1933 Act File No. 33-23180
and 811-05579
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 24 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 25 X
EVERGREEN MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(Address of Principal Executive Offices)
617-210-3200
(Registrant's Telephone Number)
Dorothy E. Bourassa, Esq.
First Union Corporation
200 Berkeley Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copies to:
John A. Dudley, Esquire
Sullivan & Worcester
1025 Connecticut Ave., N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
/X/ Immediately upon filing pursuant to paragraph (b) or
/ / on (date) pursuant to paragraph (b) or
/ / 60 days after filing pursuant to paragraph (a)(i) or
/ / on (date) pursuant to paragraph (a)(i) or
/ / 75 days after filing pursuant to paragraph (a)(ii) or
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's last fiscal period
was filed on August 29, 1997.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of
Beneficial
Interest,
$0.0001 Par 2,575,414 $10.30 $26,526,764 $0
Value
- -------------------------------------------------------------------------------------------------
</TABLE>
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on August 26, 1997.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 3,508,076 shares of the
Fund were redeemed during its fiscal period ended May 31, 1997. Of such
shares, 932,662 were used for a reduction pursuant to Rule 24f-2 during the
current fiscal period. The remaining 2,575,414 shares are being used for a
reduction in this filing.
<PAGE>
EVERGREEN MUNICIPAL TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 24
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 24 to
Registration Statement No. 33-23180/811-05579 consists of
the following pages, items of information, and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
------
Prospectus
PART B
------
Statement of Additional Information
PART C
------
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No. Location in Prospectus(es)
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis and Fee Table Overview of the Fund(s);
Expense Information
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page; Description of
the Funds; General
Information
Item 5. Management of the Fund Management of the Fund(s);
General Information
Item 6. Capital Stock and Other Securities General Information
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
Item 8. Redemption or Repurchase Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of
Part B Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives and
Policies;Investment
Restrictions; Non-
Fundamental Operating
Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Management
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Adviser;
Purchase of Shares
Item 17. Brokerage Allocation Allocation of Brokerage
Item 18. Capital Stock and Other Securities Purchase of Shares
Item 19. Purchase, Redemption and Pricing of Distribution Plans; Purchase
Securities Being Offered of Shares; Net Asset Value
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Distribution Plans; Purchase
of Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
*******************************************************************************
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART A
PROSPECTUS
<PAGE>
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE NATIONAL TAX FREE FUNDS (Pine Tree Logo)
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
CLASS B SHARES
KEYSTONE TAX FREE INCOME FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Keystone National Tax Free Funds (the "Funds") are
designed to provide investors with income exempt from federal income taxes. This
Prospectus provides information regarding the Class A and Class B shares offered
by the EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND and the Class A, Class B and Class C Shares offered by KEYSTONE
TAX FREE INCOME FUND. Each Fund is, or is a series of, an open-end, diversified,
management investment company. This Prospectus sets forth concise information
about the Funds that a prospective investor should know before investing. The
address of the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Funds dated
September 3, 1997, as supplemented from time to time has been filed with the
Securities and Exchange Commission and is incorporated by reference herein. The
Statement of Additional Information provides information regarding certain
matters discussed in this Prospectus and other matters which may be of interest
to investors, and may be obtained without charge by calling the Funds at
(800) 343-2898. There can be no assurance that the investment objective of any
Fund will be achieved. Investors are advised to read this Prospectus carefully.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVES RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 9
Investment Practices and Restrictions 10
MANAGEMENT OF THE FUNDS
Investment Advisers 13
Sub-Adviser 14
Portfolio Managers 14
Administrator 15
Sub-Administrator 15
Distribution Plans 15
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 16
How to Redeem Shares 19
Exchange Privilege 20
Shareholder Services 21
Effect of Banking Laws 22
OTHER INFORMATION
Dividends, Distributions and Taxes 23
General Information 24
OVERVIEW OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The investment adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is
Evergreen Asset Management Corp. ("Evergreen Asset") which, with its
predecessors, has served as an investment adviser to the Evergreen mutual funds
since 1971. Keystone Investment Management Company ("Keystone") is investment
adviser to KEYSTONE TAX FREE INCOME FUND. Evergreen Asset and Keystone are
wholly-owned subsidiaries of First Union National Bank ("FUNB"), which in turn
is a subsidiary of First Union Corporation ("First Union"), the sixth largest
bank holding company in the United States. The Capital Management Group ("CMG")
of FUNB serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE FUND.
EVERGREEN HIGH GRADE TAX FREE FUND seeks to provide a high level of
federally tax free income that is consistent with preservation of capital.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of
current income, exempt from federal income tax other than the federal
alternative minimum tax, as is consistent with preserving capital and providing
liquidity. The Fund invests substantially all of its assets in short and
intermediate-term municipal securities with a dollar weighted average portfolio
maturity of two to five years.
KEYSTONE TAX FREE INCOME FUND seeks the highest possible current income,
exempt from Federal income taxes, while preserving capital. The Fund pursues
this objective by investing primarily in municipal bonds.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in Class A and Class B Shares and, when
applicable, in Class C Shares of a Fund. For further information see "Purchase
and Redemption of Shares" and "General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares
<S> <C> <C>
Maximum Sales Charge Imposed on 4.75% for High Grade and Tax Free Income None
Purchases (as a % of offering 3.25% for Short-Intermediate
price)
Contingent Deferred Sales Charge None 5% during the first year,
(as a % of original purchase price declining to 1% in the
or redemption proceeds, whichever sixth year and 0%
is lower) thereafter
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class C Shares
<S> <C>
Maximum Sales Charge Imposed on None
Purchases (as a % of offering
price)
Contingent Deferred Sales Charge 1% during the first year
(as a % of original purchase price and 0% thereafter
or redemption proceeds, whichever
is lower)
</TABLE>
The following tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to each Class of
shares, together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return and (ii) redemption at the end of each period and,
additionally for Class B and Class C shares, no redemption at the end of each
period.
In the following examples (i) the expenses for Class A shares assume
deduction of the maximum sales charge at the time of purchase, (ii) the expenses
for Class B shares and Class C shares assume deduction at the time of redemption
(if applicable) of the maximum contingent deferred sales charge applicable for
that time period, and (iii) the expenses for Class B shares reflect the
conversion to Class A shares seven years after purchase (years eight through
ten, therefore, reflect Class A expenses).
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Assuming
ANNUAL OPERATING Redemption no
EXPENSES** at End of Period Redemption
Class A Class B Class A Class B Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% After 1 Year $ 58 $ 68 $ 18
12b-1 Fees* 0.25% 0.75% After 3 Years $ 79 $ 86 $ 56
Shareholder Service Fees -- 0.25% After 5 Years $ 102 $ 116 $ 96
Other Expenses 0.28% 0.28% After 10 Years $ 167 $ 180 $180
Total 1.03% 1.78%
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Assuming
ANNUAL OPERATING Redemption no
EXPENSES** at End of Period Redemption
Class A Class B Class A Class B Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% After 1 Year $ 41 $ 68 $ 18
12b-1 Fees* 0.10% 1.00% After 3 Years $ 58 $ 84 $ 54
Other Expenses 0.24% 0.23% After 5 Years $ 78 $ 114 $ 94
Total 0.84% 1.73% After 10 Years $ 133 $ 169 $169
</TABLE>
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
ANNUAL OPERATING Assuming Redemption Assuming no
EXPENSES at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.61% 0.61% 0.61% After 1 Year $ 59 $ 70 $ 30 $ 20 $ 20
12b-1 Fees* 0.24% 1.00% 1.00% After 3 Years $ 83 $ 91 $ 61 $ 61 $ 61
Other Expenses 0.34% 0.34% 0.34% After 5 Years $ 110 $ 125 $ 105 $ 105 $ 105
Total 1.19% 1.95% 1.95% After 10 Years $ 185 $ 198 $ 227 $ 198 $ 227
</TABLE>
*Class A shares can pay up to 0.75% of average net assets as a 12b-1 fee. For
the forseeable future, the Class A shares 12b-1 fees will be limited to 0.25% of
average net assets for EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE
INCOME FUND, and 0.10% of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. For Class
B
3
<PAGE>
shares and Class C shares, a portion of the 12b-1 Fees equivalent to 0.25% of
average net assets will be shareholder servicing-related. Distribution-related
12b-1 Fees will be limited to 0.75% of average net assets as permitted under the
rules of the National Association of Securities Dealers, Inc.
**Expenses for EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT
INTERMEDIATE MUNICIPAL FUND reflect a fee waiver of 0.20% and 0.20%,
respectively, of average net assets for the period ended May 31, 1997.
Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE MUNICIPAL
FUND to the extent that its aggregate operating expenses (including the
investment adviser's fee, but excluding taxes, interest, brokerage commissions,
Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary
expenses) exceed 1.0% of the average net assets.
From time to time each Fund's investment adviser may, at its discretion, reduce
or waive its fees or reimburse these Funds for certain of their other expenses
in order to reduce their expense ratios. Each Fund's investment adviser may
cease these voluntary waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are based on the experience of each Fund for
its most recent fiscal period. In the case of Funds that did not offer all of
the above-referenced Classes of shares during such periods, the amounts set
forth in the tables are based on the expenses incurred by the Classes which were
offered. THE 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. For a more complete description of the various
costs and expenses borne by the Funds see "Management of the Funds." As a result
of asset-based sales charges, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted under the
rules of the National Association of Securities Dealers, Inc.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the table for KEYSTONE TAX FREE INCOME FUND has been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors; for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN HIGH GRADE TAX FREE FUND has
been audited by Price Waterhouse LLP, the Funds' independent auditors.
Information for EVERGREEN HIGH GRADE TAX FREE FUND for the fiscal years or
periods prior to May 31, 1997 has been audited by other auditors. A report of
KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the
audited information with respect to each Fund is incorporated by reference into
the Funds' Statement of Additional Information. The following information for
each Fund should be read in conjunction with the financial statements and
related notes which are incorporated by reference into the Funds' Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
CLASS A SHARES FEBRUARY 21, CLASS B SHARES
1992
(COMMENCEMENT NINE
NINE EIGHT OF CLASS MONTHS
MONTHS MONTHS OPERATIONS) ENDED
ENDED YEAR ENDED ENDED YEAR ENDED THROUGH MAY 31, YEAR ENDED
MAY 31, AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, 1997 AUGUST 31,
1997 (A) 1996 1995 (D) 1994 1993 1992 (A) 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD................ $10.72 $10.69 $9.79 $11.16 $10.42 $10.00 $10.72 $10.69
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... 0.37 0.52 0.34 0.52 0.54 0.51 0.31 0.44
Net realized and
unrealized gain (loss) on
investments.............. 0.17 0.03 0.90 (1.37) 0.81 0.42 0.17 0.03
Total from investment
operations............. 0.54 0.55 1.24 (0.85) 1.35 0.93 0.48 0.47
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.37) (0.52) (0.34) (0.52) (0.54) (0.51) (0.31) (0.44)
Net realized gains on
investments.............. 0 0 0 0 (0.07) 0 0 0
Total distributions...... (0.37) (0.52) (0.34) (0.52) (0.61) (0.51) (0.31) (0.44)
NET ASSET VALUE END OF
PERIOD................... $10.89 $10.72 $10.69 $9.79 $11.16 $10.42 $10.89 $10.72
Total return (c).......... 5.13% 5.21% 12.83% (7.71%) 13.25% 9.48% 4.55% 4.42%
Ratios/supplemental data:
Ratios to average net
assets:
Total expenses........... 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85% 0.49%(b) 1.78%(b) 1.64%
Total expenses excluding
indirectly paid
expenses............... 1.03%(b) -- -- -- -- -- 1.78%(b) --
Total expenses excluding
waivers and
reimbursements......... 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07% 1.11%(b) 1.86%(b) 1.84%
Net investment income.... 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99% 5.79%(b) 3.85%(b) 4.03%
Portfolio turnover rate... 114% 65% 27% 53% 14% 7% 114% 65%
NET ASSETS END OF PERIOD
(THOUSANDS).............. $45,814 $50,569 $58,751 $57,676 $101,352 $90,738 $31,874 $32,221
> CLASS B SHARES JANUARY
1993
(COMMENCEMENT
EIGHT OF CLASS
MONTHS OPERATIONS)
ENDED YEAR ENDED THROUGH
AUGUST 31, DECEMBER 31, DECEMBER 31,
1995 (D) 1994 1993
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD................ $9.79 $11.16 $10.42
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... 0.29 0.46 0.47
Net realized and
unrealized gain (loss) on
investments.............. 0.90 (1.37) 0.81
Total from investment
operations............. 1.19 (0.91) 1.28
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.29) (0.46) (0.47)
Net realized gains on
investments.............. 0 0 (0.07)
Total distributions...... (0.29) (0.46) (0.54)
NET ASSET VALUE END OF
PERIOD................... $10.69 $9.79 $11.16
Total return (c).......... 12.27% (8.24%) 12.52%
Ratios/supplemental data:
Ratios to average net
assets:
Total expenses........... 1.81%(b) 1.58% 1.35%(b)
Total expenses excluding
indirectly paid
expenses............... -- -- --
Total expenses excluding
waivers and
reimbursements......... 1.84%(b) 1.59% 1.57%(b)
Net investment income.... 4.18%(b) 4.47% 4.44%(b)
Portfolio turnover rate... 27% 53% 14%
NET ASSETS END OF PERIOD
(THOUSANDS).............. $34,206 $32,435 $41,030
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
5
<PAGE>
EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
CLASS A SHARES JANUARY 5, 1995 CLASS B SHARES
(COMMENCEMENT
NINE MONTHS OF CLASS OPERATIONS) NINE MONTHS
ENDED YEAR ENDED THROUGH ENDED
MAY 31, 1997 (A) AUGUST 31, 1996 AUGUST 31, 1995 MAY 31, 1997 (A)
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD... $10.08 $10.17 $9.97 $10.08
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.30 0.43 0.30 0.23
Net realized and unrealized gain
(loss) on investments................ 0.01 (0.09) 0.20 0.02
Total from investment operations..... 0.31 0.34 0.50 0.25
Less distributions from net investment
income............................... (0.30) (0.43) (0.30) (0.23)
Net asset value end of period......... $10.09 $10.08 $10.17 $10.10
Total return (c)...................... 3.08% 3.37% 5.09% 2.49%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses....................... 0.84%(b) 0.80% 0.70%(b) 1.73%(b)
Total expenses excluding indirectly
paid expenses...................... 0.83%(b) -- -- 1.73%(b)
Total expenses excluding waivers and
reimbursements..................... 0.96%(b) 1.11% 1.14%(b) 1.86%(b)
Net investment income................ 3.94%(b) 4.05% 4.32%(b) 3.04%(b)
Portfolio turnover rate............... 34% 29% 80% 34%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $6,072 $27,722 $6,820 $6,742
<CAPTION>
CLASS B SHARES JANUARY 5, 1995
(COMMENCE
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD... $10.17 $9.97
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.34 0.24
Net realized and unrealized gain
(loss) on investments................ (0.09) 0.20
Total from investment operations..... 0.25 0.44
Less distributions from net investment
income............................... (0.34) (0.24)
Net asset value end of period......... $10.08 $10.17
Total return (c)...................... 2.44% 4.50%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses....................... 1.67% 1.58%(b)
Total expenses excluding indirectly
paid expenses...................... -- --
Total expenses excluding waivers and
reimbursements..................... 2.07% 2.26%(b)
Net investment income................ 3.28% 3.50%(b)
Portfolio turnover rate............... 29% 80%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $7,413 $6,050
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
6
<PAGE>
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
SIX CLASS A SHARES
MONTHS
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1997 (A) 1996 (F) 1995 (F) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD........................ $9.90 $10.05 $8.93 $10.25 $10.17 $10.13 $9.94 $10.24 $9.96
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.24 0.51 0.51 0.51 0.57 0.63 0.61 0.59 0.62
Net realized and unrealized
gain (loss) on investments and
futures contracts............. (0.11) (0.14) 1.13 (1.28) 0.36 0.30 0.31 (0.06) 0.34
Total from investment
operations.................. 0.13 0.37 1.64 (0.77) 0.93 0.93 0.92 0.53 0.96
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.24) (0.52) (0.51) (0.52) (0.57) (0.62) (0.61) (0.60) (0.63)
In excess of net investment
income........................ (0.01) 0(e) (0.01) 0 (0.04) 0 0 (0.03) 0
Net realized gain on
investments................... 0 0 0 0 (0.24) (0.27) (0.12) (0.20) (0.05)
Tax basis return of capital.... 0 0 0 (0.03) 0 0 0 0 0
Total distributions........... (0.25) (0.52) (0.52) (0.55) (0.85) (0.89) (0.73) (0.83) (0.68)
NET ASSET VALUE END OF
PERIOD........................ $9.78 $9.90 $10.05 $8.93 $10.25 $10.17 $10.13 $9.94 $10.24
Total return (c)............... 1.34% 3.83% 18.71% (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................ 1.19%(b) 1.13% 1.19% 1.13% 1.21% 1.25% 1.58% 1.66% 1.62%
Total expenses excluding
indirectly paid expenses.... 1.18%(b) 1.12% 1.18% -- -- -- -- -- --
Net investment income......... 4.85%(b) 5.21% 5.35% 5.27% 5.40% 6.02% 5.95% 6.03% 6.15%
Portfolio turnover rate........ 54% 128% 30% 98% 47% 32% 37% 42% 49%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $72,629 $82,425 $94,183 $95,691 $124,102 $120,660 $133,524 $146,335 $162,013
<CAPTION>
CLASS A SHARES
FEBRUARY 13, 1987
(COMMENCEMENT OF
OPERATIONS)
TO
NOVEMBER 30,
1988 1987
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD........................ $9.64 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.63 0.33
Net realized and unrealized
gain (loss) on investments and
futures contracts............. 0.37 (0.32)
Total from investment
operations.................. 1.00 0.01
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.68) (0.37)
In excess of net investment
income........................ 0 0
Net realized gain on
investments................... 0 0
Tax basis return of capital.... 0 0
Total distributions........... (0.68) (0.37)
NET ASSET VALUE END OF
PERIOD........................ $9.96 $9.64
Total return (c)............... 10.60% 0.17%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................ 1.57% 1.00%(d)
Total expenses excluding
indirectly paid expenses.... -- --
Net investment income......... 6.13% 6.85%(d)
Portfolio turnover rate........ 109% 67%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $179,191 $16,090
</TABLE>
(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(e) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(f) Calculation based on average shares outstanding.
7
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES FEBRUARY 1, CLASS C SHARES
1993
(DATE OF
SIX INITIAL SIX YEAR
MONTHS PUBLIC MONTHS ENDED
ENDED OFFERING) TO ENDED NOVEMBER
MAY 31, YEAR ENDED NOVEMBER 30, NOVEMBER 30, MAY 31, 30,
1997 (A) 1996 (E) 1995 (E) 1994 1993 1997 (A) 1996 (E)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $9.81 $9.97 $8.88 $10.25 $10.27 $9.81 $9.97
Income from investment operations:
Net investment income............. 0.19 0.44 0.44 0.45 0.37 0.18 0.41
Net realized and unrealized gain
(loss) on investments and futures
contracts........................ (0.10) (0.16) 1.11 (1.29) 0.30 (0.09) (0.13)
Total from investment
operations..................... 0.09 0.28 1.55 (0.84) 0.67 0.09 0.28
Less distributions from:
Net investment income............. (0.20) (0.44) (0.45) (0.50) (0.37) (0.20) (0.44)
In excess of net investment
income........................... (0.01) 0(d) (0.01) 0 (0.08) (0.01) 0(d)
Net realized gain on
investments...................... 0 0 0 0 (0.24) 0 0
Tax basis return of capital....... 0 0 0 (0.03) 0 0 0
Total distributions.............. (0.21) (0.44) (0.46) (0.53) (0.69) (0.21) (0.44)
NET ASSET VALUE END OF PERIOD..... $9.69 $9.81 $9.97 $8.88 $10.25 $9.69 $9.81
Total return (c).................. 0.97% 2.99% 17.84% (8.43%) 6.59% 0.97% 2.99%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................... 1.95%(b) 1.90% 1.96% 1.88% 1.96%(b) 1.95%(b) 1.90%
Total expenses excluding
indirectly paid expenses....... 1.94%(b) 1.89% 1.94% -- -- 1.94%(b) 1.89%
Net investment income............ 4.09%(b) 4.44% 4.59% 4.60% 4.42%(b) 4.09%(b) 4.44%
Portfolio turnover rate........... 54% 128% 30% 98% 47% 54% 128%
Net assets end of period
(thousands)...................... $28,822 $33,063 $33,449 $28,860 $14,091 $11,879 $13,769
<CAPTION>
CLASS C SHARES FEBRUARY
1993
(DATE OF
INITIAL
PUBLIC
OFFERING) TO
YEAR ENDED NOVEMBER 30,
NOVEMBER 30, 1995 (E) 1994 19
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $8.88 $10.26 $10.27
Income from investment operations:
Net investment income............. 0.44 0.43 0.37
Net realized and unrealized gain
(loss) on investments and futures
contracts........................ 1.11 (1.27) 0.31
Total from investment
operations..................... 1.55 (0.84) 0.68
Less distributions from:
Net investment income............. (0.45) (0.51) (0.37)
In excess of net investment
income........................... (0.01) 0 (0.08)
Net realized gain on
investments...................... 0 0 (0.24)
Tax basis return of capital....... 0 (0.03) 0
Total distributions.............. (0.46) (0.54) (0.69)
NET ASSET VALUE END OF PERIOD..... $9.97 $8.88 $10.26
Total return (c).................. 17.84% (8.52%) 6.70%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................... 1.96% 1.89% 1.94%(b)
Total expenses excluding
indirectly paid expenses....... 1.94% -- --
Net investment income............ 4.59% 4.52% 4.41%(b)
Portfolio turnover rate........... 30% 98% 47%
Net assets end of period
(thousands)...................... $20,386 $23,230 $27,261
</TABLE>
(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(e) Calculation based on average shares outstanding.
