6.875 11/01/13 477,500 477,500
Control District Project 2
500,000 500,000 North Palm Beach Water 7.000 08/01/15 478,750 478,750
Control District Rev. #3A-1
1,310,000 1,310,000 North Springs IMPT Water 8.200 05/01/24 1,311,637 1,311,637
Management
500,000 500,000 Pace Property Finance 6.250 09/01/13 453,125 453,125
Authority Utility Rev.
1,500,000 1,500,000 Palm Beach County Health 6.200 10/01/11 1,331,250 1,331,250
Facilities Authority Rev.
(Good Samaritan Hospital)
1,000,000 1,000,000 Palm Beach County Health 6.300 10/01/22 862,500 862,500
Facilities Authority Rev.
(Good Samaritan Hospital)
2,000,000 2,000,000 Palm Beach County IDA Rev. 6.850 02/15/21 1,760,000 1,760,000
(Okeelanta Power Ltd
Partnership Project)
2,000,000 2,000,000 Palm Beach County IDA Rev. 6.950 01/01/22 1,780,000 1,780,000
(Osceola Power Ltd
Partnership Project)
400,000 400,000 Palm Beach Health 7.750 10/01/15 382,000 382,000
Facilities Authority Rev.
(The Waterford Project)
500,000 500,000 Pinellas County Educ. 6.600 08/01/18 448,750 448,750
Facilities Authority Rev.
(Eckerd College)
685,000 685,000 Pinellas County Educ. 7.750 07/01/14 717,538 717,538
Facilities Authority Rev.
(Eckerd College)
600,000 600,000 Pinellas County Educ. 6.500 08/01/13 538,500 538,500
Facilities Authority Rev.
(Eckerd College)
</TABLE>
<PAGE>
PRO FORMA COMBINING PORTFOLIOS OF INVESTMENTS OF
EVERGREEN FLORIDA HIGH INCOME FUND AND
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
DECEMBER 31, 1994
(unaudited)
<TABLE>
<CAPTION>
ABT ABT
EVERGREEN FLORIDA EVERGREEN FLORIDA
FLORIDA HIGH FLORIDA HIGH
HIGH INCOME HIGH INCOME
INCOME MUNICIPAL PRO FORMA INCOME MUNICIPAL PRO FORMA
FUND BOND FUND COMBINED FUND BOND FUND COMBINED
- ----------------------------------------------------------------- INTEREST MATURITY ------------------------------------
PRINCIPAL AMOUNT MUNICIPAL BONDS RATE* DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 370,000 $ 370,000 Plantation Health 7.625% 12/01/12 $ $ 357,050 $ 357,050
Facilities Authority Rev.
(Covenant Retirement
Communities Inc.)
5,000,000 5,000,000 Polk County IDA 7.525 01/01/15 4,956,250 4,956,250
(IMC Global, Inc.)
1,000,000 1,000,000 Port Everglades Authority 7.500 09/01012 1,022,500 1,022,500
Rev.
1,800,000 1,800,000 Quantum Community 7.750 03/01/14 1,689,750 1,689,750
Development District Rev.
2,100,000 2,100,000 Riverwood Community 7.750 10/01/14 1,945,125 1,945,125
Development District Rev.
3,500,000 3,500,000 South Indian River Water 7.500 11/01/18 3,285,625 3,285,625
Control District Rev. #15
1,000,000 1,000,000 St. John's IDA (Vicar's 6.570 02/15/12 915,000 915,000
Landing Project)
350,000 350,000 St. Lucie County Water and 7.500 10/01/22 329,875 329,875
Sewer Authority Rev.
2,510,000 2,510,000 Tampa Capital Improvement 8.375 10/01/18 2,604,125 2,604,125
Program Rev.
1,000,000 1,000,000 Tarpon Springs Health 7.500 05/01/11 955,000 955,000
Facilities Authority Rev.
(Helen Ellis Hospital)
2,000,000 2,000,000 Virgin Islands Water and 7.600 12/31/07 2,032,500 2,032,500
Sewer Authority Rev.