8
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN HIGH GRADE TAX FREE FUND seeks a high level of federally
tax free income that is consistent with preservation of capital. At least 65% of
the value of the total assets of EVERGREEN HIGH GRADE TAX FREE FUND will be
invested in high grade bonds. High grade bonds mean: bonds insured by a
municipal bond insurance company which is rated AAA by Standard & Poor's Ratings
Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds
rated A or better by S&P or Moody's; or, if unrated, of comparable quality as
determined by the Fund's investment adviser. The insurance guarantees the timely
payment of principal and interest, but not the value of the municipal bonds or
the shares of the Fund. See the section "Investment Practices and
Restrictions" -- "Municipal Bond Insurance" for further information.
EVERGREEN HIGH GRADE TAX FREE FUND may also purchase instruments
having variable rates of interest. One example is variable amount master demand
notes. These notes represent a borrowing arrangement between a commercial paper
issuer (borrower) and an institutional lender, such as the Fund, and are payable
upon demand. The underlying amount of the loan may vary during the course of the
contract, as may the interest on the outstanding amount, depending on a stated
short-term interest rate index.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
The investment objective of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
is to achieve as high a level of current income, exempt from federal income tax
other than the federal alternative minimum tax ("AMT") for individuals and
corporations, as is consistent with preserving capital and providing liquidity.
Under normal circumstances, it is anticipated that the Fund will invest its
assets so that at least 80% of its annual interest income is exempt from federal
income tax other than the AMT. The Fund will seek to achieve its objective by
investing substantially all of its assets in a diversified portfolio of short
and intermediate-term debt obligations issued by states, territories and
possessions of the United States ("U.S.") and by the District of Columbia, and
their political subdivisions and duly constituted authorities, the interest from
which is exempt from federal income tax other than the AMT. Such securities are
generally known as Municipal Securities (see "Investment Practices and
Restrictions" -- "Municipal Securities" below). As a matter of policy, the
Trustees will not change the Fund's investment objective without shareholder
approval.
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 AMT 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 Fund may invest up to 50% of its total
assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
KEYSTONE TAX FREE INCOME FUND
KEYSTONE TAX FREE INCOME FUND seeks the highest possible current
income exempt from federal income taxes, while preserving capital. Since the
Fund considers preservation of capital as well as the level of tax
9
<PAGE>
exempt income as its primary objective, the Fund may realize less income than a
fund willing to expose shareholders' capital to greater risk.
Under ordinary circumstances, at least 80% of the Fund's assets will be
invested in federally tax-exempt obligations, including municipal bonds and
notes and tax-exempt commercial paper obligations, that are obligations issued
by or on behalf of states, territories and possessions of the U.S., the District
of Columbia and their political subdivisions, agencies and instrumentalities,
the interest from which is, in the opinion of counsel to the issuers of such
bonds, exempt from federal income taxes. Thus it is possible that up to 20% of
the Fund's assets could be invested in securities subject to the AMT and/or in
taxable obligations.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years or less than 5 years (other than certain money market securities).
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment restrictions
more fully described in the Statement of Additional Information.
General. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will invest in Municipal Securities so long as they are
determined to be of high or upper medium quality. Municipal Securities meeting
this criteria include bonds rated A or higher by S&P, Moody's or another
nationally recognized statistical rating organization ("SRO"); notes rated SP-1
or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's
in the case of variable rate demand notes or having comparable ratings from
another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or having comparable ratings from another SRO. EVERGREEN HIGH GRADE
TAX FREE FUND may also invest in general obligation bonds which are rated BBB by
S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade
bonds are more susceptible to adverse economic conditions or changing
circumstances than higher grade bonds. However, like the higher rated bonds,
these securities are considered to be investment grade. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may also invest in bonds rated BBB or higher
by S&P, Baa or higher by Moody's or another SRO. KEYSTONE TAX FREE INCOME FUND
may invest in bonds rated BBB or higher by S&P, Baa or higher by Moody's, BBB or
higher by Fitch Investor Services, L.P. or, if not rated or rated under a
different system, are of comparable quality to obligations so rated as
determined by Keystone. KEYSTONE TAX FREE INCOME FUND may also invest in
commercial paper rated A-1 by S&P or Prime-1 by Moody's, or, if not rated by
such services, is issued by a company that at the date of investment has an
outstanding issue rated A or better by S&P or Moody's. For a description of such
ratings see the Statement of Additional Information. The Funds may also purchase
Municipal Securities which are unrated at the time of purchase, if such
securities are determined by the Funds' investment advisers to be of comparable
quality. Certain Municipal Securities (primarily variable rate demand notes) may
be entitled to the benefit of standby letters of credit or similar commitments
issued by banks and, in such instances, the Funds' investment advisers will take
into account the obligation of the bank in assessing the quality of such
security.
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 portfolios of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the 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 money to the Funds 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 Funds. In periods of rising interest rates,
the opposite can be expected to occur.
Municipal Securities. As noted above, the Funds will invest substantially all of
their assets in Municipal Securities. These include municipal bonds, short-term
municipal notes and tax-exempt commercial paper. "Municipal 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
10
<PAGE>
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 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.
Municipal Bond Insurance. The EVERGREEN HIGH GRADE TAX FREE FUND will require
municipal bond insurance when purchasing Municipal Securities which would not
otherwise meet the Fund's quality standards. The EVERGREEN HIGH GRADE TAX FREE
FUND may also require insurance when, in the opinion of the Fund's investment
adviser, such insurance would benefit the Fund (for example, through improvement
of portfolio quality or increased liquidity of certain securities). The purpose
of municipal bond insurance is to guarantee the timely payment of principal at
maturity and interest.
Securities in the EVERGREEN HIGH GRADE TAX FREE FUND'S portfolio may be
insured in one of two ways: (1) by a policy applicable to a specific security,
obtained by the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) under master insurance policies issued by municipal bond
insurers, purchased by the Fund (the "Policies"). If a security's coverage is
Issuer-Obtained, then that security does not need to be covered in the Policies.
The Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more
detailed description of these insurers may be found in the Statement of
Additional Information. Annual premiums for these Policies are paid by the Fund
and are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate of
approximately 0.175%. While the insurance feature reduces financial risk, the
cost thereof and the restrictions on investments imposed by the guidelines in
the Policies reduce the yield to shareholders.
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 Funds 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 Funds will limit
the value of their investments in any floating or variable rate securities which
are not readily marketable to 10% or less of their net assets.
When-Issued or Delayed Delivery Securities. The Funds may purchase securities on
a when-issued or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). A Fund generally would not pay for
such securities or start earning interest on them until they are received.
However, when a Fund purchases securities on a when-issued or delayed delivery
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 a Fund
on a when-issued or delayed delivery basis may result in the Fund incurring a
loss or missing an opportunity to make an alternative investment. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND does not expect that commitments to purchase
when-issued securities will normally exceed 25% of its total assets and
EVERGREEN HIGH GRADE TAX FREE FUND does not expect that such commitments will
exceed 20% of its total assets. The Funds do not intend to purchase when-issued
or delayed delivery securities for speculative purposes but only in furtherance
of their investment objective. KEYSTONE TAX FREE INCOME FUND may also sell
securities and may purchase and sell currencies on a when-issued and delayed
delivery basis.
Stand-by Commitments. The Funds may also acquire "stand-by commitments" with
respect to Municipal Securities held in their portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal
Securities at a specified price. Failure of the dealer to purchase such
Municipal Securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if
11
<PAGE>
necessary and advisable, a 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 each 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 Funds will maintain cash or
liquid high grade debt obligations in a segregated account with its custodian in
an amount equal to such commitments. The Funds will enter into stand-by
commitments only with banks and broker-dealers that, in the judgment of the
Funds' investment advisers, present minimal credit risks.
Taxable Investments. The Funds may temporarily invest up to 20% of their total
assets in taxable securities and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND may
temporarily invest its assets so that no more than 20% of its annual income will
be derived from 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, each such Fund may temporarily invest more than 20% of
its total assets in taxable securities for defensive purposes. Each Fund may
invest for defensive purposes during periods when each Fund's assets available
for investment exceed the available Municipal Securities that meet each Fund's
quality and other investment criteria. Taxable securities in which the EVERGREEN
HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND may
invest on a short-term basis include obligations of the U.S. government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by any major rating service; commercial paper rated in the highest
grade by Moody's, S&P or any SRO; and certificates of deposit issued by U.S.
branches of U.S. banks with assets of $1 billion or more.
Taxable securities in which KEYSTONE TAX FREE INCOME FUND may invest on a
short-term basis include commercial paper, including master demand notes, that
at the date of investment is rated A-1 by S&P, Prime-1 by Moody's, or, if not
rated by such services, is issued by a company that at the date of investment
has an outstanding issue rated A or better by S&P or Moody's; obligations,
including certificates of deposit and bankers' acceptances, of banks or savings
and loan associations having at least $1 billion in assets that are members of
the Federal Deposit Insurance Corporation, including U.S. branches of foreign
banks and foreign branches of U.S. banks; corporate obligations maturing in 13
months or less that at the date of investment are rated A or better by S&P or
Moody's; obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; and qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code of 1986, as amended (the "Code"), is includable
in the calculation of the AMT.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Funds custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. government securities. A repurchase agreement is an arrangement pursuant to
which a buyer purchases a security and simultaneously agrees to resell it to the
vendor at a price that results in an agreed-upon market rate of return which is
effective for the period of time (which is normally one to seven days, but may
be longer) the buyer's money is invested in the security. The arrangement
results in a fixed rate of return that is not subject to market fluctuations
during a Fund's holding period. Each Fund requires continued maintenance of
collateral with its Custodian in an amount equal to, or in excess of, the market
value of the securities, including accrued interest, which are the subject of a
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, a Fund might be delayed in
selling the collateral. Each Fund's investment adviser will review and
continually monitor the creditworthiness of each institution with which a Fund
enters into a repurchase agreement to evaluate these risks. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may not enter into repurchase agreements if,
as a result, more than 15% of the Fund's net assets would be invested in
repurchase agreements maturing in more than seven days. KEYSTONE TAX FREE INCOME
FUND may not so invest more than 10% of its total assets and EVERGREEN HIGH
GRADE TAX FREE FUND may not so invest more than 10% of its net assets.
Illiquid and Restricted Securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
may invest up to 15% of its net assets in illiquid securities and other
securities which are not readily marketable. In the case of the Fund, 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
12
<PAGE>
not subject to the aforementioned 15% limit. EVERGREEN HIGH GRADE TAX FREE FUND
may invest up to 10% of its net assets in illiquid securities and up to 10% of
its net assets in securities subject to restrictions on resale under the federal
securities laws. KEYSTONE TAX FREE INCOME FUND may invest up to 15% of its net
assets in illiquid securities and up to 10% of its net assets in securities with
legal or contractual restrictions on resale or in securities for which market
quotations are not readily available. The liquidity of securities purchased by a
Fund which are eligible for resale pursuant to Rule 144A will be monitored by
each Fund's investment adviser on an ongoing basis, subject to the oversight of
the Trustees as defined below. In the event that such a security is deemed to be
no longer liquid, a 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 a Fund having more than 15% of its net assets invested in illiquid or
not readily marketable securities. The inability of a Fund to dispose of
illiquid or not readily marketable investments readily or at a reasonable price
could impair a Fund's ability to raise cash for redemptions or other purposes.
Other Investment Policies. The Funds 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 the case of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, borrowings may be in amounts up to
10% of the value of the Fund's net assets at the time of such borrowing.
EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE INCOME FUND may borrow
in amounts up to one-third of their net assets. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
cash, U.S. government securities or liquid high grade debt obligations having a
value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the repurchase price of those
securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets and
will not purchase any securities whenever any borrowings (including reverse
repurchase agreements) are outstanding.
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. Each
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities by a Fund, if and when made, may not exceed 30% of the total
assets of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, or 15% of the total
assets of EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE INCOME FUND,
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%
of the current market value of the loaned securities, including accrued
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the cash collateral, thereby
increasing its return. A Fund will have the right to call any such loan and
obtain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities which occurs during the term of the
loan would affect a Fund and its investors. A Fund may pay reasonable fees in
connection with such loans.
KEYSTONE TAX FREE INCOME FUND may also write covered call and put options
and purchase call and put options, including purchasing call or put options to
close out existing positions, and may employ new investment techniques with
respect to such options. The Fund may also engage in currency and other
financial futures contracts and related options transactions for hedging
purposes and not for speculation and may employ new investment techniques with
respect to such futures contracts and related options. In addition, the Fund may
invest in municipal obligations denominated in foreign currencies that are
exempt from federal income tax and may use subsequently developed investment
techniques that are related to any of its investment policies. The Fund may also
invest in certain other types of "derivative instruments," including structured
securities only if it is consistent with its investment objective.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which each Fund has been established ("Trustees"). Evergreen Asset has
been retained by EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND as investment
adviser. Evergreen Asset, with its predecessors, has served as investment
adviser to certain of the Evergreen Keystone funds since 1971. Evergreen Asset
is a wholly-owned subsidiary of FUNB. The address of Evergreen Asset is 2500
Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First
Union. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment
officers of Evergreen Asset and, along
13
<PAGE>
with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor
and the former general partners of Lieber & Company, which, as described below,
provides certain subadvisory services to Evergreen Asset in connection with its
duties as investment adviser to the Funds. CMG of FUNB ("CMG") serves as
investment adviser to EVERGREEN HIGH GRADE TAX FREE FUND.
Keystone has been retained by KEYSTONE TAX FREE INCOME FUND to serve as
investment adviser. Keystone has provided investment advisory and management
services to investment companies, including certain of the Evergreen Keystone
funds, and private accounts since it was organized in 1932. Keystone is a
subsidiary of First Union.
First Union is headquartered in Charlotte, North Carolina, and had $143
billion in consolidated assets as of June 30, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The investment advisory affiliates of FUNB manage
or otherwise oversee the investment of over $61.9 billion in assets belonging to
a wide range of clients, including all of the Evergreen Keystone funds. First
Union Brokerage Services, Inc. ("FUBS"), a wholly-owned subsidiary of FUNB, is a
registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
Evergreen Asset manages investments and supervises the daily business
affairs of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND subject to the authority
of the Trustees. Under its investment advisory agreement with EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, Evergreen Asset is entitled to receive an
annual fee equal to 0.50% of the Fund's average daily net assets. CMG manages
investments and supervises the daily business affairs of EVERGREEN HIGH GRADE
TAX FREE FUND and, as compensation therefor, is entitled to receive an annual
fee equal to 0.50% of average daily net assets of the Fund.
Keystone acts as investment adviser to KEYSTONE TAX FREE INCOME FUND
and manages the Fund's investments and supervises the Fund's daily business
affairs, subject to the authority of the Trustees. As payment for its services,
Keystone is entitled to receive from the Fund a fee at the annual rate of 2.0%
of gross dividend and interest income of the Fund plus 0.50% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.45% of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35%
of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of
amounts over $500,000,000. The total expense ratios of EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN HIGH GRADE TAX FREE FUND and
KEYSTONE TAX FREE INCOME FUND for the fiscal period ended May 31, 1997, are set
forth in the section entitled "Financial Highlights".
SUB-ADVISER
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on the
portfolio of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. Lieber & Company will
be reimbursed by Evergreen Asset in connection with the rendering of services on
the basis of the direct and indirect costs of performing such services. There is
no additional charge to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
PORTFOLIO MANAGERS
The portfolio manager of EVERGREEN HIGH GRADE TAX FREE FUND is James T.
Colby, III. Mr. Colby is a Vice President of CMG and has been associated with
Evergreen Asset and its predecessor since 1992. He has served as portfolio
manager of the Fund since 1995 and was portfolio manager of Evergreen National
Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995, since
that fund's inception in 1992. The portfolio manager for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND is Steven C. Shachat. Mr. Shachat has been
associated with Evergreen Asset and its predecessor since 1988 and has served as
portfolio manager of the Fund since its inception. Betsy A. Hutchings is the
portfolio manager of KEYSTONE TAX FREE INCOME FUND. She is a Senior Vice
President of Keystone and group leader of Keystone's Municipal Bond Team. Ms.
Hutchings joined Keystone in 1988, and has more than 15 years of investment
experience.
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<PAGE>
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, subject to the supervision and control of the
Trustees of the Trust under which each Fund has been established. EKIS provides
facilities, equipment and personnel to EVERGREEN HIGH GRADE TAX FREE FUND and
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and is entitled to receive a fee
based on the aggregate average daily net assets of the mutual funds for which
CMG, Evergreen Asset, Keystone or their affiliates serve as investment adviser,
calculated in accordance with the following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EKIS also provides facilities, equipment and personnel to KEYSTONE TAX
FREE INCOME FUND on behalf of the Fund's investment adviser.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee calculated on the aggregate
average daily net assets of all the mutual funds for which FUNB affiliates serve
as investment adviser. The sub-administrator fee is calculated in accordance
with the following schedule:
Sub-Administration Fee
----------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $30.5 billion as of June 30, 1997.
DISTRIBUTION PLANS
Distribution Plans. Each Fund's Class A, Class B and, where applicable, Class C
shares pay for the expenses associated with the distribution of its shares
according to a distribution plan that it has adopted pursuant to Rule 12b-1
under the 1940 Act (each a "Plan" or collectively the "Plans"). Under the Plans,
each Fund may incur distribution-related and shareholder servicing-related
expenses which are based upon a maximum annual rate as a percent of each Fund's
average daily net assets attributable to the Class, as follows:
Class A shares 0.75%, currently limited to 0.25% for EVERGREEN HIGH
GRADE TAX FREE FUND and KEYSTONE TAX FREE
INCOME FUND and to 0.10% for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include each Fund's investment adviser or their affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above.
EVERGREEN HIGH GRADE TAX FREE FUND has, in addition to the Plans adopted
with respect to its Class B shares, adopted a shareholder service plan ("Service
Plan") relating to the Class B shares which permit the Fund to incur a fee of up
to 0.25% of the aggregate average daily net assets attributable to the Class B
shares for ongoing personal services and/or the maintenance of shareholder
accounts. Such service fee payments to financial intermediaries for such
purposes, whether pursuant to a Plan or Service Plan, will not exceed 0.25% of
the aggregate average daily net assets attributable to each Class of shares of
each Fund.
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<PAGE>
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), P.O. Box 2121, Boston, Massachusetts 02106-2121, a
completed account application and a check payable to the Fund. You may also
telephone 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer funds and then send in a completed account
Application. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information. Only Class A, Class B and
Class C shares are offered through this Prospectus (see "General Information" -
"Other Classes of Shares"
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
Initial Sales Charge
EVERGREEN HIGH GRADE TAX FREE FUND
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,000 4.71% 4.50% 4.25%
$ 100,000 - $ 249,999 3.90% 3.75% 3.25%
$ 250,000 - $ 499,999 2.56% 2.50% 2.00%
$ 500,000 - $ 999,999 2.04% 2.00% 1.75%
$1,000,000 - $2,999,999 None None 1.00%
$3,000,000 - $4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
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<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 2.75%
$ 50,000 - $ 99,000 3.09% 3.00% 2.75%
$ 100,000 - $ 249,999 2.56% 2.50% 2.25%
$ 250,000 - $ 499,999 2.04% 2.00% 1.75%
$ 500,000 - $ 999,999 1.52% 1.50% 1.25%
$1,000,000 - $2,999,999 None None 1.00%
$3,000,000 - $4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Funds, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen Keystone fund
by investors reinvesting the proceeds from a redemption within the preceding
thirty days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain
broker-dealers or other financial institutions may impose a fee on transactions
in shares of the Funds.
Class A shares may also be purchased at net asset value by a corporation
or certain other qualified retirement plan or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EKD will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EKD 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. EKD may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Funds. Certain
purchases of Class A shares may qualify for reduced sales charges in accordance
with a Fund's Concurrent Purchases, Rights of Accumulation, Letter of Intent,
certain Retirement Plans and Reinstatement Privilege. Consult the Application
for additional information concerning these reduced sales charges.
Class B Shares -- Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC will vary according to the number of years from the month of
purchase of Class B shares as set forth below.
17
<PAGE>
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to EKD
or its predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares without imposition of a front-end sales charge). The higher fees
mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares. The Funds
will not normally accept any purchase of Class B shares in the amount of
$250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to
the higher distribution services fee imposed on Class B shares. Such conversion
will be on the basis of the relative net asset values of the two Classes,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee paid by
holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares (KEYSTONE TAX FREE INCOME FUND). Class C shares are offered only
through broker-dealers who have special distribution agreements with EKD. Class
C shares are offered at net asset value, without an initial sales charge. With
certain exceptions, the Fund imposes a CDSC of 1.00% on shares redeemed during
the month of purchase and the 12-month period following the month of purchase.
No CDSC is imposed on amounts redeemed thereafter. If imposed, the CDSC is
deducted from the redemption proceeds otherwise payable to you. The CDSC is
retained by EKD or its predecessor. See "Contingent Deferred Sales Charge and
Waiver of Sales Charges" below.
Contingent Deferred Sales Charge. Shares obtained from dividend or distribution
reinvestment are not subject to a CDSC. Any CDSC imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net asset value at the time of
purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or, if applicable, Class C
shares at net asset value without any initial sales charge or a CDSC to certain
Directors, Trustees, officers and employees of the Funds, FUNB, EKD and certain
of their affiliates, and to members of the immediate families of such persons,
to registered representatives of firms with dealer agreements with EKD, and to a
bank or trust company acting as a trustee for a single account.
How the Funds Value their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a 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 Trustees believe would accurately reflect fair value.
Non-dollar denominated securities will be valued as of the close of the Exchange
at the closing price of such securities in their principal trading markets.
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<PAGE>
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares, if available through your broker-dealer, since there
are no initial sales charges and, although there is no conversion feature, the
CDSC only applies to redemptions made during the first year. Consult your
financial intermediary for further information. The compensation received by
dealers and agents may differ depending on whether they sell Class A, Class B or
Class C shares. There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EKD
and EKIS may from time to time pay to broker-dealers additional cash or other
incentives that are conditioned upon the sale of a specified minimum dollar
amount of shares of a Fund and/or other Evergreen Keystone 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 broker-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. EKD may also limit the
availability of such incentives to certain specified dealers. EKD from time to
time sponsors promotions involving FUBS, an affiliate of each Fund's investment
adviser, and select broker-dealers, pursuant to which incentives are paid,
including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum number of accounts. Such promotions are not being made available to
all broker-dealers. Certain broker-dealers may also receive payments from EKD or
a Fund's investment adviser over and above the usual trail commissions or
shareholder servicing payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) 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, a 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. A 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 (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, 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 $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a
19
<PAGE>
Notary Public), a member firm of a domestic stock exchange or by other financial
institutions whose guarantees are acceptable under the Securities Exchange Act
of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
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 a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. 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 a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Trusts, EKSC and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and price and yield quotations as well as the
ability to do account transactions, including investments, exchanges and
redemptions. You may access the Evergreen Keystone Express Line by dialing toll
free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a
week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds through your financial
intermediary by calling or writing to EKSC or by using the Evergreen Keystone
Express Line as described above. 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. An exchange which represents
an initial investment in another Evergreen Keystone fund is subject to the
minimum investment and suitability requirements of each fund.
20
<PAGE>
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in 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 a 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.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen
Keystone funds. If you redeem shares, the CDSC applicable to the Class B or
Class C shares of the Evergreen or Keystone fund originally purchased for cash
is applied. Also, Class B shares will continue to age following an exchange for
the purpose of conversion to Class A shares and for the purpose of determining
the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A 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 a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of 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 EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each 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 a Fund or EKSC 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 "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. Telephone investment requests
received by 4:00 p.m. (Eastern time), will be credited to a shareholder's
account the day the request is received. Shares purchased under the Funds
Systematic Investment Plan or Telephone Investment Plan may not be redeemed for
ten days from the date of investment.
Systematic 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 Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75, or a maximum of 1.0% per month or 3.0% per
quarter of the total net asset value of your account when the Plan was
established. 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. Any applicable CDSC will be waived with
respect to redemptions occurring under a Systematic Withdrawal Plan during a
calendar year to the extent that such redemptions do not exceed 12% of (i) the
initial value of the account plus (ii) the value, at the time of purchase, of
any subsequent investments.
Excessive withdrawals may decrease or deplete the value of your account.
Moreover, because of the effect of the applicable sales charge, a Class A
investor should not make continuous purchases of a Fund's shares while
participating in a Systematic Withdrawal Plan.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen Keystone funds available to their participants.
21
<PAGE>
Investments made by such employee benefit plans may be exempt from front-end
sales charges if they meet the criteria set forth under "Class A Shares-Front
End Sales Charge Alternative". Evergreen Asset, Keystone or CMG may provide
compensation to organizations providing administrative and recordkeeping
services to plans which make shares of the Evergreen Keystone funds available to
their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, 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.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen Keystone fund. This
results in more shares being purchased when the selected Fund's net asset value
is relatively low and fewer shares being purchased when the Fund's net asset
value is relatively high and may result in a lower average cost per share than a
less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone fund. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) the Fund in which the investment is to be made. Thereafter, on the
first day of the designated month, an amount equal to the specified monthly or
quarterly investment will automatically be redeemed from your initial account
and invested in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen Keystone fund shares you own
automatically invested to purchase the same class of shares of any other
Evergreen Keystone fund. You may select this service on your Application and
indicate the Evergreen Keystone fund(s) into which distributions are to be
invested. The value of shares purchased will be ineligible for Rights of
Accumulation and Letters of Intent.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll free
1-800-247-4075 or write to EKSC.
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 Funds. 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. Evergreen
Asset and Keystone since they are subsidiaries of FUNB, and CMG are 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 CMG, Evergreen Asset or Kekystone being
prevented from continuing to perform the services required under the investment
advisory contract or from acting as agent in connection with the purchase of
shares of a Fund by its customers. If CMG, Evergreen Asset or Keystone were
prevented from continuing to provide the services called for under the
investment advisory agreement, it is expected that the Trustees would identify,
and call upon each Fund's shareholders to approve, a new investment adviser. If
this were to occur, it is not anticipated that the shareholders of any Fund
would suffer any adverse financial consequences.
22
<PAGE>
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a 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. Each Fund has
qualified and intends to continue to qualify to be treated as a regulated
investment company under the Code. While so qualified, so long as each Fund
distributes all of its investment company taxable income and any net realized
gains to shareholders, it is expected that the Funds will not be required to pay
any federal income taxes. A 4% nondeductible excise tax will be imposed on a
Fund if it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
The Funds 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 a 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 20% for
most assets held more than 18 months. The rate applicable to corporations is
35%.
Since each 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.
Each 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 on the Application, or on a
separate form supplied by State Street, 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 Funds. 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 Funds in their states and localities. Each Fund notifies
shareholders annually as to the interest exempt from federal taxes earned by the
Fund.
A shareholder who acquires Class A shares of a 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.
23
<PAGE>
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is a separate
investment series of The Evergreen Municipal Trust, a Massachusetts business
trust organized in 1988. EVERGREEN HIGH GRADE TAX FREE FUND is a separate
investment series of Evergreen Investment Trust (formerly First Union Funds), a
Massachusetts business trust organized in 1984. KEYSTONE TAX FREE INCOME FUND is
a Massachusetts business trust organized in 1986. The Funds do not intend to
hold annual shareholder meetings; shareholder meetings will be held only when
required by applicable law. Shareholders have available certain procedures for
the removal of Trustees.
A shareholder in each Class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable CDSC.
Each Trust named above is empowered to establish, without shareholder approval,
additional investment series, which may have different investment objectives,
and additional Classes of shares for any existing or future series. If an
additional series or Class were established in a Fund, each share of the series
or Class would normally be entitled to one vote for all purposes. Generally,
shares of each series and Class would vote together as a single Class on
matters, such as the election of Trustees, that affect each series and Class in
substantially the same manner. Class A, Class B, Class C and Class Y shares have
identical voting, dividend, liquidation and other rights, except that each Class
bears, to the extent applicable, its own distribution, shareholder service and
transfer agency expenses as well as any other expenses applicable only to a
specific Class. Each Class of shares votes separately with respect to Rule 12b-1
distribution plans and other matters for which separate Class voting is
appropriate under applicable law. Shares are entitled to dividends as determined
by the Trustees and, in liquidation of a Fund, are entitled to receive the net
assets of the Fund.
Custodian. State Street, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
Registrar, Transfer Agent and Dividend-Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121, acts as registrar, transfer agent and
dividend-disbursing agent for each of the Funds.
Principal Underwriter. EKD, an affiliate of BISYS, 125 W. 55th Street, New York,
New York 10019, is the principal underwriter of the Funds. BISYS also acts as
sub-administrator to the Funds including providing personnel to serve as
officers of the Funds.
Other Classes of Shares. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND currently offer three classes of shares, Class
A, Class B and Class Y, and may in the future offer additional classes. KEYSTONE
TAX FREE INCOME FUND currently offers Class A, Class B and Class C Shares. Class
Y shares are not offered by this Prospectus and are only available to (i)
persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset, (ii) certain institutional investors and (iii)
investment advisory clients of FUNB 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.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a Fund takes the interest
income it earned from its portfolio of investments (as defined by the SEC
formula) for a 30-day period (net of expenses), divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
24
<PAGE>
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt
yield by the result of one minus a stated federal tax rate. If only a portion of
a Fund's income was tax-exempt, only that portion is adjusted in the calculatio
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar and other industry publications. The Fund may also
advertise in items of sales literature an "actual distribution rate" which is
computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone mutual funds, products, and services, which may
include: retirement investing; brokerage products and services; the effects of
periodic investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, the information provided to investors may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques. EKD may also reprint, and use as advertising and sales
literature, articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine
provided to Evergreen Keystone fund shareholders.
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 Declarations of Trust under which
each Fund operates provide 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.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act. Copies of the Registration Statements may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the offices of the SEC in Washington, D.C.
25
<PAGE>
INVESTMENT ADVISER
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
Capital Management Group of First Union National Bank, 201 South
College Street, Charlotte, North Carolina 28288
EVERGREEN HIGH GRADE TAX FREE FUND
Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116
KEYSTONE TAX FREE INCOME FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston,
Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT AUDITORS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN HIGH GRADE TAX FREE FUND
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
KEYSTONE TAX FREE INCOME FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street,
New York, New York 10019
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE NATIONAL TAX FREE FUNDS
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
CLASS Y SHARES
The Evergreen Keystone National Tax Free Funds (the "Funds") are designed
to provide investors with income exempt from federal income taxes. This
Prospectus provides information regarding the Class Y shares offered by the
Funds. Each Fund is, or is a series of, an open-end, diversified, management
investment company. This Prospectus sets forth concise information about the
Funds that a prospective investor should know before investing. The address of
the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Funds dated September 3,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Funds at (800) 343-2898. There can
be no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this Prospectus carefully.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVES RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 7
Investment Practices and Restrictions 8
MANAGEMENT OF THE FUNDS
Investment Advisers 11
Sub-Adviser 12
Portfolio Managers 12
Administrator 12
Sub-Administrator 12
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 13
How to Redeem Shares 13
Exchange Privilege 15
Shareholder Services 15
Effect of Banking Laws 16
OTHER INFORMATION
Dividends, Distributions and Taxes 17
General Information 18
OVERVIEW OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The investment adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is
Evergreen Asset Management Corp. ("Evergreen Asset") which, with its
predecessors, has served as an investment adviser to the Evergreen mutual funds
since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National
Bank ("FUNB"), which in turn is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the United States. The
Capital Management Group ("CMG") of FUNB serves as investment adviser to
EVERGREEN HIGH GRADE TAX FREE FUND.
EVERGREEN HIGH GRADE TAX FREE FUND seeks to provide a high level of
federally tax-free income that is consistent with preservation of capital.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of
current income, exempt from Federal income tax other than the Federal
alternative minimum tax, as is consistent with preserving capital and providing
liquidity. The Fund invests substantially all of its assets in short and
intermediate-term municipal securities with a dollar weighted average portfolio
maturity of two to five years.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y Shares of a Fund. For further
information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
The following table shows for each Fund the annual operating expenses (as
a percentage of average net assets) attributable to Class Y Shares, together
with examples of the cumulative effect of such expenses on a hypothetical $1,000
investment for the periods specified assuming (i) a 5% annual return and (ii)
redemption at the end of each period.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C> <C> <C>
Management Fees .50% After 1 Year $ 8
12b-1 Fees -- After 3 Years $ 25
Other Expenses .28% After 5 Years $ 43
Total .78% After 10 Years $ 97
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C> <C> <C>
Management Fees .50% After 1 Year $ 8
12b-1 Fees -- After 3 Years $ 24
Other Expenses .24% After 5 Years $ 41
Total .74% After 10 Years $ 92
</TABLE>
3
<PAGE>
* The annual operating expenses and examples reflect fee waivers and expense
reimbursements for the most recent fiscal period. Actual expenses for Class Y
Shares excluding fee waivers and expense reimbursements but including
indirectly paid expenses for the fiscal period ended May 31, 1997, were as
follows:
<TABLE>
<S> <C>
EVERGREEN HIGH GRADE TAX FREE FUND.............................................. 0.86%
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND..................................... 0.86%
</TABLE>
Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND to the extent that its aggregate operating expenses (including
the investment adviser's fee, but excluding taxes, interest, brokerage
commissions, Rule 12b-1 distribution fees and shareholder servicing fees and
extraordinary expenses) exceed 1.0% of the average net assets.
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in Class Y shares
will bear directly or indirectly. The amounts set forth both in the tables and
in the examples are estimated amounts based on the experience of each Fund for
the most recent fiscal period. THE 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. For a more complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds".
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the nine months ended May 31, 1997 for EVERGREEN
HIGH GRADE TAX FREE FUND has been audited by Price Waterhouse LLP, the Fund's
independent auditors. Information for EVERGREEN HIGH GRADE TAX FREE FUND for the
fiscal years or periods prior to May 31, 1997, has been audited by other
auditors. Information for EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND has been
audited by Price Waterhouse LLP, the Fund's independent auditors. A report of
Price Waterhouse LLP on the audited information with respect to each Fund is
incorporated by reference into the Funds' Statement of Additional Information.
The following information for each Fund should be read in conjunction with the
financial statements and related notes which are incorporated by reference into
the Funds' Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
EIGHT FEBRUARY 28, 1994
NINE MONTHS YEAR MONTHS (COMMENCEMENT
ENDED ENDED ENDED OF CLASS OPERATIONS)
MAY 31, AUGUST 31, AUGUST 31, THROUGH
1997 (A) 1996 1995 (C) DECEMBER 31, 1994
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period............................. $10.72 $10.69 $9.79 $10.93
Income from investment operations:
Net investment income........................................... 0.39 0.55 0.36 0.46
Net realized and unrealized gain (loss) on investments.......... 0.17 0.03 0.90 (1.14)
Total from investment operations.............................. 0.56 0.58 1.26 (0.68)
Less distributions from net investment income................... (0.39) (0.55) (0.36) (0.46)
Net asset value end of period................................... $10.89 $10.72 $10.69 $9.79
TOTAL RETURN.................................................... 5.32% 5.47% 13.02% (6.29%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................ 0.78%(b) 0.64% 0.81%(b) 0.76%(b)
Total expenses excluding indirectly paid expenses............. 0.78%(b) -- -- --
Total expenses excluding waivers and reimbursements........... 0.86%(b) 0.84% 0.84%(b) 0.77%(b)
Net investment income......................................... 4.85%(b) 5.03% 5.18%(b) 5.46%(b)
Portfolio turnover rate......................................... 114% 65% 27% 53%
Net assets end of period (thousands)............................ $ 24,441 $ 25,112 $ 25,079 $4,318
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to August 31.
5
<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED AUGUST 31,
MAY 31, 1997 (A) 1996 1995 1994 1993 1992 (C)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period.......................... $10.07 $10.17 $10.21 $10.58 $10.33 $10.00
Income from investment operations:
Net investment income............. 0.30 0.43 0.46 0.47 0.49 0.51
Net realized and unrealized gain
(loss) on investments........... 0.03 (0.10) (0.04) (0.32) 0.25 0.33
Total from investment
operations...................... 0.33 0.33 0.42 0.15 0.74 0.84
Less distributions from:
Net investment income............. (0.30) (0.43) (0.46) (0.47) (0.49) (0.51)
In excess of net investment
income.......................... 0 0 0 (0.03) 0 0
Net realized gain on
investments..................... 0 0 0 (0.02) 0 0
Total distributions............... (0.30) (0.43) (0.46) (0.52) (0.49) (0.51)
Net asset value end of period..... $10.10 $10.07 $10.17 $10.21 $10.58 $10.33
TOTAL RETURN...................... 3.36% 3.30% 4.20% 1.40% 7.40% 8.56%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................. 0.74%(b) 0.70% 0.74% 0.58% 0.40% 0.17%
Total expenses excluding
indirectly paid expenses...... 0.73%(b) -- -- -- -- --
Total expenses excluding waivers
and reimbursements............ 0.86%(b) 0.90% 0.86% 0.83% 0.81% 0.86%
Net investment income........... 4.04%(b) 4.27% 4.52% 4.54% 4.73% 4.85%
Portfolio turnover rate........... 34% 29% 80% 32% 37% 57%
Net assets end of period
(thousands)..................... $ 32,293 $34,893 $40,581 $53,417 $66,607 $ 54,470
<CAPTION>
JULY 17, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1991 (C)
<S> <C>
PER SHARE DATA:
Net asset value beginning of
period.......................... $10.00
Income from investment operations:
Net investment income............. 0.06
Net realized and unrealized gain
(loss) on investments........... 0
Total from investment
operations...................... 0.06
Less distributions from:
Net investment income............. (0.06)
In excess of net investment
income.......................... 0
Net realized gain on
investments..................... 0
Total distributions............... (0.06)
Net asset value end of period..... $10.00
TOTAL RETURN...................... 0.62%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................. 0.00%(b)
Total expenses excluding
indirectly paid expenses...... --
Total expenses excluding waivers
and reimbursements............ 1.40%(b)
Net investment income........... 4.93%(b)
Portfolio turnover rate........... --
Net assets end of period
(thousands)..................... $4,025
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding and the related per share data as of August 31, 1991 are
restated to reflect both a 1 for 2 reverse share split on October 30, 1991
and a 1 for 5 reverse share split on August 19, 1992. Total return
calculated after November 18, 1991 reflects the fluctuation in net asset
value per share.
6
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN HIGH GRADE TAX FREE FUND
The EVERGREEN HIGH GRADE TAX FREE FUND seeks a high level of Federally
tax free income that is consistent with preservation of capital. At least 65% of
the value of the total assets of EVERGREEN HIGH GRADE TAX FREE FUND will be
invested in high grade bonds. High grade bonds mean: bonds insured by a
municipal bond insurance company which is rated AAA by Standard & Poor's Ratings
Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds
rated A or better by S&P or Moody's; or, if unrated, of comparable quality as
determined by the Fund's investment adviser. The insurance guarantees the timely
payment of principal and interest, but not the value of the municipal bonds or
the shares of the Fund. See the section "Investment Practices and
Restrictions" -- "Municipal Bond Insurance" for further information.
The EVERGREEN HIGH GRADE TAX FREE FUND may also purchase instruments
having variable rates of interest. One example is variable amount master demand
notes. These notes represent a borrowing arrangement between a commercial paper
issuer (borrower) and an institutional lender, such as the Fund, and are payable
upon demand. The underlying amount of the loan may vary during the course of the
contract, as may the interest on the outstanding amount, depending on a stated
short-term interest rate index.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
The investment objective of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
is to achieve as high a level of current income, exempt from Federal income tax
other than the Federal alternative minimum tax ("AMT") for individuals and
corporations, as is consistent with preserving capital and providing liquidity.
Under normal circumstances, it is anticipated that the Fund will invest its
assets so that at least 80% of its annual interest income is exempt from Federal
income tax other than the AMT. The Fund will seek to achieve its objective by
investing substantially all of its assets in a diversified portfolio of short
and intermediate-term debt obligations issued by states, territories and
possessions of the United States ("U.S.") and by the District of Columbia, and
their political subdivisions and duly constituted authorities, the interest from
which is exempt from Federal income tax other than the AMT. Such securities are
generally known as Municipal Securities (see "Investment Practices and
Restrictions" -- "Municipal Securities" below). As a matter of policy, the
Trustees will not change the Fund's investment objective without shareholder
approval.
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 AMT 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 Fund may invest up to 50% of its total
assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
7
<PAGE>
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment restrictions
more fully described in the Statement of Additional Information.
General. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will invest in Municipal Securities so long as they are
determined to be of high or upper medium quality. Municipal Securities meeting
this criteria include bonds rated A or higher by S&P, Moody's or another
nationally recognized statistical rating organization ("SRO"); notes rated SP -1
or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's
in the case of variable rate demand notes or having comparable ratings from
another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or having comparable ratings from another SRO. EVERGREEN HIGH GRADE
TAX FREE FUND may also invest in general obligation bonds which are rated BBB by
S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade
bonds are more susceptible to adverse economic conditions or changing
circumstances than higher grade bonds. However, like the higher rated bonds,
these securities are considered to be investment grade. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may also invest in bonds rated BBB or higher
by S&P, Baa or higher by Moody's or another SRO. For a description of such
ratings see the Statement of Additional Information. The Funds may also purchase
Municipal Securities which are unrated at the time of purchase, if such
securities are determined by the Funds' investment advisers to be of comparable
quality. Certain Municipal Securities (primarily variable rate demand notes) may
be entitled to the benefit of standby letters of credit or similar commitments
issued by banks and, in such instances, the Funds' investment advisers will take
into account the obligation of the bank in assessing the quality of such
security.
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 portfolios of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the 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 money to the Funds 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 Funds. In periods of rising interest rates,
the opposite can be expected to occur.
Municipal Securities . As noted above, the Funds will invest substantially all
of their assets in Municipal Securities. These include municipal bonds,
short-term municipal notes and tax exempt commercial paper. "Municipal
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 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.
Municipal Bond Insurance. The EVERGREEN HIGH GRADE TAX FREE FUND will require
municipal bond insurance when purchasing Municipal Securities which would not
otherwise meet the Fund's quality standards. The EVERGREEN HIGH GRADE TAX FREE
FUND may also require insurance when, in the opinion of the Fund's investment
8
<PAGE>
adviser, such insurance would benefit the Fund (for example, through improvement
of portfolio quality or increased liquidity of certain securities). The purpose
of municipal bond insurance is to guarantee the timely payment of principal at
maturity and interest.
Securities in the EVERGREEN HIGH GRADE TAX FREE FUND'S portfolio may be
insured in one of two ways: (1) by a policy applicable to a specific security,
obtained by the issuer of the security or by a third party ( "Issuer-Obtained
Insurance") or (2) under master insurance policies issued by municipal bond
insurers, purchased by the Fund (the "Policies"). If a security's coverage is
Issuer-Obtained, then that security does not need to be covered in the Policies.
The Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more
detailed description of these insurers may be found in the Statement of
Additional Information. Annual premiums for these Policies are paid by the Fund
and are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate of
approximately 0.175%. While the insurance feature reduces financial risk, the
cost thereof and the restrictions on investments imposed by the guidelines in
the Policies reduce the yield to shareholders.
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 Funds 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 Funds will limit
the value of their investments in any floating or variable rate securities which
are not readily marketable to 10% or less of their net assets.
When-Issued or Delayed Delivery Securities. The Funds may purchase securities on
a when-issued or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). A Fund generally would not pay for
such securities or start earning interest on them until they are received.
However, when a Fund purchases securities on a when-issued or delayed delivery
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 a Fund
on a when-issued or delayed delivery basis may result in the Fund incurring a
loss or missing an opportunity to make an alternative investment. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND does not expect that commitments to purchase
when-issued securities will normally exceed 25% of its total assets and
EVERGREEN HIGH GRADE TAX FREE FUND does not expect that such commitments will
exceed 20% of its total assets. The Funds do not intend to purchase when-issued
or delayed delivery securities for speculative purposes but only in furtherance
of their investment objective.
Stand-by Commitments. The Funds may also acquire "stand-by commitments" with
respect to Municipal Securities held in their portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal
Securities at a specified price. Failure of the dealer to purchase such
Municipal Securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a 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
each 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
Funds will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. The Funds
will enter into stand-by commitments only with banks and broker-dealers that, in
the judgment of the Funds' investment advisers, present minimal credit risks.
Taxable Investments. EVERGREEN HIGH GRADE TAX FREE FUND may temporarily invest
up to 20% of its total assets in taxable securities and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may temporarily invest its assets so that not
more than 20% of its annual interest income will be derived from 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,
9
<PAGE>
(b) pending settlement of purchases of portfolio securities, and (c) to maintain
liquidity for the purpose of meeting anticipated redemptions. In addition, each
such Fund may temporarily invest more than 20% of its total assets in taxable
securities for defensive purposes. Each Fund may invest for defensive purposes
during periods when each Fund's assets available for investment exceed the
available Municipal Securities that meet each Fund's quality and other
investment criteria. Taxable securities in which the Funds may invest on a
short-term basis include obligations of the U.S. government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by any
major rating service; commercial paper rated in the highest grade by Moody's,
S&P or any SRO; and certificates of deposit issued by U.S. branches of U.S.
banks with assets of $1 billion or more.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Funds custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. government securities. A repurchase agreement is an arrangement pursuant to
which a buyer purchases a security and simultaneously agrees to resell it to the
vendor at a price that results in an agreed-upon market rate of return which is
effective for the period of time (which is normally one to seven days, but may
be longer) the buyer's money is invested in the security. The arrangement
results in a fixed rate of return that is not subject to market fluctuations
during a Fund's holding period. Each Fund requires continued maintenance of
collateral with its Custodian in an amount equal to, or in excess of, the market
value of the securities, including accrued interest, which are the subject of a
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, a Fund might be delayed in
selling the collateral. Each Fund's investment adviser will review and
continually monitor the creditworthiness of each institution with which a Fund
enters into a repurchase agreement to evaluate these risks. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may not enter into repurchase agreements if,
as a result, more than 15% of the Fund's net assets would be invested in
repurchase agreements maturing in more than seven days and EVERGREEN HIGH GRADE
TAX FREE FUND may not so invest more than 10% of its net assets.
Illiquid and Restricted Securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
may invest up to 15% of its net assets in illiquid securities and other
securities which are not readily marketable. In the case of the Fund, 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. EVERGREEN HIGH GRADE TAX FREE FUND
may invest up to 10% of its net assets in illiquid securities and up to 10% of
its net assets in securities subject to restrictions on resale under the Federal
securities laws. The liquidity of securities purchased by a Fund which are
eligible for resale pursuant to Rule 144A will be monitored by a Fund's
investment adviser on an ongoing basis, subject to the oversight of the Trustees
as defined below. In the event that such a security is deemed to be no longer
liquid, a 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 a Fund
having more than 15% of its net assets invested in illiquid or not readily
marketable securities. The inability of a 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.
Other Investment Policies. The Funds 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 the case of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, borrowings may be in amounts up to
10% of the value of the Fund's net assets at the time of such borrowing.
EVERGREEN HIGH GRADE TAX FREE FUND may borrow in amounts up to one-third of its
net assets. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, U.S. government securities or
liquid high grade debt obligations having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price of those securities. EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will not enter into reverse repurchase agreements exceeding 5% of
the value of its total assets and will not purchase any securities whenever any
borrowings (including reverse repurchase agreements) are outstanding.
10
<PAGE>
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. Each
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities by a Fund, if and when made, may not exceed 30% of the total
assets of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, or 15% of the total
assets of EVERGREEN HIGH GRADE TAX FREE FUND, 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% of the current market value of the
loaned securities, including accrued interest. While such securities are on
loan, the borrower will pay a Fund any income accruing thereon, and the Fund may
invest the cash collateral, thereby increasing its return. A Fund will have the
right to call any such loan and obtain the securities loaned at any time on five
days' notice. Any gain or loss in the market price of the loaned securities
which occurs during the term of the loan would affect a Fund and its investors.
A Fund may pay reasonable fees in connection with such loans.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which each Fund has been established ("Trustees"). Evergreen Asset has
been retained by EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND as investment
adviser. Evergreen Asset, with its predecessors, has served as investment
adviser to certain of the Evergreen Keystone funds since 1971. Evergreen Asset
is a wholly-owned subsidiary of FUNB. The address of Evergreen Asset is 2500
Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First
Union, the sixth largest bank holding company in the United States. Stephen A.
Lieber and Nola Maddox Falcone serve as the chief investment officers of
Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of
Evergreen Asset's predecessor and the former general partners of Lieber &
Company, which, as described below, provides certain subadvisory services to
Evergreen Asset in connection with its duties as investment adviser to the
Funds. CMG of FUNB serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE
FUND.
First Union is headquartered in Charlotte, North Carolina, and had $143
billion in consolidated assets as of June 30, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. The investment advisory affiliates of
FUNB manage or otherwise oversee the investment of over $61.9 billion in assets
belonging to a wide range of clients, including all of the Evergreen Keystone
funds. First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB,
is a registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
Evergreen Asset manages investments and supervises the daily business
affairs of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND subject to the authority
of the Trustees. Under its investment advisory agreement with EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, Evergreen Asset is entitled to receive an
annual fee equal to 0.50% of the Fund's average daily net assets. CMG manages
investments and supervises the daily business affairs of EVERGREEN HIGH GRADE
TAX FREE FUND and, as compensation therefor, is entitled to receive an annual
fee equal to 0.50% of average daily net assets of the Fund. The total expense
ratios of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN HIGH GRADE
TAX FREE FUND for the fiscal period ended May 31, 1997, are set forth in the
section entitled "Financial Highlights".
SUB-ADVISER
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provide that Lieber & Company's research department and staff will
furnish Evergreen Asset with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolio of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. Lieber & Company will be reimbursed
by Evergreen Asset in connection with the rendering of services on the basis of
the direct and indirect costs of performing such services. There is no
additional charge to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND for the
services provided by
11
<PAGE>
Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue,
Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned,
subsidiary of First Union.
PORTFOLIO MANAGERS
The portfolio manager of EVERGREEN HIGH GRADE TAX FREE FUND is James T.
Colby, III. Mr. Colby is a Vice President of CMG and has been associated with
Evergreen Asset and its predecessor since 1992. He has served as portfolio
manager of the Fund since 1995 and was portfolio manager of Evergreen National
Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995, since
that fund's inception in 1992. The portfolio manager for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND is Steven C. Shachat. Mr. Shachat has been
associated with Evergreen Asset and its predecessor since 1988 and has served as
portfolio manager of the Fund since its inception.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, subject to the supervision and control of the
Trustees of the Trust under which each Fund has been established. EKIS provides
facilities, equipment and personnel to EVERGREEN HIGH GRADE TAX FREE FUND and
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and is entitled to receive a fee
based on the aggregate average daily net assets of the mutual funds for which
FUNB affiliates serve as investment adviser, calculated in accordance with the
following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee from EKIS calculated on the
aggregate average daily net assets of all the mutual funds for which EKIS serves
as administrator and FUNB affiliates serve as investment adviser. The
sub-administrator fee is calculated in accordance with the following schedule:
Sub-Administration Fee
----------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $30.5 billion as of June 30, 1997.
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PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Eligible investors may purchase Fund shares at net asset value by mail or
wire as described below. The Funds impose no sales charges on Class Y shares.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (ii) certain institutional
investors and (iii) investment advisory clients of FUNB affiliates.
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), P.O. Box 2121, Boston, Massachusetts 02106-2121, a
completed account application and a check payable to the Fund. You may also
telephone 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer funds and then send in a completed account
Application. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a 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 Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) 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, a 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. A 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 (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
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<PAGE>
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, 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 $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. 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 under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
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 a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. 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 a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Trusts, EKSC and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and price and yield quotations as well as the
ability to do account transactions, including investments, exchanges and
redemptions. You may access the Evergreen Keystone Express Line by dialing toll
free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a
week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
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EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds by telephone or mail as
described below. 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. An exchange, which represents an initial
investment in another Evergreen Keystone fund, is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Each Fund imposes a
fee of $5 per exchange on shareholders who exchange in excess of four times per
calendar year. 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. A 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 a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of 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 EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each 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 a Fund or EKSC 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 "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary,
Evergreen Keystone Distributor, Inc. ("EKD"), the distributor of the Funds, or
the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. Telephone investment requests
received by 4:00 p.m. (Eastern time), will be credited to a shareholder's
account the day the request is received. Shares purchased under the Funds
Systematic Investment Plan or Telephone Investment Plan may not be redeemed for
ten days from the date of investment.
Systematic 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 Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75 or a maximum of 1.0% per month or 3.0% per quarter
of the total net asset value of your account when the Plan was established. 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. Excessive withdrawals may decrease or deplete the
value of your account.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the
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record date, 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.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen Keystone fund. This
results in more shares being purchased when the selected Fund's net asset value
is relatively low and fewer shares being purchased when the Fund's net asset
value is relatively high and may result in a lower average cost per share than a
less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone fund. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) the Fund in which the investment is to be made. Thereafter, on the
first day of the designated month, an amount equal to the specified monthly or
quarterly investment will automatically be redeemed from your initial account
and invested in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen Keystone fund shares you own
automatically invested to purchase the same class of shares of any other
Evergreen Keystone fund. You may select this service on your Application and
indicate the Evergreen Keystone fund(s) into which distributions are to be
invested.
Tax Deferred Retirement Plans. The Funds have various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Savings Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7) Plans (TSAs); 401(k)
Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase Pension Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to EKSC.
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 Funds. 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. Evergreen
Asset, since it is a subsidiary of FUNB, and CMG are 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 CMG or Evergreen Asset being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If CMG or Evergreen Asset were prevented from continuing
to provide the services called for under the investment advisory agreement, it
is expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
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OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a 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. Each Fund has
qualified and intends to continue to qualify to be treated as a regulated
investment company under the Internal Revenue Code (the "Code"). While so
qualified, so long as each Fund distributes all of its investment company
taxable income and any net realized gains to shareholders, it is expected that
the Funds will not be required to pay any Federal income taxes. A 4%
nondeductible excise tax will be imposed on a Fund if it does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
The Funds 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 a 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 investors 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 20% for
most assets held more than 18 months. The rate applicable to corporations is
35%.
Since each 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.
Each 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 on the Share Purchase
Application, or on a separate form supplied by State Street, 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 Funds. These statements will set
forth the amount of income exempt from Federal and, if applicable, state
taxation (including California), 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 Funds in their states and localities. Each
Fund notifies shareholders annually as to the interest exempt from Federal taxes
earned by the Fund.
A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within ninety 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.
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GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Conduct of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is a separate
investment series of The Evergreen Municipal Trust, a Massachusetts business
trust organized in 1988. EVERGREEN HIGH GRADE TAX FREE FUND is a separate
investment series of Evergreen Investment Trust (formerly First Union Funds) a
Massachusetts business trust organized in 1984. The Funds do not intend to hold
annual shareholder meetings; shareholder meetings will be held only when
required by applicable law. Shareholders have available certain procedures for
the removal of Trustees.
A shareholder in each Class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable
contingent deferred sales charge. Each Trust named above is empowered to
establish, without shareholder approval, additional investment series, which may
have different investment objectives, and additional Classes of shares for any
existing or future series. If an additional series or Class were established in
a Fund, each share of the series or Class would normally be entitled to one vote
for all purposes. Generally, shares of each series and Class would vote together
as a single Class on matters, such as the election of Trustees, that affect each
series and Class in substantially the same manner. Class A, Class B and Class Y
shares have identical voting, dividend, liquidation and other rights, except
that each Class bears, to the extent applicable, its own distribution,
shareholder service and transfer agency expenses as well as any other expenses
applicable only to a specific Class. Each Class of shares votes separately with
respect to Rule 12b-1 distribution plans and other matters for which separate
Class voting is appropriate under applicable law. Shares are entitled to
dividends as determined by the Trustees and, in liquidation of a Fund, are
entitled to receive the net assets of the Fund.
Custodian. State Street, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as
each Fund's custodian.
Registrar, Transfer Agent and Dividend-Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121 serves as each Fund's transfer and
dividend-disbursing agent.
Principal Underwriter. EKD, an affiliate of BISYS, 125 W. 55th Street, New York,
New York 10019, is the principal underwriter of the Funds. BISYS also acts as
sub-administrator to the Funds, including providing personnel to serve as
officers of the Funds.
Other Classes of Shares. Each Fund currently offers three classes of shares,
Class A, Class B and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994, owned shares
in a mutual fund advised by Evergreen Asset, (ii) certain institutional
investors and (iii) investment advisory clients of FUNB 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.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a Fund takes the interest
income it earned from its portfolio of investments (as defined by the SEC
formula) for a 30-day period (net of expenses), divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based
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on a Fund's share price at the end of the 30-day period. This yield does not
reflect gains or losses from selling securities.
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt
yield by the result of one minus a stated Federal tax rate. If only a portion of
a Fund's income was tax-exempt, only that portion is adjusted in the
calculation.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar and other industry publications. The Fund may also
advertise in items of sales literature an "actual distribution rate" which is
computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen mutual funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. EKD may also reprint, and use as advertising and sales
literature, articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine
provided to Evergreen Keystone shareholders.
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 Declarations of Trust under which
each Fund operates provide 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.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Act. Copies of the Registration Statements may be
obtained at a reasonable charge from the SEC or may be examined, without charge,
at the offices of the SEC in Washington, D.C.
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INVESTMENT ADVISER
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
Capital Management Group of First Union National Bank,
201 South College Street, Charlotte, North Carolina 28288
EVERGREEN HIGH GRADE TAX FREE FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston,
Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT AUDITORS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND,
EVERGREEN HIGH GRADE TAX FREE FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street,
New York, New York 10019
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997
THE EVERGREEN KEYSTONE NATIONAL TAX FREE FUNDS
200 Berkeley Street, Boston, Massachusetts 02116
800-343-2898
Evergreen High Grade Tax Free Fund ("High Grade")
Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate")
Keystone Tax Free Income Fund ("Tax Free Income")
This Statement of Additional Information pertains to all classes of shares
of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated September 3, 1997, as supplemented from
time to time for the Fund in which you are making or contemplating an
investment. The Evergreen Keystone National Tax Free Funds are offered through
two separate prospectuses: one offering Class A shares and Class B shares of
High Grade and Short-Intermediate and Class A shares, Class B shares and Class C
shares of Tax Free Income, and a separate prospectus offering Class Y shares of
High Grade and Short-Intermediate. Copies of each Prospectus may be obtained
without charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies.........................................2
Investment Restrictions...................................................11
Non-fundamental Operating Policies........................................16
Management................................................................17
Investment Advisers.......................................................22
Distribution Plans........................................................25
Allocation of Brokerage ..................................................27
Additional Tax Information................................................28
Net Asset Value...........................................................30
Purchase of Shares........................................................31
General Information about the Funds ......................................39
Performance Information...................................................41
General...................................................................44
Financial Statements......................................................45
Appendix "A".............................................................A-1
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INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives
and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the
securities in which each Fund may invest is set forth under "Description of the
Funds - Investment Objectives and Policies" in the relevant Prospectus. The
investment objective of Tax Free Income Fund is fundamental and cannot be
changed without the approval of shareholders. The following expands the
discussion in the Prospectus regarding certain investments of each Fund.
Additional Information Regarding Investments that each Fund May Make
Participation Interests (All Funds)
Participation interests may take the form of participations, beneficial
interests in a trust, partnership interests, or any other form of indirect
ownership that allows a Fund to treat the income from the investments as exempt
from federal and state tax. The financial institutions from which a Fund
purchases participation interests frequently provide or secure from another
financial institution irrevocable letters of credit or guarantees and give a
Fund the right to demand payment of the principal amounts of the participation
interests plus accrued interest on short notice (usually within seven days).
Variable Rate Municipal Securities (All Funds)
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities than for fixed
income obligations.
Many municipal securities with variable interest rates purchased by a Fund
are subject to repayment of principal (usually within seven days) on the Fund's
demand. The terms of these variable rates demand instruments require payment of
principal obligations by the issuer of the participation interests or a
guarantor of either issuer. All variable rate municipal securities will meet the
quality standards for a Fund. Each Fund's investment adviser has been instructed
by the Board of Trustees (the "Trustees") to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including participation
interests held by a Fund, on the basis of published financial information and
reports of the rating agencies and other analytical services.
Municipal Leases (All Funds)
When determining whether municipal leases purchased by a Fund will be
classified as a liquid or illiquid security, the Trustees have directed each
Fund's investment adviser to consider certain factors, such as: the frequency of
trades and quotes for the security; the volatility of quotations and trade
prices for the security, the number of dealers willing to purchase or sell the
security and the number of potential purchasers; dealer undertakings to make a
market in the security; the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of
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the security, the method of soliciting offers, and the mechanics of transfer);
the rating of the security and the financial condition and prospects of the
issuer of the security; whether the lease can be terminated by the lessee; the
potential recovery, if any, from a sale of the leased property upon termination
of the lease; the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of nonappropriation"); any credit enhancement
or legal recourse provided upon an event of nonappropriation or other
termination of the lease; and such other factors as may be relevant to the
Fund's ability to dispose of the security.
When-Issued and Delayed Delivery Transactions (All Funds)
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of a Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. Short-Intermediate
does not expect its commitments to purchase when-issued securities will normally
exceed 25% of their total assets and High Grade does not expect that such
commitments will exceed 20% of its total assets.
Futures and Options Transactions (Tax Free Income)
The Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts and options on financial futures
contracts. Additionally, the Fund may buy and sell call and put options on
portfolio securities.
Purchasing Put Options on Financial Futures Contracts (Tax Free Income)
Tax Free Income may purchase listed put and call options on financial
futures contracts for U.S. government securities. Unlike entering directly into
a futures contract, which requires the purchaser to buy a financial instrument
on a set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
The Fund may purchase put options on futures to protect portfolio securities
against decreases in value resulting from an anticipated increase in market
interest rates. Generally, if the hedged portfolio securities decrease in value
during the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by a Fund upon the sale of the second option
will be large enough to offset both the premium paid by the Fund for the
original option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the premium paid
for the contract will be lost.
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Writing Call Options on Financial Futures Contracts (Tax Free Income)
In addition to purchasing put options on futures, Tax Free Income may write
listed call options on futures contracts for U.S. government securities to hedge
its portfolio against an increase in market interest rates. When the Fund writes
a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option, if the option is
exercised. As market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call, so
that the Fund keeps the premium received for the option. This premium can offset
the drop in value of the Fund's fixed income portfolio which is occurring as
interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be less
than the premium received by the Fund for the initial option. The net premium
income of a Fund will then offset the decrease in value of the hedged
securities.
Writing Put Options on Financial Futures Contracts (Tax Free Income)
Tax Free Income may write listed put options on financial futures
contracts for U.S. government securities to hedge its portfolio against a
decrease in market interest rates. When the Fund writes a put option on a
futures contract, it receives a premium for undertaking the obligation to assume
a long futures position (buying a futures contract) at a fixed price at any time
during the life of the option. As market interest rates decrease, the market
price of the underlying futures contract normally increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the buyer
can sell the same futures contract at a higher price in the market. The premium
received by the Fund can then be used to offset the higher prices of portfolio
securities to be purchased in the future due to the decrease in the market
interest rates.
Prior to the expiration of the put option or its exercise by the buyer,
the Fund may close out the option by buying an identical option. If the hedge is
successful, the cost of buying the second option will be less than the premium
received by the Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts (Tax Free Income)
An additional way in which Tax Free Income may hedge against decreases
in market interest rates is to buy a listed call option on a financial futures
contract for U.S. government securities. When the Fund purchases a call option
on a futures contract, it is purchasing the right (not the obligation) to assume
a long futures position (buy a futures contract) at a fixed price at any time
during the life of the option. As market interest rates fall, the value of the
underlying futures contract will normally increase, resulting in an increase in
value of the Fund's option position. When the market price of the underlying
futures contract increases above the strike price plus premium paid, the Fund
could exercise its option and buy the futures contract below
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market price.
Prior to the exercise or expiration of the call option the Fund could
sell an identical call option and close out its position. If the premium
received upon selling the offsetting call is greater than the premium originally
paid, the Fund has completed a successful hedge.
Limitation on Open Futures Positions (Tax Free Income)
Tax Free Income will not maintain open positions in futures contracts
it has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.
"Margin" in Futures Transactions (Tax Free Income)
Unlike the purchase or sale of a security, Tax Free Income does not pay
or receive money upon the purchase or sale of a futures contract. Rather, the
Fund is required to deposit an amount of "initial margin" in cash or U.S.