250,000 250,000 Winter Haven Housing 7.000 07/01/12 252,812 252,812
Authority MFHR, FHA Insured
250,000 250,000 Winter Haven Housing 7.000 07/01/24 251,250 251,250
Authority MFHR, FHA Insured
------------------------------------
TOTAL INVESTMENTS (Cost $68,518,035) $ - $64,102,892 $64,102,892
------------------------------------
<FN>
*The interest rates shown are the rates in effect at December 31,
1994.
+ RIBS -- inverse floating rate security whose coupon is based on
receiving twice the underlying bond coupon less a floating interest
rate. As the floating interest rate moves higher, the income received
on the RIB decreases. If the floating interest rate were to go high
enough, the coupon rate on the RIB could be zero or negative. The rate
shown represents the RIB rate at December 31, 1994.
ABBREVIATIONS
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
HFA -- Housing Financial Authority
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
MFHR -- Multifamily Housing Revenue
PCR -- Pollution Control Revenue
</FN>
</TABLE>
See notes to pro forma financial statements
<PAGE>
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES OF
EVERGREEN FLORIDA HIGH INCOME FUND AND
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
DECEMBER 31, 1994
(unaudited)
<TABLE>
<CAPTION>
EVERGREEN ABT FLORIDA
FLORIDA HIGH INCOME
HIGH INCOME MUNICIPAL PRO FORMA
FUND BOND FUND ADJUSTMENTS COMBINED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities at value
(cost $0; $68,518,035; and
$68,518,035, respectively) $ $64,102,892 $64,102,892
Cash 10 1,382,492 1,382,502
Receivables:
Fund shares sold 371,149 371,149
Interest 1,390,384 1,390,384
Other 12,500 12,500
Deferred organization costs 12,500 (12,500) -
Prepaid expenses 15,752 15,752
------------ ----------- ----------- -----------
Total assets 10 67,275,169 - 67,275,179
------------ ----------- ----------- -----------
LIABILITIES
Payables:
Investment securities purchased 1,318,355 1,318,355
Fund shares redeemed 291,274 291,274
Dividends 372,503 372,503
Accrued expenses 51,732 51,732
------------ ----------- ----------- -----------
Total liabilities - 2,033,864 2,033,864
------------ ----------- ----------- -----------
Net assets $ 10 $65,241,305 $ - $65,241,315
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Shares outstanding 1 6,797,117 - 6,797,118*
------------ ----------- ----------- -----------
Net asset value (total net assets DIVIDED BY
shares outstanding) $9.60 $9.60 - $9.60
------------ ----------- ----------- -----------
<FN>
*Class A Investment Shares.
</FN>
</TABLE>
See notes to pro forma financial statements
<PAGE>
PRO FORMA COMBINING STATEMENT OF OPERATIONS OF
EVERGREEN FLORIDA HIGH INCOME FUND AND
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
FOR THE YEAR ENDED DECEMBER 31, 1994
(unaudited)
<TABLE>
<CAPTION>
EVERGREEN ABT FLORIDA
FLORIDA HIGH INCOME
HIGH INCOME MUNICIPAL PRO FORMA
FUND BOND FUND ADJUSTMENTS COMBINED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest $ - $ 4,991,576 $ 4,991,576
------------ ----------- ----------- -----------
Expenses:
Investment Advisory fees 433,952 433,952
Distribution fees 180,894 180,894
Transfer agent fees 70,851 (10,000) (1) 60,851
Administrative fees 48,958 48,958
Accounting fees 47,878 (5,000) (1) 42,878
Custodian fees 7,065 7,065
Registration fees and expenses 22,762 22,762
Directors' fees and expenses 3,516 3,516
Insurance 9,753 9,753
Audit fees and expenses 12,743 12,743
Printing and shareholder communications 8,226 3,700 (1) 11,926
Legal fees and expenses 12,351 12,351
Amortization of organization expense 5,080 5,080
Other 1,620 1,620
------------ ----------- ----------- -----------
Total expenses - 865,649 (11,300) 854,349
Less expenses reimbursed (497,908) 280,985 (2) (216,923)
------------ ----------- ----------- -----------
Net expense - 367,741 269,685 637,426
------------ ----------- ----------- -----------
Net investment income - 4,623,835 (269,685) 4,354,150
------------ ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (1,350,149) (1,350,149)
Change in unrealized appreciation (6,750,867) (6,750,867)
------------ ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments - (8,101,016) - (8,101,016)
------------ ----------- ----------- -----------
Net change in net assets resulting from operations $ - $(3,477,181) $(269,685) $(3,746,866)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
<FN>
(1) Reflects adjustments to fees based on the fee schedules to be in effect for
Evergreen Florida High Income Fund.