Treasury bills with its custodian (or the broker, if legally permitted). The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract initial margin does
not involve the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The Fund may
not purchase or sell futures contracts or related options if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for related options would exceed 5% of the
market value of the Fund's total assets.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
Purchasing and Writing Put and Call Options on Portfolio Securities
(Tax Free Income)
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option gives the
Fund, in return for a premium, the right to sell the underlying security to the
writer (seller) at a specified price during the term of the option. A call
option gives the Fund, in return for a premium, the right to buy the underlying
security from the seller.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the writers or buyers of
the options since
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options on the portfolio securities held by the Fund are to be traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's investment adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options are
third party contracts with standardized strike prices and expiration dates and
are purchased from a clearing corporation. Exchange traded options have a
continuous liquid market while over-the-counter options may not.
Repurchase Agreements (All Funds)
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government securities or
other securities to a Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition. A Fund or its custodian will take possession of the securities
subject to repurchase agreements. To the extent that the original seller does
not repurchase the securities from a Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. Each Fund believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. A Fund may only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers, which are
found by the Fund's investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
Reverse Repurchase Agreements (All Funds)
A Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Lending of Portfolio Securities (All Funds)
The collateral received when a Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are
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on loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. A Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment.
Restricted Securities (All Funds)
With the exceptions noted below, a Fund may invest in restricted
securities. Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objectives and policies but which
are subject to restrictions on resale under federal securities laws.
Short-Intermediate will not invest more than 15% and for High Grade and Tax Free
Income, 10%, of the value of their net assets in restricted securities; however,
certain restricted securities which the Trustees deem to be liquid will be
excluded from this limitation.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule 144A. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Municipal Bond Insurance (High Grade)
The Fund may purchase two types of municipal bond insurance policies
("Policies") issued by municipal bond insurers. One type of Policy covers
certain municipal securities only during the period in which they are in the
Fund's portfolio. In the event that a municipal security covered by such a
Policy is sold by the Fund, the insurer of the relevant Policy will be liable
only for those payments of interest and principal which are then due and owing
at the time of sale.
The other type of Policy covers municipal securities not only while
they remain in the Fund's portfolio but also until their final maturity, even if
they are sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such
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municipal securities were sold without insurance. Payments received from
municipal bond insurers may not be tax-exempt income to shareholders of the
Fund.
Depending upon the characteristics of the municipal security held by
the Fund, the annual premiums for the Policies are estimated to range from 0.10%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.
The Fund may purchase Policies from Municipal Bond Investors Assurance
Corp. ("MBIA"), AMBAC Indemnity Corporation ("AMBAC"), Financial Guaranty
Insurance Company ("FGIC"), each as described under "Municipal Bond Insurers",
or any other municipal bond insurer which is rated at least Aaa by Moody's
Investors Service, Inc. ("Moody's") or AAA by Standard & Poor's Ratings Group
("S&P"). Each Policy guarantees the payment of principal and interest on those
municipal securities it insures. The Policies will have the same general
characteristics and features. A municipal security will be eligible for coverage
if it meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such payment
not later than 30 days after it has been notified by the Fund that such
non-payment has occurred.
MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in the
Fund's portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any
reason except failure to pay premiums when due. MBIA, AMBAC, and FGIC will
reserve the right at any time upon 90 days' written notice to the Fund to refuse
to insure any additional municipal securities purchased by the Fund after the
effective date of such notice. The Fund's investment adviser will reserve the
right to terminate any of the Policies if it determines that the benefits to the
Fund of having its portfolio insured under such Policy are not justified by the
expense involved.
Additionally, the Fund's investment adviser reserves the right to enter
into contracts with insurance carriers other than MBIA, AMBAC, or FGIC, if such
carriers are rated Aaa by Moody's or AAA by S&P.
Under the Policies, municipal bond insurers unconditionally guarantee
to the Fund the timely payment of principal and interest on the insured
municipal securities when and as such payments shall become due but shall not be
paid by the issuer, except that in the event of any acceleration of the due date
of the principal by reason of mandatory or optional redemption (other than
acceleration by reason of mandatory sinking fund payments), default or
otherwise, the payments guaranteed will be made in such amounts and at such
times as payments of principal would have been due had there not been such
acceleration. The municipal bond insurers will be responsible for such payments
less any amounts received by the Fund from any trustee for the municipal bond
holders or from any other source. The Policies do not guarantee payment on an
accelerated basis, the payment of any redemption premium, the value for the
shares of the Fund, or payments of any tender purchase price upon the tender of
the municipal securities. The Policies also do not insure against nonpayment of
principal of or interest on the securities resulting from the insolvency,
negligence or any other act or omission of the trustee or other paying agent for
the securities. However, with respect to small issue industrial development
municipal bonds and pollution control revenue municipal bonds covered by the
Policies, the municipal bond insurers guarantee the full and complete payments
required to be made by or on behalf of an issuer of such municipal securities if
there occurs any change in the tax-exempt status of interest on such municipal
securities, including principal, interest or premium payments, if
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any, as and when required to be made by or on behalf of the issuer pursuant to
the terms of such municipal securities. A when-issued municipal security will be
covered under the Policies upon the settlement date of the original issue of
such when-issued municipal securities. In determining whether to insure
municipal securities held by the Fund, each municipal bond insurer has applied
its own standard, which corresponds generally to the standards it has
established for determining the insurability of new issues of municipal
securities. This insurance is intended to reduce financial risk, but the cost
thereof and compliance with investment restrictions imposed under the Policies
and these guidelines will reduce the yield to shareholders of the Fund.
If a Policy terminates as to municipal securities sold by the Fund on
the date of sale, in which event municipal bond insurers will be liable only for
those payments of principal and interest that are then due and owing, the
provision for insurance will not enhance the marketability of securities held by
the Fund, whether or not the securities are in default or subject to significant
risk of default, unless the option to obtain permanent insurance is exercised.
On the other hand, since issuer-obtained insurance will remain in effect as long
as the insured municipal securities are outstanding, such insurance may enhance
the marketability of municipal securities covered thereby, but the exact effect,
if any, on marketability cannot be estimated. The Fund generally intends to
retain any securities that are in default or subject to significant risk of
default and to place a value on the insurance, which ordinary will be the
difference between the market value of the defaulted security and the market
value of similar securities of minimum high grade (i.e., rated A by Moody's or
S&P) that are not in default. To the extent that the Fund holds defaulted
securities, it may be limited in its ability to manage its investment and to
purchase other municipal securities. Except as described above with respect to
securities that are in default or subject to significant risk of default, the
Fund will not place any value on the insurance in valuing the municipal
securities that it holds.
Municipal Bond Insurers
Municipal bond insurance may be provided by one or more of the
following insurers or any other municipal bond insurer which is rated at least
Aaa by Moody's or AAA by S&P.
Municipal Bond Investors Assurance Corp.
Municipal Bond Investors Assurance Corp. is a wholly-owned subsidiary
of MBIA, Inc., a Connecticut insurance company, which is owned by AEtna Life and
Casualty, Credit Local DeFrance CAECL, S.A., The Fund American Companies, and
the public. The investors of MBIA, Inc. are not obligated to pay the obligations
of MBIA. MBIA, domiciled in New York, is regulated by the New York State
Insurance Department and licensed to do business in various states. The address
of MBIA is 113 King Street, Armonk, New York, 10504, and its telephone number is
(914) 273-4345. S&P has rated the claims-paying ability of MBIA AAA.
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation is a Wisconsin-domiciled stock insurance
company, regulated by the Insurance Department of Wisconsin, and licensed to do
business in various states. AMBAC is a wholly-owned subsidiary of AMBAC, Inc., a
financial holding company which is owned by the public. Copies of certain
statutorily required filings of AMBAC can be obtained from AMBAC. The address of
AMBAC's administrative offices is One State Street Plaza, 17th Floor, New York,
New York, 10004, and its telephone number is (212) 668-0340. S&P has rated the
claims-paying ability of AMBAC AAA.
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Financial Guaranty Insurance Company
Financial Guaranty Insurance Company is a wholly-owned subsidiary of
FGIC Corporation, a Delaware holding company. FGIC Corporation is wholly-owned
by General Electric Capital Corporation. The investors of FGIC Corporation are
not obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is subject to regulation by the state of New York Insurance
Department and is licensed to do business in various states. The address of
Financial Guaranty is 115 Broadway, New York, New York, 10006, and its telephone
number is (212) 312-3000. S&P has rated the claims-paying ability of Financial
Guaranty AAA.
Municipal Bonds (All Funds)
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 a particular facility or class of facilities or
projects or, in a few cases, 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 Funds may invest in industrial development bonds, the Funds
may not be 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 (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.
As set forth in the Prospectus, 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 bonds for investment by the Funds;
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 Funds and the value of
each Fund's portfolio might be affected. In that event, each Fund might
reevaluate its investment policies and restrictions and consider recommending to
its shareholders changes in both.
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INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
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
Neither Short-Intermediate nor Tax Free Income Fund may 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 U.S. government and its agencies or
instrumentalities, except that up to 25% of the value of each 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 each Fund's portfolio.
With respect to 75% of the value of its total assets, High Grade will
not purchase securities of any one issuer (other than cash, cash items or
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities) if as a result more than 5% of the value of its total assets
would be invested in the securities of that issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United States, or
their political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets and
revenues are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds, backed only by the assets and revenues of a
nongovernmental issuer, are considered to be issued solely by that issuer. If,
in the case of an industrial development bond or governmental-issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
2. Ten Percent Limitation on Securities of Any One Issuer
Short-Intermediate may not purchase more than 10% of any class of
voting securities of any one issuer other than the U.S. government and its
agencies or instrumentalities.
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<PAGE>
3. Investment for Purposes of Control or Management
Short-Intermediate may not invest in companies for the purpose of
exercising control or management.
4. Purchase of Securities on Margin
High Grade, Short-Intermediate or Tax Free Income Fund may not purchase
securities on margin, except that each Fund may obtain such short-term credits
as may be necessary for the clearance of transactions. A deposit or payment by a
Fund of initial or variation margin in connection with financial futures
contracts or related options transactions is not considered the purchase of a
security on margin.
5. Unseasoned Issuers
High Grade* will not invest more than 5% of its total assets in
industrial development bonds and other municipal securities where the principal
and interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
Short-Intermediate 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 no such limitation shall apply to the extent that (i) the Fund may
invest in obligations issued or guaranteed by the U.S. government and its
agencies or instrumentalities, and (ii) the Fund may invest in municipal
securities.
Tax Free Income may not invest more than 5% of its total assets in
securities of any company having a record, together with its predecessors, of
less that three years of continuous operation.
6. Underwriting
High Grade, Short-Intermediate or Tax Free Income 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 a Fund's investment program
shall not be deemed to be an underwriting.
7. Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
Short-Intermediate may not purchase, sell or invest in interests in
oil, gas or other mineral exploration or development programs.
High Grade will not purchase interests in or sell oil, gas or other
mineral exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
8. Concentration in Any One Industry
Short-Intermediate may not invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry; provided, that this limitation shall not apply to obligations
issued or guaranteed by the U.S. government or its agencies or instrumentalities
and to municipal
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<PAGE>
securities.
High Grade will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in any
one industry, or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects. However,
the Fund may invest as temporary investments more than 25% of the value of its
total assets in cash or cash items, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
Tax Free Income may not purchase any security (other than U.S.
government securities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry, including industrial development
bonds from the same facility or similar types of facilities; governmental
issuers of municipal bonds are not regarded as members of an industry and the
Fund may invest more than 25% of its assets in industrial bonds.
9. Warrants
Short-Intermediate may not invest more than 5% of its total net assets
in warrants, and, of this amount, no more than 2% of each Fund's total net
assets may be invested in warrants that are listed on neither the New York nor
the American Stock Exchange.
10. Ownership by Trustees/Officers
High Grade* and Short-Intermediate may not purchase or retain the
securities of any issuer if (i) one or more officers or Trustees of a Fund or
its investment adviser individually owns or would own, directly or beneficially,
more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate,
such persons own or would own, directly or beneficially, more than 5% of such
securities.
11. Short Sales
High Grade and Tax Free Income will not make short sales of securities
or maintain a short position, unless at all times when a short position is open
a Fund owns an equal amount of such securities or of securities which, without
payment of any further consideration are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short. The use of short sales will allow the Funds to retain certain bonds in
their portfolios longer than it would without such sales. To the extent that a
Fund receives the current income produced by such bonds for a longer period than
it might otherwise, a Fund's investment objective is furthered.
Short-Intermediate will not sell any securities short or maintain a
short position.
12. Lending of Funds and Securities
Short-Intermediate may not lend its funds to other persons, provided
that each Fund may purchase issues of debt securities, acquire privately
negotiated loans made to municipal borrowers and enter into repurchase
agreements.
Short-Intermediate may not lend its portfolio securities, unless the
borrower is
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<PAGE>
a broker, dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the U.S.
government having a value at all times not less than 100% of the current market
value of the loaned securities, including accrued interest, provided that the
aggregate amount of such loans shall not exceed 30% of the Fund's total assets.
High Grade will not lend any of its assets except that it may purchase
or hold money market instruments, including repurchase agreements and variable
amount demand master notes in accordance with its investment objective, policies
and limitations and it may lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers.
Tax Free Income may not make loans, except that the Fund may purchase
or hold debt securities consistent with its investment objective, lend portfolio
securities valued at not more thatn 15% of its total assets to broker-dealers
and enter repurchase agreements.
13. Commodities
Short-Intermediate may not purchase, sell or invest in commodities,
commodity contracts or financial futures contracts.
Tax Free Income may not purchase or sell commodities or commodity
contracts except that it may engage in currency or other financial futures
contracts and related options transactions.
14. Real Estate
High Grade will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
Tax Free Income may not purchase or sell real estate, except that it
may purchase and sell securities secured by real estate and securities of
companies which invest in real estate.
Short-Intermediate may not purchase, sell or invest in real estate or
interests in real estate, except that each Fund may purchase municipal
securities and other debt securities secured by real estate or interests
therein.
15. Borrowing, Senior Securities, Reverse Repurchase Agreements
Short-Intermediate may not borrow money, issue senior securities or
enter into reverse repurchase agreements, except for temporary or emergency
purposes, and not for leveraging, and then in amounts not in excess of 10% of
the value of the Fund's net assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of such borrowing, provided
that the Fund will not purchase any securities at any time when borrowings,
including reverse repurchase agreements, are outstanding. The Fund will not
enter into reverse repurchase agreements exceeding 5% of the value of its total
assets.
High Grade will not issue senior securities, except the Fund may borrow
money directly or through reverse repurchase agreement as a temporary measure
for
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<PAGE>
extraordinary or emergency purposes in an amount up to one-third of the value of
its net assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments; and except to the
extent the Fund will enter into futures contracts. Any such borrowings need not
be collateralized. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage purposes.
High Grade will not mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In those cases, High Grade may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of borrowing. Margin deposits for the
purchase and sale of financial futures contracts and related options and
segregation or collateral arrangements made in connection with options
activities and the purchase of securities on a when-issued basis are not deemed
to be a pledge.
Tax Free Income will not issue senior securities; the purchase or sale
of securities on a "when-issued" basis or collateral arrangement with respect to
the writing of options on securities, are not deemed to be a pledge of assets.
Tax Free Income will not borrow money or enter into reverse repurchase
agreements, except that the Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregated
amounts up to one-third of the value of the Fund's net assets; provided that
while borrowings from banks (not including reverse repurchase agreements) exceed
5% of the Fund's net assets, any such borrowings will be repaid before
additional investments are made.
Tax Free Income will not pledge more than 15% of its net asets to
secure indebtedness; the purchase or sale of securities on a "when issued"
basis, or collateral arrangement with respect to the writing of options on
securities, are not deemed to be a pledge of assets.
16. Options
Short-Intermediate may not write, purchase or sell put or call options,
or combinations thereof, except the Fund may purchase securities with rights to
put securities to the seller in accordance with its investment program.
17. Investing in Securities of Other Investment Companies
High Grade will purchase securities of investment companies only in
open-market transactions involving customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation or acquisition of assets. It should be noted that investment
companies incur certain expenses such as management fees and therefore any
investment by the Fund in shares of another investment company would be subject
to such duplicate expenses.
Short-Intermediate* may not purchase the securities of other investment
companies, except to the extent such purchases are not prohibited by applicable
law.
Tax Free Income may not purchase securities of other investment
companies, except as part of a merger, consolidation, purchase of assets or
similar transaction.
18. Restricted Securities
High Grade will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Federal securities laws.
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<PAGE>
Tax Free Income will not invest more than 10% of its total assets in
securities with legal or contractual restrictions on resale or in securities for
which market quotations are not readily available, or in repurchase agreements
maturing in more than seven days.
19. Investment in Municipal Securities
Short-Intermediate may not invest more than 20% of its total assets in
securities other than municipal securities, (as described under "Description of
the Funds Investment Objectives and Policies" in the Fund's Prospectus), unless
extraordinary circumstances dictate a more defensive posture.
NON-FUNDAMENTAL OPERATING POLICIES
Certain Funds have adopted additional non-fundamental operating
policies. Operating policies may be changed by the Board of Trustees without a
shareholder vote.
1. Securities Issued by Government Units; Industrial Development Bonds
Short-Intermediate has determined not to invest more than 25% of its
total assets (i) in securities issued by governmental units located in any one
state, territory or possession of the United States (but this limitation does
not apply to project notes backed by the full faith and credit of the U.S.
government) or (ii) industrial development bonds not backed by bank letters of
credit.
Tax Free Income does not presently intend to invest more than 25% of
its total assets in (1) municipal bonds of a single state and its subdivisions,
agencies and instrumentalities; of a single territory or possession of the U.S.
and its subdivisions, agencies or instrumentalities; or of the District of
Columbia and any subdivision, agency or instrumentality thereof; or (2)
municipal bonds, the payment of which depends on revenues derived from a single
facility or similar types of facilities. Since certain municipal bonds may be
related in such a way that an economic, business or political development or
change affecting one such security could likewise affect the other securities, a
change in this policy could result in increased investment risk, but no change
is presently contemplated. The Fund may invest more than 25% of its total assets
in industrial development bonds.
High Grade does not intend to invest more than 25% of the value of its
assets in any issuer in a single state.
2. Illiquid Securities
Short-Intermediate may not invest more than 15% and High Grade not more
than 10% of their net assets in illiquid securities and other securities which
are not readily marketable, including repurchase agreements which have a
maturity of longer than seven days, but excluding certain securities and
municipal leases determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or
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<PAGE>
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items".
MANAGEMENT
The Evergreen Keystone funds consist of seventy-three mutual funds.
Each mutual fund is, or is a series of, a registered, open-end management
company.
Trustees and executive officers of each mutual fund, their ages, and
their principal occupations during the last five years are shown below. Except
as set forth below, the address of each of the Trustees is 200 Berkeley Street,
Boston, Massachusetts 02116.
FREDERICK AMLING (69). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); and former Member,
Board of Advisers, Credito Emilano (banking).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL. Trustee of the
Trusts; Trustee or Director of all Evergreen Keystone funds other than Evergreen
Investment Trust and Evergreen Variable Trust; real estate developer and
construction consultant; and President of Centrum Equities and Centrum
Properties, Inc.
CHARLES A. AUSTIN III (61). Trustee of Tax Free Income; Trustee or Director of
23 other Evergreen Keystone funds; Investment Counselor to Appleton Partners,
Inc.; and former Managing Director, Seaward Management Corporation (investment
advice).
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT. Trustee of the Trusts; Trustee
or Director of all other Evergreen Keystone funds other than Evergreen
Investment Trust and Evergreen Variable Trust; Partner in the law firm of
Cummings & Lockwood; Director, Symmetrix, Inc. (sulphur company) and Pet
Practice, Inc. (veterinary services); and former Director, Chartwell Group Ltd.
(manufacturer of office furnishings and accessories), Waste Disposal Equipment
Acquisition Corporation and Rehabilitation Corporation of America
(rehabilitation hospitals).
*GEORGE S. BISSELL(67). Chairman of the Board and Chief Executive Officer and
Trustee of Tax Free Income and 23 other Evergreen Keystone funds; Chairman of
the Board and Trustee of Anatolia College; Trustee of University Hospital (and
Chairman of its Investment Committee); former Director and Chairman of the Board
of Hartwell Keystone Advisers, Inc.; and former Chairman of the Board, Director
and Chief Executive Officer of Keystone Investments, Inc.
EDWIN D. CAMPBELL (69). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Principal, Padanaram Associates, Inc.; and
former Executive Director, Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN (67). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; and former Director, Peoples Bank (Charlotte,
NC).
K. DUN GIFFORD (57). Trustee of Tax Free Income; Trustee or Director of 23 other
Evergreen Keystone funds; Trustee, Treasurer and Chairman of the Finance
Committee, Cambridge College; Chairman Emeritus and Director, American Institute
of Food and Wine; Chairman and President, Oldways Preservation and Exchange
Trust (education); former Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Offi cer, Gifford Gifts of Fine Foods;
former Chairman, Gifford, Drescher & Associates (environmental consulting); and
former Director, Keystone Investments, Inc. and Keystone Investment Management
Company.
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC. Trustee; Chairman of
11 Evergreen Keystone funds and Trustee or Director of all Evergreen Keystone
funds; former Chairman of the Distribution Foundation for the Carolinas; and
former Vice President of Lance Inc. (food manufacturing).
LEROY KEITH, JR. (57), 4124 Crossgate Road, Charlotte, NC. Trustee of Tax Free
Income; Trustee or Director of 23 other Evergreen Keystone funds; Chairman of
the Board and Chief Executive Officer, Carson Products Company; Director of
Phoenix Total Return Fund and Equifax, Inc.; Trustee of Phoenix Series Fund,
Phoenix Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund; and former
President, Morehouse College.
F. RAY KEYSER, JR. (69). Trustee of Tax Free Income; Trustee or Director and
Member of the Board of Advisers of all other Evergreen Keystone funds; Chairman
and Of Counsel, Keyser, Crowley & Meub, P.C.; Member, Governor's (VT) Council of
Economic Advisers; Chairman of the Board and Director, Central Vermont Public
Service Corporation and Lahey Hitchcock Clinic; Director, Vermont Yankee Nuclear
Power Corporation, Grand Trunk Corporation, Grand Trunk Western Railroad, Union
Mutual Fire Insurance Company, New England Guaranty Insurance Company, Inc., and
the Investment Company Institute; former Director and President, Associated
Industries of Vermont; former Director of Keystone, Central Vermont Railway,
Inc., S.K.I. Ltd., and Arrow Financial Corp.; and former Director and Chairman
of the Board, Proctor Bank and Green Mountain Bank.
GERALD M. MCDONNELL (57), 821 Regency Drive, Charlotte, NC. Trustee; Trustee or
Director of all other Evergreen Keystone funds with the exception of Evergreen
Variable Trust; and Sales Representative with Nucor-Yamoto, Inc. (steel
producer) since 1988.
THOMAS L. MCVERRY (58), 4419 Parkview Drive, Charlotte, NC. Trustee; Trustee or
Director of all other Evergreen Keystone funds with the exception of Evergreen
Variable Trust; former Vice President and Director of Rexham Corporation; and
former Director of Carolina Cooperative Federal Credit Union.
*WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC. Trustee; Trustee or Director of all other Evergreen Keystone
funds with the exception of Evergreen Variable Trust; and Partner in the law
firm of Holcomb and Pettit, P.A.
DAVID M. RICHARDSON (55). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Vice Chair and former Executive Vice President,
DHR Interna tional, Inc. (executive recruitment); former Senior Vice President,
Boyden International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
RUSSELL A. SALTON, III M.D. (49), 205 Regency Executive Park, Charlotte, NC.
Trustee; Trustee or Director of all other Evergreen Keystone funds; Medical
Director, U.S. Health Care/Aetna Health Services; and former Managed Health Care
Consultant; former President, Primary Physician Care.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street, Suite 980, Charlotte, NC.
Trustee; Trustee or Director of all other Evergreen Keystone funds; and
Attorney, Law Offices of Michael S. Scofield.
RICHARD J. SHIMA (57). Trustee of Tax Free Income; Trustee or Director or Member
of the
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<PAGE>
Board Advisers of all other Evergreen Keystone funds; Chairman, Environmental
Warranty, Inc. (insurance agency); Executive Consultant, Drake Beam Morin, Inc.
(executive outplacement); Director of Connecticut Natural Gas Corporation,
Hartford Hospital, Old State House Association, Middlesex Mutual Assurance
Company, and Enhance Financial Services, Inc.; Chairman, Board of Trustees,
Hartford Graduate Center; Trustee, Greater Hartford YMCA; former Director, Vice
Chairman and Chief Investment Officer, The Travelers Corporation; former
Trustee, Kingswood-Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
ANDREW J. SIMONS (57). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; Adjunct Professor of Law and former Associate Dean,
St. John's Univer sity School of Law; Adjunct Professor of Law, Touro College
School of Law; and former President, Nassau County Bar Association.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL. Trustee
Emeritus of 11 Evergreen Keystone funds and Corporate Consultant since 1967.
JOHN J. PILEGGI (37) President and Treasurer of the Trusts; President and
Treasurer of all other Evergreen Keystone funds; Senior Managing Director,
Furman Selz LLC since 1992; Managing Director from 1984 to 1992; Consultant to
BISYS Fund Services since 1996; 230 Park Avenue, Suite 910, New York, NY.
GEORGE O. MARTINEZ (37) Secretary of the Trusts; Secretary of all other
Evergreen Keystone funds; Senior Vice President and Director of Administration
and Regulatory Services, BISYS Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988 to 1995; 3435 Stelzer Road,
Columbus, Ohio.
* This Trustee may be considered an "interested person" of the Funds within the
meaning of the 1940 Act.
For the fiscal year ended May 31, 1997, Trustees of the Funds received
$32,166, $159,659 and $9,830 in retainers and fees from Evergreen Municipal
Trust, Evergreen Investment Trust and Tax Free Income. For the year ending May
31, 1997, fees paid to Independent Trustees on a fund complex wide basis were
approximately $964,000.
The officers of the Trusts are all officers and/or employees of The
BISYS Group, Inc. ("BISYS"), except for Mr. Pileggi, who is a consultant to
BISYS. BISYS is an affiliate of Evergreen Keystone Distributor, Inc. ("EKD"),
the distributor of each Class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of Class A,
Class B or Class C or Class Y shares of any Fund as of August 31, 1997.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of June 1, 1996 through May 31, 1997 is the aggregate
compensation paid to such Trustee by the Evergreen Keystone funds:
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<PAGE>
Total Compensation
From Fund Complex
NAME PAID TO TRUSTEE
James S. Howell $76,875
Gerald M. McDonnell 65,550
Thomas L. McVerry 71,375
William Walt Pettit 69,375
Russell A Salton, III M.D. 71,325
Michael S. Scofield 71,325
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of August 31, 1997.
<TABLE>
<CAPTION>
Name of No. of % of
Name and Address Fund/Class Shares Class
- ---------------- ---------- ------ ----------
<S> <C> <C>
First Union National Bank High Grade/Y 504,862 23.59%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0002
Foster & Foster High Grade/Y 405,595 16.95%
PO Box 1669
Greenwich, CT 06836-1669
FUBS & Co. FEBO Short-Intermediate/A 104,560 16.93%
Haywood D. Cochrane Ljr.
21 Castlewood Court
Nashville, TN 37215-4617
FUBS & Co. FEBO Short-Intermediate/A 93,702 12.37%
Stephen Nash and
Linda N. Nash
10006 Stonemill Road
Richmond, VA 23233-2800
FUBS & Co. FEBO Short-Intermediate/A 76,391 12.37%
Manuel Garcia and
Adeline Garcia
4933 New Providence
Tampa, FL 33269-4814
FUBS & Co. FEBO Short-Intermediate/A 39.115 6.33%
Anthony M. Truscello Sr and
Carolyn A. Truscello
878 Taylor Dr.
Folcroft, PA 19032-1523
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<PAGE>
FUBS & Co. FEBO Short-Intermediate/A 37,789 6.12%
First Union Nat'l Bank-PA FBO
Anthony Dambro Loan Acct.
Attn: Augusto Bonnani PA 1322
123 Broad St.
Philadelphia, PA 19109-1029
FUBS & Co. FEBO Short-Intermediate/B 50,343 7.97%
Carl R. Nodine and
Linda F. Nodine
PO Box 210086
Nashville, TN 37221-0086
FUBS & Co. FEBO Short-Intermediate/B 38,129 6.03%
Mark E. Smith
Melissa A. Smith Jt Ten
397 Yadkin Valley Road
Advance, NC 27006-8702
FUBS & Co FEBO Short-Intermediate/B 32,757 5.18%
Shirley L. Roberts
2770 S. Garden Dr.
210 Bldg. 21
Lake Worth, FL 33461-6280
First Union National Bank/EB/INT Short-Intermediate/Y 779,296 17.16%
Cash Accuont
Attn Trust Opoerations Fund Group
401 S. Tryon St., 3rd Fl, CMG 1151
Charlotte,NC 28202-1191
Merrill Lynch, Pierce, Tax Free Income/A 1,590,918 22.38%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Merrill Lynch, Pierce, Tax Free Income/B 553,766 19.80%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Alletta Laird Downs TTEE Tax Free Income/B 205,973 7.36%
Alletta Laird Downs Trust
U/A DTD 3-29-89
P.O. Box 3666
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<PAGE>
Wilmington, DE 19807-0666
Merrill Lynch, Pierce, Tax Free Income/C 459,477 45.17%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
</TABLE>
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus)
The investment adviser of Short-Intermediate is Evergreen Asset
Management Corp., a New York corporation, with offices at 2500 Westchester
Avenue, Purchase, New York ("Evergreen Asset" or the "Adviser") and which
Evergreen Asset is owned by First Union National Bank ("FUNB" or the "Adviser")
which, in turn, is a subsidiary of First Union Corporation ("First Union"), a
bank holding company headquartered in Charlotte, North Carolina. The sub-adviser
to Short-Intermediate is Lieber and Company ("Lieber"), located at 2500
Westchester Avenue, Purchase, New York, which provides certain services to
Evergreen Asset and is owned by First Union. The investment adviser of High
Grade is FUNB which provides investment advisory services through its Capital
Management Group. The Directors of Evergreen Asset are Richard K. Wagoner and
Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A.
Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President
and Co-Chief Executive Officer and Theodore J. Israel, Jr., Executive Vice
President.
The investment adviser of Tax Free Income is Keystone Investment
Management Company ("Keystone" or the "Adviser"), a Delaware corporation,
located at 200 Berkeley Street, Boston, Massachusetts. Keystone is an indirectly
owned subsidiary of FUNB.
The Directors of Keystone are Donald McMullen; William M. Ennis, II;
Barbara I. Colvin; Albert H. Elfner, III, Chairman, CEO and President; Edward F.
Godfrey, Senior Vice President and Chief Operating Officer; and W. Douglas Munn,
Senior Vice President, Chief Financial Officer and Treasurer.
On September 6, 1996, First Union and FUNB entered into an Agreement
and Plan of Acquisition and Merger (the "Merger") with Keystone Investments,
Inc. ("Keystone Investments"), the corporate parent of Keystone, which provided,
among other things, for the merger of Keystone Investments with and into a
wholly-owned subsidiary of FUNB. The Merger was consummated on December 11,
1996. Keystone continues to provide investment advisory services to the Keystone
Family of Funds. Contemporaneously with the Merger, Tax Free Income entered into
a new investment advisory agreement with Keystone and into a principal
underwriting agreement with EKD.
Under its Investment Advisory Agreement with each Fund, each Adviser
has agreed to furnish reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the Securities Act of 1933,
as amended, and the 1940 Act, printing prospectuses (for existing shareholders)
as they are updated, state qualifications, share certificates, mailings,
brokerage, custodian and stock transfer charges, printing, legal and auditing
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expenses, expenses of shareholder meetings and reports to shareholders.
Notwithstanding the foregoing, each Adviser will pay the costs of printing and
distributing prospectuses used for prospective shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below. For Tax Free Income, total dollar amounts paid by the Fund to
Keystone Management, Inc., the Fund' former investment manager, for investment
management and administrative services rendered, are inclusive of payments from
Keystone Management to Keystone for investment advisory services:
HIGH GRADE Period Ended Year Ended Period Ended
05/31/97 8/31/96 8/31/95
Advisory Fee $399,929 $575,456 $338,767
Waiver (64,199) (228,548) (20,456)
--------- --------- ---------
Net Advisory Fee $335,730 $346,908 $318,311
========= ========= =========
SHORT-INTERMEDIATE Period Ended Year Ended Year Ended
5/31/97 8/31/96 8/31/95
Advisory Fee $248,564 $287,149 $263,947
Waiver (60,003) (109,619) (63,612)
--------- --------- --------
Net Advisory Fee $188,561 $177,530 $200,335
========= ======== ========
Expense
Reimbursement 0 ( 30,962) $(28,521)
--------- --------- --------
TAX FREE INCOME Period Ended Year Ended Year Ended
5/31/97 11/30/96 8/31/95
Advisory Fee 367,154 $844,486 $919,802
717,813 781,832
Waiver 0 0 0
-------- -------- --------
Net Advisory Fee $367,154 $844,486 $919,802
======== ======== ========
With respect to Short-Intermediate, Evergreen Asset has agreed to
reimburse the Fund to the extent that the Fund's aggregate operating expenses
(including the Adver's fee but excluding interest, taxes, brokerage commissions
and extraordinary expenses, and, for Class A and Class B shares Rule 12b-1
distribution fees and shareholder servicing fees payable) exceed 1% of its
average net assets for any fiscal year.
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The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of each
Trust's Trustees or by the respective Adviser. The Investment Advisory
Agreements will automatically terminate in the event of their assignment. Each
Investment Advisory Agreement provides in substance that the Adviser shall not
be liable for any action or failure to act in accordance with its duties
thereunder in the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser or of reckless disregard of its obligations
thereunder. The Investment Advisory Agreements with respect to each Fund
continue in effect for two years from their effective dates and, thereafter,
from year to year provided that their continuance is approved annually by a vote
of a majority of the Trustees of each Trust including a majority of those
Trustees who are not parties thereto or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting duly called for the
purpose of voting on such approval or a majority of the outstanding voting
shares of each Fund.
Certain other clients of each Adviser may have investment objectives and
policies similar to those of the Funds. Each Adviser (including the sub-adviser)
may, from time to time, make recommendations which result in the purchase or
sale of a particular security by its other clients simultaneously with a Fund.
If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity. It is the
policy of each Adviser to allocate advisory recommendations and the placing of
orders in a manner which is deemed equitable by the Adviser to the accounts
involved, including the Funds. When two or more of the clients of the Adviser
(including one or more of the Funds) are purchasing or selling the same security
on a given day from the same broker-dealer, such transactions may be averaged as
to price.
Although the investment objectives of the Funds are not the same, and their
investment decisions are made independently of each other, they rely upon some
of the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset, Keystone, FUNB
or its affiliates acts as investment adviser or between the Fund and any
advisory clients of Evergreen Asset, Keystone, FUNB or its affiliates. Each Fund
may from time to time engage in such transactions but only in accordance with
these procedures and if they are equitable to each participant and consistent
with each participant's investment objectives.
At present, Evergreen Keystone Investment Services ("EKIS") serves as
administrator to High Grade and Short-Intermediate subject to the supervision
and control of the Trustees of each Trust. As administrator, EKIS provides
facilities, equipment and personnel to the Funds and is entitled to receive a
fee based on the
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average daily net assets of all mutual funds for which CMG, Keystone or Evergeen
Asset serve as investment adviser, calculated in accordance with the following
schedule:.050% on the first $7 billion; .035% on the next $3 billion; .030% on
the next $5 billion; .020% on the next $10 billion; .015% on the next $5
billion; and .010% on assets in excess of $30 billion.
BISYS Fund Services, an affiliate of EKD, serves as sub-administrator
to High Grad and Short-Intermediate and is entitled to receive a fee from EKIS
calculated on the average daily net assets of each Fund at a rate based on the
total assets of the mutual funds administered by EKIS for which FUNB, Evergreen
Asset, Keystone or affiliates of First Union also serve as investment adviser.
BISYS Fund Services also serves as sub-administrator to Tax Free Income and is
entitled to receive a fee from Keystone based on the total assets of the mutual
funds for which FUNB affiliates serve as investment adviser. Fees are calculated
in accordance with the following schedule: .0100% of the first $7 billion;
.0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on
assets in excess of $25 billion. The total assets of mutual funds for which
FUNB, Evergreen Asset, Keystone, or affiliates of First Union serve as
investment adviser as of June 30, 1997 were approximately $30.5 billion.
For the fiscal period ended May 31, 1997, the fiscal year ended August
31, 1996, and fiscal period ended August 31, 1995 High Grade paid to EKIS or its
predecessor, Evergreen Asset, $33,901, $59,073 and $50,406, respectively, in
administrative service costs.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, Class B and Class C shares and are charged as class
expenses, as accrued. The distribution fees attributable to the Class B shares
are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and, where applicable, Class C
shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund
reports the amounts expended under the Plan and the purposes for which such
expenditures were made to the Trustees of each Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
Trustees who are not "interested persons" of each Trust (as defined in the 1940
Act) are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC 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.
The Plans permit the payment of fees to brokers and others for
distribution and
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shareholder-related administrative services and to broker-dealers, depository
institutions, financial intermediaries and administrators for administrative
services as to Class A, Class B and Class C shares. The Plans are designed to
(i) stimulate brokers to provide distribution and administrative support
services to each Fund and holders of Class A, Class B and Class C shares and
(ii) stimulate administrators to render administrative support services to the
Fund and holders of Class A, Class B and Class C shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Class A, Class B and
Class C shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, High Grade has adopted a Shareholder Services
Plan whereby shareholder servicing agents may receive fees from the Fund for
providing services which include, but are not limited to, distributing
prospectuses and other information, providing shareholder assistance, and
communicating or facilitating purchases and redemptions of Class B shares of the
Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to EKD 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 EKD from distribution
services fees in respect of shares of such Class or Classes through deferred
sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. With respect to High Grade,
amendments to the Shareholder Services Plan require a majority vote of the
disinterested Trustees but do not require a shareholders vote. Any Plan,
Shareholder Services Plan or Distribution Agreement may be terminated (a) by a
Fund without penalty at any time by a majority vote of the holders of the
outstanding voting securities of the Fund, voting separately by Class or by a
majority vote of the Trustees who are not "interested persons" as defined in the
1940 Act, or (b) by EKD. 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 EKD. Any Distribution Agreement will terminate
automatically in the event of its assignment.
FEES PAID PURSUANT TO DISTRIBUTION PLANS. The Funds incurred the following
distribution services fees:
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High Grade. For the fiscal period ended May 31, 1997 and the fiscal year ended
August 31, 1996, $92,644 and $97,996, respectively, on behalf of Class A shares;
and $240,510 and $167,706, respectively, on behalf of Class B shares.
Short-Intermediate. For the fiscal period ended May 31, 1997 and the fiscal year
ended August 31, 1996, $19,181 and $4,106, respectively, on behalf of Class A
shares; and $52,576 and $20,584, respectively, on behalf of Class B shares.
Tax Free Income. For the fiscal period ended May 31, 1997 and the fiscal year
ended November 30, 1996, $90,496 and $205,872, respectively, on behalf of Class
A shares; $154,261 and $333,417, respectively, on behalf of Class B shares and
$62,367 and $169,992 on behalf of Class C shares.
FEE PAID PURSUANT TO SHAREHOLDER SERVICES PLAN. High Grade incurred the
following shareholder services fees: For the fiscal period ended May 31, 1997
and the fiscal year ended August 31, 1996, $60,421 and $55,902, respectively, on
behalf of Class B shares.
Short-Intermediate. For the fiscal period ended May 31, 1997, the fiscal year
ended August 31, 1996 and the fiscal period ended August 31, 1995, $13,161,
$17,458 and $6,623, respectively, on behalf of Class B shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser, all of whom, in the case of Evergreen Asset, are associated with
Lieber. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
It is anticipated that most of the Funds purchase and sale transactions
will be with the issuer or an underwriter or with major dealers in such
securities acting as principals. Such transactions are normally on a net basis
and generally do not involve payment of brokerage commissions. However, the cost
of securities purchased from an underwriter usually includes a commission paid
by the issuer to the underwriter. Purchases or sales from dealers will normally
reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. To the extent that receipt of these services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The transactions in which the Funds engage do not involve the payment
of brokerage commissions and are executed with dealers other than Lieber.
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<PAGE>
ADDITIONAL TAX INFORMATION
(See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months (this provision is repealed starting in
1998); and (c) diversify its holdings so that, at the end of each quarter of its
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, U.S. government securities and other securities limited in
respect of any one issuer, to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. government securities and securities of other
regulated investment companies). By so qualifying, a Fund is not subject to
Federal income tax if it timely distributes its investment company taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed on a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund anticipates meeting
such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any).
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction.
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In
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particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive what is in effect a return of
capital upon the distribution which will nevertheless be taxable to shareholders
subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or losses
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Long-term capital gains on assets held
for more than 18 months are taxable as a maximum rate of 28%; such gains on
assets held for more than 18 months are taxable as a maximum rate of 20%.
Generally, any loss realized on a sale or exchange will be disallowed to the
extent shares disposed of are replaced within a period of sixty-one days
beginning thirty days before and ending thirty days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of the
Fund held by the shareholder for six months or less will be disallowed to the
extent of any exempt interest dividends received by the shareholder with respect
to such shares, and will be treated for tax purposes as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her Federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
Special Tax Considerations
In order to qualify to pay exempt interest dividend for a year, a Fund
must have exempt bonds with a value equal to more than half of the Fund's total
asset value at the close of each quarter of the year. To the extent that the
Fund distributes exempt interest dividends to a shareholder, interest on
indebtedness incurred or continued by
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such shareholder to purchase or carry shares of the Fund is not deductible.
Furthermore, entities or persons who are "substantial users" (or related
persons) of facilities financed by "private activity" bonds (some of which were
formerly referred to as "industrial development" bonds) should consult their tax
advisers before purchasing shares of the Fund. "Substantial user" is defined
generally as including a "non-exempt person" who regularly uses in its trade or
business a part of a facility financed from the proceeds of industrial
development bonds.
The percentage of the total dividends paid by a Fund with respect to
any taxable year that qualifies as exempt interest dividends will be the same
for all shareholders of the Fund receiving dividends with respect to such year.
If a shareholder receives an exempt interest dividend with respect to any share
and such share has been held for six months or less, any loss on the sale or
exchange of such share will be disallowed to the extent of the exempt interest
dividend amount.
NET ASSET VALUE
The following information supplements that set forth in each Fund's
Prospectus under the subheading "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
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. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
Alternative. " On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund 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.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange 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 price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List 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.