(2) Reflects reduction in waiver of investment advisory fees and reimbursement
of other Fund expenses based upon the voluntary agreement by Evergreen to limit
investment advisory fees to 0.30% of average net assets.
</FN>
</TABLE>
See notes to pro forma financial statements
<PAGE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS OF
EVERGREEN FLORIDA HIGH INCOME FUND AND
ABT FLORIDA HIGH INCOME MUNICIPAL BOND FUND
DECEMBER 31, 1994
(unaudited)
1. BASIS OF COMBINATION
The Pro Forma Combining Portfolio of Investments and Pro Forma Combining
Statement of Assets and Liabilities reflect the accounts of Evergreen Florida
High Income Fund (Evergreen) and ABT Florida High Income Municipal Bond Fund
(ABT) at December 31, 1994. The Pro Forma Combining Statement of Operations
reflects the accounts of Evergreen and ABT for the year ended December 31, 1994.
Evergreen was organized as a separate series of Evergreen Municipal Trust on
March 15, 1995, for the sole purpose of merging with ABT. Evergreen did not
have any assets or operations as of the date of these pro forma statements, and
will not have any assets or operations until the merger with ABT. These
statements have been derived from ABT's books and records utilized in
calculating daily net asset value at December 31, 1994.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of ABT in exchange for Class A investment shares of
Evergreen under generally accepted accounting principles. The historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of Evergreen for pre-combination periods will not be
restated. The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of Reorganization.
First Union National Bank of North Carolina ("FUNB") will bear all the expenses
of Evergreen in connection with the Reorganization. Other than the fees and
expenses of counsel to ABT and expenses for Officers and Trustees ongoing
insurance coverage (which will be paid by ABT), the expenses of the
Reorganization (including the cost of any proxy soliciting agents) will be borne
by Palm Beach Capital Management Corp. and FUNB. No portion of such expenses
shall be paid by the Evergreen. The actual fiscal year of the combined Fund will
be August 31, the fiscal year end of Evergreen.
The Pro Forma Combining Portfolio of Investments, the Pro Forma Combining
Statement of Assets and Liabilities and the Pro Forma Combining Statement of Net
Investment Income should be read in conjunction with the historical financial
statements of ABT included 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 shares of
Evergreen Class A investment stock, which would have been issued at December 31,
1994, in connection with the proposed reorganization.
3. PRO FORMA OPERATIONS
The Pro Forma Statement of Operations assumes the same rate of gross
investment income for the investments of ABT. Pro forma operation expenses
include the actual expenses of ABT and the combined Fund with certain expenses
adjusted to reflect the expected expenses of the combined Fund.
4. OFFICERS AND DIRECTORS INSURANCE
The independent Trustees/Directors have voted to retain their ability to
make claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by ABT
and the other ABT Funds prior to the consummation of the transaction and is
expected to be approximately $133,000 ($18,806 of which will be paid by ABT) for
the three years.
<PAGE>
THE EVERGREEN MUNICIPAL TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to "Liability and
Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1(a)Declaration of Trust. Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed on July 18, 1988 -- Registration
No. ("Form N-1A Registration Statement").
1(b)Certificate of Amendment to Declaration of Trust. Incorporated by reference
to Post-Effective Amendment No. 16 to the Registrant's Form N-1A
Registration Statement filed on January 3, 1995.
1(c)Instrument providing for the Establishment and Designation of Classes.
Incorporated by reference to Post-Effective Amendment No. 16 to the
Registrant's Form N-1A Registration Statement filed on January 3, 1995 and
to Post-Effective Amendment No. 17 to the Registrant's Form N-1A
Registration Statement filed on April 3, 1995.