Under certain circumstances, however, the per share net asset values of
the Class B and Class C shares may be lower than the per share net asset value
of the Class A shares (and, in turn, that of Class A shares may be lower than
Class Y shares) as a result of the greater daily expense accruals, relative to
Class A and Class Y shares, of Class B shares and Class C shares relating to
distribution services fees (and, with respect to High Grade, Shareholder Service
Plan fee) and the fact that Class Y shares bear no additional distribution or
shareholder service related fees. While it is expected that, in the event each
Class of shares of a Fund realizes net investment income or does not realize a
net operating loss for a period, the per share net asset values of the classes
will tend to converge immediately after the payment of dividends, which
dividends will differ by approximately the amount of the expense accrual
differential among the Classes, there is no assurance that this will be the
case. In
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the event one or more Classes of a Fund experiences a net operating loss for any
fiscal period, the net asset value per share of such Class or Classes will
remain lower than that of Classes that incurred lower expenses for the period.
PURCHASE OF SHARES
The following information supplements that set forth in each Prospectus
under the heading "Purchase and Redemption of Shares - How To Buy Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), or 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 front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with EKD ("selected dealers"), (ii)
depository institutions and other financial intermediaries or their affiliates,
that have entered into selected agent agreements with EKD ("selected agents"),
or (iii) EKD. The minimum for initial investments is $1,000; there is no minimum
for subsequent investments. The subscriber may use the Application available
from EKD for his or her initial investment. Sales personnel of selected dealers
and agents distributing a Fund's shares may receive differing compensation for
selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through EKD. A Fund reserves the
right to suspend the sale of its shares to the public in response to conditions
in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by EKD 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 EKD 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. Eastern time. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the 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
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Association ("ACH"). If a shareholder's telephone purchase request is received
before 4:00 p.m.Eastern time on a Fund business day, the order to purchase
shares is automatically placed the same Fund business day for non-money market
funds, and two days following the day the order is received for money market
funds, and the applicable public offering price will be the public offering
price determined as of the close of business on such business day. Full and
fractional shares are credited to a subscriber's account in the amount of his or
her subscription. As a convenience to the subscriber, and to avoid unnecessary
expense to a Fund, stock certificates representing shares of a Fund are not
issued for any class of shares of any Fund. This facilitates later redemption
and relieves the shareholder of the responsibility for and inconvenience of lost
or stolen certificates.
Alternative Purchase Arrangements
High Grade and Short-Intermediate issue three classes of shares: (i)
Class A shares, which are sold to investors choosing the front-end sales charge
alternative; (ii) Class B shares, which are sold to investors choosing the
deferred sales charge alternative; and (iii) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Advisers and their affiliates, and (c) institutional investors. Tax Free
Income offers Class A, Class B and Class C shares. 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, Class B and Class C shares are subject to a Rule 12b-1 distribution
fee, (II) Class B shares of High Grade are subject to a Shareholder Service Plan
fee, (III) Class A shares bear the expense of the front-end sales charge and
Class B, Class C and, when applicable, Class A shares bear the expense of the
deferred sales charge, (IV) Class B and Class C shares bear the expense of a
higher Rule 12b-1 distribution services fee and Shareholder Service Plan fee
than Class A shares (V) with the exception of Class Y shares, each Class of each
Fund has exclusive voting rights with respect to provisions of the Rule 12b-1
Plan pursuant to which its distribution services (and, to the extent applicable,
Shareholder Service Plan) fee is paid which relates to a specific Class and
other matters for which separate Class voting is appropriate under applicable
law, provided that, if the Fund submits to a simultaneous vote of Class A, Class
B and, where applicable, Class C shareholders an amendment to the Rule 12b-1
Plan that would materially increase the amount to be paid thereunder with
respect to the Class A shares, the shareholders will vote separately by Class,
and (VI) only the Class B shares are subject to a conversion feature. Each Class
has different exchange privileges and certain different shareholder service
options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial 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 (and, to the
extent applicable, Shareholder Service Plan) fee and contingent deferred sales
charges on Class B shares prior to conversion would be less than the front-end
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, EKD will reject any order (except
orders for Class B shares from certain retirement plans) for more than $250,000
for Class B shares.
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Class A shares are subject to a lower distribution services fee and no
Shareholder Service Plan fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares. However, because front-end 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 front-end 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 (and, to the extent applicable, Shareholder Service Plan) charges
on Class B shares may exceed the front-end 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 front-end 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 or Class C shares in order to have all their
funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, Shareholder Service Plan
)fees 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% front-end sales charge imposed on Class A shares of the Funds would
have to hold his or her investment approximately seven years for the Class B and
Class C distribution services (and, to the extent applicable, Shareholder
Service Plan) fees to exceed the front-end 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 and Class C
distribution services (and, to the extent applicable, Shareholder Service Plan)
fees on the investment, fluctuations in net asset value or the effect of
different performance assumptions.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. 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.
Front-end Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
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 for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. EKD will reallow discounts to selected dealers
and agents in the amounts indicated in the table in the Prospectus. In this
regard, EKD may elect to reallow the entire sales charge to selected dealers and
agents for all sales with respect to which orders are placed with EKD.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of
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each Fund at the end of each Fund's latest fiscal year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
High Grade $10.89 $.54 5/31/97 $11.43
Short-
Intermediate $10.09 $.34 5/31/97 $10.43
Tax Free Income $ 9.78 $.49 5/31/97 $10.27
With respect to High Grade, the following commissions were paid and
amounts retained by EKD or its predecessor for the period ending May 31, 1997,
the fiscal year ended August 31, 1996 and from July 7, 1995 through August 31,
1995:
Period From Fiscal Year Period From
9/1/96-5/31/97 Ended 8/31/96 7/7/95-8/31/95
Commissions Received $46,714 $73,014 $5,767
Commissions Retained $6,389 9,050 712
With respect to Short-Intermediate for the period ending May 31, 1997,
the fiscal year ended August 31, 1996 and the period from January 3, 1995
(commencement of offering of Class A shares) through August 31, 1995, and
commissions were paid to and amounts retained by EKD or its predecessor are
noted below:
Period From Fiscal Year Period From
9/1/96-5/31/97 Ended 8/31/96 1/5/95-8/31/95
Commissions Received $26,752 $33,816 $ 37,130
Commissions Retained 3,820 8,464 4,445
With respect to Tax Free Income for the period ending May 31, 1997 and
the fiscal years ended November 30, 1996 and 1995 commissions were paid to and
amounts retained by EKD or its predecessor are noted below:
Period From Fiscal Year Fiscal Year
12/1/96-5/31/97 Ended 11/30/96 Ended 11/30/95
Commissions Received $9,477 $469,269 $254,934
Commissions Retained 890 254,934 143,281
Investors choosing the front-end 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
Keystone fund other than money market 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
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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 a 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 Keystone fund.
Prospectuses for the Evergreen Keystone funds may be obtained without
charge by contacting EKD or the Advisers at the telephone number shown on the
front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a 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 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, Class B or Class C shares of
an Evergreen Keystone fund worth $200,000 at their then current net asset value
and subsequently purchased Class A shares worth an additional $100,000, the
sales charge for the $100,000 purchase, in the case of Short-Intermediate, would
be at the 2.00% rate applicable to a single $300,000 purchase rather than the
2.50% rate, or in the case of High Grade, at the 2.50% rate applicable to a
single $300,000 purchase 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.
Letter of Intent. Class A investors may also obtain the reduced sales
charges shown in the Prospectus by means of a written Letter of Intent, 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, Class B and Class C shares)
of the Fund or any other Evergreen mutual fund. Each purchase of shares under a
Letter of Intent 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 Letter of Intent. At the
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investor's option, a Letter of Intent may include purchases of Class A or B
shares of the Fund or any other Evergreen Keystone fund made not more than 90
days prior to the date that the investor signs a Letter of Intent; however, the
13-month period during which the Letter of Intent 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 Keystone funds under a single Letter
of Intent. For example, if at the time an investor signs a Letter of Intent 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 Keystone fund,
to qualify for the 3.75% sales charge applicable to purchases in High Grade and
Tax Free Income or 2.50% applicable to purchases in Short-Intermediate on the
total amount being invested (the sales charge applicable to an investment of
$100,000).
The Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent 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 Letter
of Intent 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 Letter of Intent in conjunction with
their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Application while current Class A shareholders
desiring to do so can obtain a form of Letter of Intent by contacting a Fund at
the address or telephone number shown on the cover of this Statement of
Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen mutual funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone mutual funds
available to their participants.
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;
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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. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; 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 Advisers, EKD, and their
affiliates; (iv) persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer and approved by EKD, 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 Funds or work for companies associated with
the Funds and selected dealers and agents of the Funds. 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 Funds and the Distributor.
Deferred Sales Charge Alternative--Class B and Class C Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within seven years after the month of purchase will be subject to a contingent
deferred sales charge at the rates set forth in the Prospectus charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the cost of the shares being redeemed or their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no contingent deferred sales charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B
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shares until the time of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
seven years or Class B shares acquired pursuant to reinvestment of dividends or
distributions and third of Class B shares held longest during the seven-year
period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Proceeds from the contingent deferred sales charge are paid to EKD or its
predecessor and are used by EKD to defray the expenses of EKD related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee (and, with respect to
High Grade, the Shareholder Service Plan fee) enables the Fund to sell the Class
B shares without a sales charge being deducted at the time of purchase. The
higher distribution services fee (and, with respect to Florida Municipal Bond,
Georgia Municipal Bond, New Jersey Tax-Free, North Carolina Municipal Bond,
South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, the
Shareholder Service Plan fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee and the applicable
shareholder service fee imposed on Class B shares. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the
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sub-account) convert to Class A, an equal pro-rata portion of the Class B shares
in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to High
Grade, Shareholder Service Plan fee) with respect to Class B shares does not
result in the dividends or distributions payable with respect to other Classes
of a Fund's shares being deemed "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not constitute a
taxable event under Federal income tax law. The conversion of Class B shares to
Class A shares may be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further conversions of Class
B shares would occur, and shares might continue to be subject to the higher
distribution services fee (and, with respect to High Grade, the Shareholder
Service Plan fee) for an indefinite period which may extend beyond the period
ending seven years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level-load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after the month of purchase.
No charge is imposed in connection with redemptions made more than one year
after the month of purchase. Class C shares are sold without a front-end sales
charge so that the Fund will receive the full amount of the investor's purchase
payment and after the first year without a contingent deferred sales charge so
that the investor will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C of shares without either a front-end or
contingent deferred sales charge. However, unlike Class B shares, Class C shares
do not convert to any other Class shares of the Fund. Class C shares incur
higher distribution services fees than Class A shares, and will thus have a
higher expense ratio and pay correspondingly lower dividends than Class A
shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
The Evergreen Short-Intermediate Municipal Fund is a separate series of
The Evergreen Municipal Trust, a Massachusetts business trust. Evergreen High
Grade Tax Free Fund is a separate series of Evergreen Investment Trust, a
Massachusetts business trust. Keystone Tax Free Income Fund is a Massachsuetts
business trust. The above-named Trusts are individually referred to in this
Statement of Additional Information as the
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"Trust" and collectively as the "Trusts". Each Trust is governed by a board of
trustees. Unless otherwise stated, references to the "Board of Trustees" or
"Trustees" in this Statement of Additional Information refer to the Trustees of
all the Trusts.
Each Fund, other than Tax Free Income, may issue an unlimited number of
shares of beneficial interest with a $0.0001 par value. Tax Free Income may
issue an unlimited number of shares of beneficial interest with no par value.
All shares of these Funds have equal rights and privileges. Each share is
entitled to one vote, to participate equally in dividends and distributions
declared by the Funds and on liquidation to their proportionate share of the
assets remaining after satisfaction of outstanding liabilities. Shares of these
Funds are fully paid, nonassessable and fully transferable when issued and have
no pre-emptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the 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 each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees can elect
100% of the Trustees if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Trusts. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the Commonwealth of Massachusetts. If shares of
another series of a Trust were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in that same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act, will be available to shareholders of each Fund. The rights of the holders
of shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
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An order has been received from the SEC permitting the issuance and
sale of multiple classes of shares representing interests in each Fund. In the
event a Fund were to issue additional Classes of shares other than those
described herein, no further relief from the SEC would be required.
Distributor
Evergreen Keystone Distributor, Inc. ("EKD" or the "Distributor"), 125
W. 55th Street, New York, New York 10019, serves as each Fund's principal
underwriter, and as such may solicit orders from the public to purchase shares
of any Fund. The Distributor is not obligated to sell any specific amount of
shares and will purchase shares for resale only against orders for shares. Under
the Agreement between each Fund and the Distributor, each Fund has agreed to
indemnify the Distributor, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors
of Short-Intermediate and High Grade.
KPMG Peat Marwick LLP has been selected to be the independent auditors
of Tax Free Income.
PERFORMANCE INFORMATION
Total Return
From time to time a 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 SEC, 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, Class B, Class C and Class Y shares in any advertisement or
information including performance data of the Fund.
The average annual compounded total return for each Class of shares
offered by the Funds for the most recently completed one year, three year, five
year and ten year periods, where applicable, and the period since each Fund's
inception is set forth in the table below.
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1 Year 3 Years 5 Years 10 Years
Ended Ended Ended Ended From Inception**
05/31/97 05/31/97 05/31/97 05/31/97 to 05/31/97
HIGH GRADE
Class A 1.90% 5.11% 5.75% N/A 6.00%
Class B 1.19% 5.16% N/A N/A 5.13%
Class Y 7.25% 7.10% N/A N/A 5.11%
SHORT-
INTERMEDIATE
Class A 0.92% N/A N/A N/A 3.40%
Class B 1.51% N/A N/A N/A 2.76%
Class Y 4.62% 3.95% 4.44% N/A 4.88%
TAX FREE INCOME
Class A 1.80% 4.39% 4.64% 6.23% N/A
Class B 1.03% 4.39% N/A N/A 3.84%
Class C 5.03% 5.26% N/A N/A 4.22%
** INCEPTION DATE
Short-Intermediate
Class A and B January 3, 1995
Class Y July 17, 1991
High Grade Class A February 21, 1992
Class B January 11, 1993
Class Y February 28, 1994
Tax Free Income Class A February 13, 1987
Class B February 1, 1993
Class C February 1, 1993
A 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 a Fund's portfolio and its expenses. Total return information is
useful in reviewing a 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 a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields 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:
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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 a 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
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Tax Equivalent Yield
The Funds invest principally in obligations the interest from which is
exempt from Federal income tax other than the Alternative Minimum Tax. However,
from time to time the Funds may make investment which generate taxable income. A
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 a 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 a Fund will achieve any
specific tax-exempt yield. 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
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares
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will likely be invested in instruments producing lower yields than the balance
of the Fund's investments, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
The tax exempt yields (calculated using a 31% federal tax rate) of each
Fund for the thirty-day period ended May 31, 1997 for each Class of shares
offered by the Funds is set forth in the table below:
Yield Tax Equivalent Yield
High Grade
Class A 4.19% 6.07%
Class B 3.63% 5.26%
Class Y 4.66% 6.75%
Short-Intermediate
Class A 3.74% 5.42%
Class B 2.94% 4.26%
Class Y 3.93% 5.70%
Tax Free Income
Class A 4.58% 6.64%
Class B 4.05% 5.87%
Class C 4.05% 5.87%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman
Brothers General Obligations Municipal Bond Index or any other commonly quoted
index of common stock or municipal bond prices. The Standard & Poor's 500
Composite Stock Price Index and the Dow Jones Industrial Average are unmanaged
indices of selected common stock prices. The Lehman Brothers General Obligations
Municipal Bond Index is an unmanaged index of state general obligation debt
issues which are rated A or better and represent a variety of coupon ranges. A
Fund's performance may also be compared to those of other mutual funds having
similar objectives. This comparative performance would be expressed as a ranking
prepared by Lipper Analytical Services, Inc. or similar independent services
monitoring mutual fund performance. A Fund's performance will be calculated by
assuming, to the extent applicable, reinvestment of all capital gains
distributions and income dividends aid. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker
or to each Adviser at the address or telephone number shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain
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all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of Tax Free Income, appearing in its most
current fiscal year Annual Report to Shareholders and the report thereon of KPMG
Peat Marwick LLP, independent auditors, appearing therein are incorporated by
reference into this Statement of Additional Information. The financial
statements of High Grade and Short-Intermediate, appearing in their most current
Annual Reports to Shareholders and the report thereon of Price Waterhouse LLP,
independent auditors, appearing therein are incorporated by reference into this
Statement of Additional Information. The Annual Report to Shareholders for the
Funds, which contain the referenced statements, are available upon request and
without charge.
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APPENDIX "A"
DESCRIPTION OF BOND, MUNICIPAL NOTE AND COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate or
municipal bond rating is a current assessment of the credit worthiness of an
obligor with respect to a specific obligation. This assessment of credit
worthiness may take into consideration obligers such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than is higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
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BB indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA,
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AA, A, BBB, commonly known as "Investment Grade" ratings) are generally regarded
as eligible for bank investment. In addition, the Legal Investment Laws of
various states may impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance companies
and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. NOTE:
Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - bonds which are rated C are the lowest rated class of bonds and
issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly form time to time because of economic
conditions; A--average credit quality with adequate protection factors, but with
greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service, Inc.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.) Note
rating symbols are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security
elements are
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accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific
risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries
the smallest degree of investment risk. The modifiers 1, 2, and 3 are used to
denote relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service, Inc.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1+ -- very strong credit quality, with only slightly less
degree of assurance for timely payment than F-1 -- very strong, with only
slightly less degree of assurance for timely payment than F-1+; F-2 -- good
credit quality, carrying a satisfactory degree of assurance for timely payment.
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EVERGREEN MUNICIPAL TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The Audited Financial Statements listed below are incorporated by reference
to the Registrant's Annual Report dated May 31, 1997.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
Financial Highlights:
Class A Shares For the eight-month
period ended May 31,
1997, the year ended
August 31, 1996 and for
the period from January
5, 1995 (Commencement of
Class Operations) through
August 31, 1995.
Class B Shares For the eight-month
period ended May 31,
1997, the year ended
August 31, 1996 and the
period from January 5,
1995 (Commencement of
Class Operations) through
August 31, 1995.
Class Y Shares For the eight-month
period ended May 31,
1997, the five years
ended August 31, 1996 and
the period from July 17,
1991 (Commencement of
Class Operations) through
August 31, 1991
Statement of Assets and Liabilities May 31, 1997
Statements of Operations For the nine months ended
May 31, 1997 and the year
ended August 31, 1996
Statements of Changes in Net Assets For the nine months ended
May 31, 1997 and the year
ended August 31, 1996
Notes to Financial Statements
Independent Auditors' Report June 27, 1997
b. Exhibits
Number Description
1(A) Amended and Restated Declaration of Trust(2)
1(B) Form of Instrument providing for the Establishment
and Designation of Classes(2)
1(C) Form Amendment to Declaration of Trust
and Certification of Designation(2)
2 By-Laws(2)
3 None
4 Instruments Defining Rights of Shareholders(2)
5(A) Investment Advisory Agreement(2)
5(B) Investment Subadvisory Agreement(2)
6(A) Distribution Agreement between the Evergreen Municipal
Trust and Evergreen Keystone Distributor, Inc.(2)
6(B) Dealer Agreement(1)
7 Form of Deferred Compensation Plan(1)
8 Custodian Agreement(2)
9(A) Form of Administrator Agreement between Registrant
and Evergreen Keystone Investment Management, Inc. ("EKIS")
(1)
9(B) Sub-Administrator Agreement between EKIS and BISYS Fund (1)
10 Opinion and Consent of Counsel as to the legality of
securities being registered was filed with the Registrant's
Rule 24f-2 Notice on August 29, 1997 and is incorporated by
reference herein.
11 Consent of Independent Accountants(1)
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Rule 12b-1 Distribution Plans(2)
16 Schedules for computation of current, effective and tax
equivalent yield(1)
17 Financial Data Schedules(1)
19 Powers of Attorney(2)
- --------------------------
(1) Filed herewith.
(2) Incorporated by reference to Registrant's previous filings on Form
N-1A.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable
Item 26. Number of Holders of Securities
Number of Record
Holders
Title of Class as of August 31, 1997
-------------- --------------------
Evergreen Short-Intermediate Municipal Fund
Class A Shares 97
Class B Shares 170
Class Y Shares 1,172
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and
officers are contained in Article XI of the Registrant's By-Laws.
Provisions for the indemnification of Evergreen Keystone Distributor,
Inc., Registrant's principal underwriter, are contained in Item 4 of the
Distribution Agreement, a copy of which is filed herewith and incorporated by
reference herein.
Item 28. Business or Other Connections of Investment Adviser
(a) For a description of the other business of the investment adviser, see
the section entitled "Management of the Funds-Investment Adviser" in Part A.
Evergreen Asset Management Corp., the Registrant's investment adviser, and
Lieber and Company, the Registrant's sub-adviser also act as such to the
Evergreen Trust, The Evergreen Total Return Fund, The Evergreen Limited Market
Fund, Inc., Evergreen Growth and Income Fund, The Evergreen Money Market Trust,
The Evergreen American Retirement Trust, The Evergreen Municipal Trust,
Evergreen Equity Trust, Evergreen Foundation Trust and Evergreen Variable Trust
all, registered investment companies. Stephen A. Lieber, Theodore J. Israel,
Jr., Nola Maddox Falcone and officers of the Adviser and Lieber and Company,
were, prior to June 30, 1994 officers and/or directors or trustees of the
Registrant and the other funds for which the Adviser acts as investment adviser.
Evergreen Asset Management Corp. and Lieber and Company are wholly- owned
subsidiaries of First Union National Bank Of North Carolina.
The Trustees and principal executive officers of the Fund's Investment Adviser,
and the Directors of the Fund's Manager, are set forth in the following tables:
FIRST UNION NATIONAL BANK
BOARD OF DIRECTORS
Edward E. Crutchfield
Anthony P. Terracciano
John R. Georgius
Marion A. Cowell, Jr.