2(a) By-Laws. Incorporated by reference to the Form N-1A Registration Statement.
3 Not applicable.
4 Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5 Not applicable.
6 Form of Investment Advisory Agreement between First Union National Bank of
North Carolina and the Registrant. Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's Form N-1A Registration
Statement filed on April 3, 1995.
7 Distribution Agreement between Evergreen Funds Distributor, Inc. and the
Registrant. Incorporated by reference to Post-Effective Amendment No. 16 to
the Registrant's Form N-1A Registration Statement filed on January 3, 1995.
8 Not applicable.
9 Custody Agreement between State Street Bank and Trust Company and
Registrant. Incorporated by reference to Pre- Effective Amendment No. 2 to
the Registrant's Form N-1A Registration Statement filed on September 15,
1988.
10 Form of Distribution Plan (relating to Class A Shares). Incorporated by
reference to Post-Effective Amendment No. 17 to the Registrant's Form N-1A
Registration Statement filed on March 31, 1995.
11 Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP.
Incorporated by reference to Registrant's Form N-14 Registration Statement
filed on April 3, 1995.
12 Tax opinion and consent of Sullivan & Worcester. Incorporated by reference
to Registrant's Form N-14 Registration Statement filed on April 3, 1995.
13 Form of Administration Agreement. Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's Form N-1A Registration
Statement filed on April 3, 1995.
14 Consent of Tait, Weller & Baker, independent accountants, as to the use of
their report dated June 3, 1994 covering the financial statements of the ABT
Florida High Income Municipal Bond Fund for the fiscal year ended April 30,
1994. Filed herewith.
15 Not applicable.
16 Not applicable.
17(a) Form of Proxy Card. Incorporated by reference to Registrant's Form N-14
Registration Statement filed on April 3, 1995.
17(b) Registrant's Rule 24f-2 Declaration. Incorporated by reference to
Registrant's Form N-14 Registration Statement filed on April 3, 1995.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of New York and State of New
York, on the 10th day of May, 1995.
Registrant: Evergreen Trust
By: /s/ John J. Pileggi
----------------------------------
Name: John J. Pileggi
Title: President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ John J. Pileggi President (Principal May 10, 1995
- -----------------------
John J. Pileggi Executive Officer) and
Treasurer (Principal
Financial and Accounting
Officer)
/s/ Laurence B. Ashkin Trustee May 10, 1995
- -----------------------
Laurence B. Ashkin
by Joseph J. McBrien
Attorney in Fact
/s/ Foster Bam Trustee May 10, 1995
- -----------------------
Foster Bam
by Joseph J. McBrien
Attorney in Fact
/s/ Robert J. Jefferies Trustee May 10, 1995
- -----------------------
Robert J. Jefferies
by Joseph J. McBrien
Attorney in Fact
/s/ James Howell Trustee May 10, 1995
- ----------------------
James Howell
by Joseph J. McBrien
Attorney in Fact
/s/ Gerald McDonnell Trustee May 10, 1995
- ----------------------
Gerald McDonnell
by Joseph J. McBrien
Attorney in Fact
/s/ Thomas L. McVerry Trustee May 10, 1995
- -----------------------
Thomas L. McVerry
by Joseph J. McBrien
Attorney in Fact
/s/ William W. Pettit Trustee May 10, 1995
- -----------------------
William W. Pettit
by Joseph J. McBrien
Attorney in Fact
/s/ Russell A. Salton, III Trustee May 10, 1995
- --------------------------
Russell A. Salton, III
by Joseph J. McBrien
Attorney in Fact
/s/ Michael S. Scofield Trustee May 10, 1995
- -----------------------
Michael S. Scofield
by Joseph J. McBrien
Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description of Exhibit No.
14. Consent of Tait, Weller &
Baker, independent
accountants.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of The Evergreen Municipal Trust of our report dated June 3, 1994 to the
Shareholders and Board of Directors of ABT Southern Master Trust, which report
is included in the Annual Report to Shareholders for the year ended April 30,
1994 which is incorporated by reference in the Registration Statement.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 9, 1995