Robert T. Atwood
All of the Directors are located at the following address:
First Union National Bank, 301 South College Street,
Charlotte, NC 28288
FIRST UNION NATIONAL BANK
EXECUTIVE OFFICERS
Edward E. Crutchfield, Chairman & CEO, First Union Corporation
John R. Georgius, Vice Chairman, First Union Corporation
Marion A. Cowell, Jr., Secretary and EVP, First Union Corporation
Robert T. Atwood, EVP & CFO, First Union Corporation
Anthony P. Terracciano, President, First Union Corporation
All of the Executive Officers are located at the following
address: First Union National Bank, 301 South College Street,
Charlotte, NC 28288
Item 29. Principal Underwriters
Evergreen Keystone Distributor, Inc. The Director and principal
executive officers are:
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Gordon Forrester Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven D. Blecher VP, Treasurer, Secretary
Elizabeth Q. Solazzo Assistant Secretary
Thalia M. Cody Assistant Secretary
Evergreen Keystone Distributor, Inc. acts as Distributor for the
following registered investment companies or separate series thereof:
Evergreen Trust
Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Income and Growth Fund
The Evergreen American Retirement Trust:
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
The Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Investment Trust
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen Latin America Fund
The Evergreen Lexicon Fund:
Evergreen Intermediate-Term Government Securities Fund
Evergreen Intermediate-Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone New York Tax Free Fund
Keystone Pennsylvania Tax Free Fund
Keystone Massachusetts Tax Free Fund
Keystone Florida Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Missouri Tax Free Fund
Keystone California Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income Fund
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Keystone Investment Management Company, 200 Berkeley Street, Boston,
MA 02116
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577.
First Union National Bank of North Carolina, One First Union Center,
301 S. College Street, Charlotte, North Carolina 28288.
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171.
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777.
Item 31. Management Services
Not Applicable
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provision of Section
16(c) of the 1940 Act with respect to the removal of Trustees and the
calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) and the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 3rd day of September, 1997.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
--------------------------
John J. Pileggi, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 24 to the Registration Statement has been
signed below by the following persons in the capacities indiscated and on
the 3rd day of September, 1997.
indicated.
Signatures Title
- ----------- -----
/s/John J. Pileggi
- ----------------------- President and
John J. Pileggi Treasurer
/s/Joan V. Fiore*
- ----------------------- Secretary
Joan V. Fiore
by James P. Wallin
Attorney - In - Fact
/s/ Foster Bam*
- ----------------------- Trustee
Foster Bam
by James P. Wallin
Attorney - In - Fact
/s/ Laurence B. Ashkin*
- ----------------------- Trustee
Laurence B. Ashkin
by James P. Wallin
Attorney - In - Fact
/s/James S. Howell*
- ----------------------- Trustee
James S. Howell
by James P. Wallin
Attorney - In - Fact
/s/Gerald M. McDonnell*
- ----------------------- Trustee
Gerald M. McDonnell
by James P. Wallin
Attorney - In - Fact
/s/Thomas L. McVerry*
- ----------------------- Trustee
Thomas L. McVerry
by James P. Wallin
Attorney - In - Fact
/s/William Walt Pettit*
- ----------------------- Trustee
William Walt Pettit
by James P. Wallin
Attorney - In - Fact
/s/Russell A. Salton, III, M.D*
- ------------------------------ Trustee
Russell A. Salton, III, M.D
by James P. Wallin
Attorney - In - Fact
/s/Michael S. Scofield*
- ----------------------- Trustee
Michael S. Scofield
by James P. Wallin
Attorney - In - Fact
*By: /s/ James P. Wallin
-----------------------
James P. Wallin**
Attorney-in-Fact
**James P. Wallin, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons filed as part of the Registration Statement to
Registrant's previous filings on Form N-1a.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
6 Dealer Agreement
7 Form of Deferred Compensation Plan
9(A) Form of Administration Agreement
(B) Sub-Adminstrator Agreement
10 Opinion and Consent of Counsel
11 Consent of Independent
Accountants
16 Performance Data Schedules
17 Financial Data Schedules
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange of Shares accepted by you
prior to the close of the New York Stock Exchange and placed with us the same
day prior to the close of our business day, 5:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place
orders for Shares only with us and at such closing price. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others
to place orders on your behalf. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not
to accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You have
no vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made
with the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon the termination of this
Agreement or upon the shareholder's instruction to transfer his or her account
to another Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior
notice, forthwith to cancel the sale, or, at our option, to sell such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your
customers, or for your own bonafide investment without a view to resale. If
you purchase Shares from your customers, you agree to pay such customers the
applicable net asset value per Share less any contingent deferred sales charge
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase
price. In such a sale to us, you may act either as principal for your own
account or as agent for your customer. If you act as principal for your own
account in purchasing Shares for resale to us, you agree to pay your
customer not less nor more than the repurchase price which you receive from
us. If you act as agent for your customer in selling Shares to us, you
agree not to charge your customer more than a fair commission for handling
the transaction. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of such
withholding.
10. We will not accept from you any conditional orders for Shares.
11. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund, or are tendered for redemption, within seven business
days after the date of our confirmation of the original purchase by you, it is
agreed that you shall forfeit your right to any commissions on such sales even
though the shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the
Fund any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
12. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received from
you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. In purchasing Shares from us you shall
rely solely on the representations contained in the appropriate Prospectus and
in such sales literature. We will furnish additional copies of such
Prospectuses and sales literature and other releases and information issued by
us in reasonable quantities upon request. You agree that you will in all
respects duly conform with all laws and regulations applicable to the sales of
Shares of the Funds and will indemnify and hold harmless the Funds, their
directors and trustees and the Company from any damage or expenses on account
of any wrongful act by you, your representatives, agents or sub-agents in
connection with any orders or solicitation or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at that time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
16. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA Plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
AGREEMENT, made on this ___ day of ___________, 1995, by and
between the registered open-end investment companies listed in
Attachment A hereto (each a "Fund" and together, the "Funds"), and
___________ (the "Trustee").
WHEREAS, the Trustee is serving as a director/trustee of the
Funds for which he is entitled to receive trustees' fees; and
WHEREAS, the Funds and the Trustee desire to permit the
Trustee to defer receipt of trustees' fees payable by the Funds;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Trustee
hereby agree as follows:
1. DEFINITION OF TERMS AND CONDITIONS
1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Agreement shall
have the meanings specified below:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after
the death of the Trustee.
(b) "Board of Trustees" shall mean the Board of
Trustees or the Board of Directors of a Fund.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of trustees'
fees paid by a Fund to the Trustee during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Trustee's Compensation deferred under the provisions
of Section 3 of this Agreement.
(f) "Deferral Account" shall mean the account
maintained to reflect the Trustee's Compensation Deferrals made
pursuant to Section 3 hereof and any other credits or debits thereto.
(g) "Deferral-Year" shall mean each calendar year
during which the Trustee makes, or is entitled to make, Compensation
Deferrals under Section 3 hereof.
(h) "Valuation Date" shall mean the last business day
of each calendar year and any other day upon which a Fund makes a
valuation of the Deferred Account.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the
feminine, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Trustees and Directors. Where appearing in this Agreement,
"Trustee" shall also refer to "Director" and trustee emeritus and
director emeritus and "Board of Trustees" shall also refer to "Board of
Directors."
1.4 Headings. The headings and subheadings in this Agreement are
inserted for the convenience of reference only and are to be ignored in
any construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is
drafted, and shall be construed, as a separate agreement between the
Trustee and each of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Trustee may elect,
on a form provided by, and submitted to, the Secretary of a Fund, to
commence Compensation Deferrals under Section 3 hereof for the period
beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Secretary of the Fund.
2.2 Termination of Deferrals. The Trustee shall not be eligible to
make Compensation Deferrals after the earlier of the following dates:
(a) The date on which he ceases to serve as a Trustee of
the Fund; or
(b) The effective date of the termination of this
Agreement.
3. COMPENSATION DEFERRALS
3. Compensation Deferral Elections.
(a) Except as provided below, a deferral election on the form
described in Section 2.1 hereof, must be filed with the Secretary of a
Fund prior to the first day of the Deferral Year to which it applies.
The form shall set forth the amount of such Compensation Deferral (in
whole percentage amounts) . Such election shall continue in effect for
all subsequent Deferral Years unless it is canceled or modified as
provided below. Notwithstanding the foregoing, (i) any person who is
elected to the Board during a fiscal year of a Fund may elect before
becoming a Trustee or within 30 days after becoming a Trustee to defer
any unpaid portion of the retainer of such fiscal year and the fees for
any future meetings during such fiscal year by filing an election form
with the Secretary of the Fund, and (ii) Trustees may elect to defer any
unpaid portion of the retainer for the fiscal year in which Deferred
Compensation Agreements are first authorized by the Board and any unpaid
fees for any future meetings during such fiscal year by submitting an
election form to the Secretary of a Fund within 30 days of such
authorization.
(b) Compensation Deferrals shall be withheld from each
payment of Compensation by a Fund to the Trustee based upon the
percentage amount elected by the Trustee under Section 3.1 (a) hereof.
(c) The Trustee may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the
Secretary of a Fund a revised compensation Deferral election form.
Subject to the provisions of Section 4.2 hereof, such change will be
effective as of the first day of the Deferral Year following the date
such revision is submitted to the Secretary of the Fund.
3.2 Valuation of Deferral Account.
(a) A Fund shall establish a bookkeeping Deferral Account to
which will be credited an amount equal to the Trustee's Compensation
Deferrals under this Agreement. Compensation Deferrals shall be
allocated to the Deferral Account on the day such Compensation
Deferrals are withheld from the Trustee's Compensation and shall be
deemed invested pursuant to Section 3.3, below, as of the same day. The
Deferral Account shall be debited to reflect any distributions from
such Account. Such debits shall be allocated to the Deferral Account as
of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the
manner set forth under Section 3.3, below) attributable to the period
following the next preceding Valuation Date shall be credited to and/or
deducted from the Trustees Deferral Account.
3.3 Investment of Deferral Account Balance
(a) (1) The Trustee may select from various options made
available by the Funds the investment media in which all or part of his
Deferral Account shall be deemed to be invested. The investment media
available to the Trustee as of the date of this Agreement are listed in
Attachment B hereto.
(2) The Trustee shall make an investment designation on
a form provided by the Secretary of the Funds (Attachment C) which
shall remain effective until another valid designation has been made by
the Trustee as herein provided. The Trustee may amend his investment
designation daily by giving instructions to the Secretary of the Funds.
(3) Any changes to the investment media to be made
available to the Trustee, and any limitation on the maximum or minimum
percentages of the Trustee's Deferral Account that may be invested in
any particular medium, shall be communicated from time-to-time to the
Trustee by the Secretary of the Funds.
(b) Except as provided below, the Trustee's Deferral
Account shall be deemed to be invested in accordance with his
investment designations, provided such designations conform to the
provisions of this Section. If:
(1) the Trustee does not furnish the secretary of the
Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Trustee are unclear,
then the Trustee's election to make Compensation Deferrals hereunder
shall be held in abeyance and have no force and effect, and he shall be
deemed to have selected the Evergreen Money Market Fund until such time
as the Trustee shall provide the Secretary of the Funds with complete
investment instructions. In the event that any fund under which any
portion of the Trustee's Deferral Account is deemed to be invested
ceases to exist, such portion of the Deferral Account thereafter shall
be held in the successor to such Fund, subject to subsequent deemed
investment elections.
The use of the returns on the investment media to determine
the amount of the earnings credited to a Trustee's Deferral Account is
subject to regulatory approval. Until such approval is received, the
Compensation Deferrals of a Trustee Under this Agreement shall be
continuously credited with earnings in an amount determined by
multiplying the balance credited to the Deferral Account by an interest
rate equal to the yield on 90-day U.S. Treasury Bills.
The Secretary of the Funds shall provide an annual statement
to the Trustee showing such information as is appropriate, including the
aggregate amount in the Deferral Account, as of a reasonably current
date.
4. DISTRIBUTION FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Trustee's Deferral Account
may be paid in a lump sum or in installments as elected by the Trustee
commencing on or as soon as practicable after a date specified by the
Trustee, which may not be sooner than the earlier of the first business
day of January following (a) a date five years following the deferral
election, or (b) the year in which the Trustee ceases to be a member of
the Board of Trustees of the Funds. Notwithstanding the foregoing, in
the event of the liquidation, dissolution or winding up of a Fund or the
distribution of all or substantially all of a Fund's assets and property
relating to one or more series of its shares to the shareholders of such
series (for this purpose a sale, conveyance or transfer of a Fund's
assets to a trust, partnership, association or corporation in exchange
for cash shares or other securities with the transfer being made subject
to, or with the assumption by the transferee of, the liabilities of the
Fund shall not be deemed a termination of the Fund or such a
distribution), all unpaid amounts in the Deferral Account as of the
effective date thereof shall be paid in a lump sum on such effective
date. In addition, upon application by a Trustee and determination by
the Chairman of the Board of Trustees of the Funds that the Trustee has
suffered a severe and unanticipated financial hardship, the Secretary
shall distribute to the Trustee, in a single lump sum, an amount equal
to the lesser of the amount needed by the Trustee to meet the hardship
plus applicable income taxes payable upon such distribution, or the
balance of the Trustee's Deferral Account.
4.2 Death Prior to Complete Distribution of Deferral Account. Upon
the death of the Trustee (whether prior to or after the commencement of
the distribution of the amounts credited to his Deferral Account), the
balance of such Account shall be distributed to his Beneficiary in a
lump sum as soon as practicable after the Trustee's death.
4.3 Designation of Beneficiary. For purposes of Section 4.3 hereof,
the Trustee's Beneficiary shall be the person or persons so designated
by the Trustee in a written instrument submitted to the Secretary of the
Funds. In the event the Trustee fails to properly designate a
Beneficiary, his Beneficiary shall be the person or persons in the first
of the following classes of successive preference Beneficiaries
Surviving at the death of the Trustee: the Trustees (1) surviving
spouse, or (2) estate.
5. AMENDMENT AND TERMINATION
5.1 The Board of Trustees may at any time in its sole discretion
amend or terminate this Plan; provided however, that no Such amendment
or termination shall adversely affect the right of Trustees to receive
amounts previously credited to their Deferral Accounts.
6. MISCELLANEOUS
6.1 Rights of Creditors.
(a) This Agreement is an unfunded and non-qualified deferred
compensation arrangement. Neither the Trustee nor other persons shall
have any interest in any specific asset or assets of a Fund by reason of
any Deferral Account hereunder, nor any rights to receive distribution
of his Deferral Account except as and to the extent expressly provided
hereunder. A Fund shall not be required to purchase, hold or dispose of
any investments pursuant to this Agreement; however, if in order to
cover its obligations hereunder the Fund elects to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Fund, subject to the claims of its
general creditors and no person other than the Fund shall by virtue of
the provisions of this Agreement have any interest in such assets other
than an interest as a general creditor.
(b) The rights of the Trustee and the Beneficiaries to the amounts
held in the Deferral Account are unsecured and shall be subject to the
creditors of the Funds. With respect to the payment of amounts held
under the Deferral Account, the Trustee and his Beneficiaries have the
status of unsecured creditors of the Funds. This Agreement is executed
on behalf of the Fund by an officer of a Fund as such and not
individually. Any obligation of a Fund hereunder shall be an unsecured
obligation of the Fund and not of any other person.
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as
they deem necessary to perform their duties under this Agreement. The
Funds shall bear the cost of such services and all other expenses they
incur in connection with the administration of this Agreement.
6.3 Incapacity. If a Fund shall receive evidence satisfactory to
it that the Trustee or any Beneficiary entitled to receive any benefit
under this Agreement is, at the time when such benefit becomes payable,
a Minor, or is physically or mentally incompetent to give a valid
release therefor, and that another person or an institution is then
maintaining or has custody of the Trustee or Beneficiary and that no
guardian, committee or other representative of the estate of the Trustee
or Beneficiary shall have been duly appointed, the Fund may make payment
of such benefit otherwise payable to the Trustee or Beneficiary to such
other person or institution, including a custodian under a Uniform Gifts
to Minors Act, or corresponding legislation (who shall be a guardian of
the minor or a trust company), and the release of such other person or
institution shall be a valid and complete discharge for the payment of
such benefit.
6.4 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts
and execute any and all documents and papers which are necessary or
desirable for carrying out this Agreement or any of its provisions.
6.5 Governing Law. This Agreement is made and entered into in the
State of North Carolina and all matters concerning its validity,
construction and administration shall be governed by the laws of the
State of North Carolina.
6.6 No Guarantee of Trusteeship. Nothing contained in this
Agreement shall be construed as a guaranty or right of any Trustee to be
continued as a Trustee of one or more of the Evergreen Funds (or of a
right of a Trustee to any specific level of Compensation) or as a
limitation of the right of any of the Evergreen Funds, by shareholder
action or otherwise, to remove any of its trustees.
6.7 Counsel. The Funds may consult with legal counsel with respect
to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any
question of law, and they shall be fully protected with respect to any
action taken or omitted by them in good faith pursuant to the advice of
legal counsel.
6.8 Spendthrift Provision. The Trustees' and Beneficiaries'
interests in the Deferral Account shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charges
and any attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void; nor shall any portion
of any such right hereunder be in any manner payable to any assignee,
receiver or trustee, or be liable for such person's debts, contracts,
liabilities, engagements or torts, Or be subject to any legal process to
levy upon or attach.
6.9 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or by nationally recognized overnight
delivery service, addressed to the Trustee at the home address set forth
in the Funds' records and to a Fund at its principal place of business,
provided that all notices to a Fund shall be directed to the attention
of the Secretary of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
6.10 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Trustee with respect to the
payment of non-qualified elective deferred compensation by the Funds to
the Trustee.
6.11 Interpretation of Agreement. Interpretation of, and
determinations related to, this Agreement made by the Funds in good
faith, including any determinations of the amounts of the Deferral
Account, shall be conclusive and binding upon all parties; and a Fund
shall not incur any liability to the Trustee for any such interpretation
or determination so made or for any other action taken by it in
connection with this Agreement in good faith.
6.12 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and
assigns and to the Trustees and his heirs, executors, administrators and
personal representatives.
6.13 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the
other provisions hereof and such other provisions shall remain in full
force and effect unaffected by such invalidity or unenforceability.
6.14 Execution of Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
EVERGREEN TRUST
EVERGREEN EQUITY TRUST
EVERGREEN INVESTMENT TRUST
EVERGREEN TOTAL RETURN FUND
EVERGREEN GROWTH AND INCOME FUND
THE EVERGREEN AMERICAN RETIREMENT
TRUST
EVERGREEN FOUNDATION TRUST
EVERGREEN MUNICIPAL TRUST
EVERGREEN MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND, INC.
By:
________________ ____________________
Witness John J. Pileggi
President
________________ ____________________
Witness Trustee
<PAGE>
ATTACHMENT A
EVERGREEN TRUSTS & FUNDS
1. EVERGREEN TRUST
a. Evergreen Fund
b. Evergreen Aggressive Growth Fund
2. EVERGREEN EQUITY TRUST
a. Evergreen Global Real Estate Equity Fund
b. Evergreen U.S. Real Estate Equity Fund
C. Evergreen Global Leaders Fund
3. EVERGREEN INVESTMENT TRUST
a. Evergreen International Equity Fund
b. Evergreen Emerging Markets Growth Fund
C. Evergreen Balanced Fund
d. Evergreen Value Fund
e. Evergreen Utility Fund
f. Evergreen U.S. Government Fund
g. Evergreen Fixed Income Fund
h. Evergreen Managed Bond Fund (Y Shares only)
i. Evergreen High Grade Tax Free Fund
J. Evergreen Florida Municipal Bond Fund
k. Evergreen Georgia Municipal Bond Fund
1. Evergreen North Carolina Municipal Bond Fund
M. Evergreen South Carolina Municipal Bond Fund
n. Evergreen Virginia Municipal Bond Fund
0. Evergreen Treasury Money Market
4. EVERGREEN TOTAL RETURN FUND
5. EVERGREEN GROWTH AND INCOME FUND
6. THE EVERGREEN AMERICAN RETIREMENT TRUST
a. Evergreen American Retirement Fund
b. Evergreen Small Cap Equity Income Fund
7. EVERGREEN FOUNDATION TRUST
a. Evergreen Foundation Fund
b. Evergreen Tax Strategic Foundation Fund
8. EVERGREEN MUNICIPAL TRUST
a. Evergreen Short-intermediate municipal Fund
b. Evergreen Short-intermediate Municipal Fund-California
C. Evergreen Florida High Income Municipal Fund
d. Evergreen Tax Exempt Money Market Fund
9. EVERGREEN MONEY MARKET FUND
10. EVERGREEN LIMITED MARKET FUND, INC.
ATTACHMENT B
EVERGREEN TRUSTS & FUNDS
Available Fund Options
Evergreen International Equity Fund
Evergreen Aggressive Growth Fund
Evergreen Fund
Evergreen Foundation Fund
Evergreen Growth & Income
Evergreen Value
Evergreen Fixed Income
Evergreen Money Market Fund
<PAGE>
ATTACHMENT C
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
TO: The Secretary of The Evergreen Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of November __, 1995 by and between the
undersigned and The Evergreen Funds, I hereby make the following
elections:
Deferral of Compensation
Starting with Compensation to be paid to me with respect to
services provided by me to The Evergreen Funds after the date this
election form is provided to The Evergreen Funds, and for all periods
thereafter (unless subsequently amended by way of a new election form),
I hereby elect that ___ percent (__%) of my Compensation (as defined
under the Agreement) be deferred and that the Funds establish a
bookkeeping account credited with amounts equal to the amount so
deferred (the "Deferral Account"), The Deferral Account shall be
further credited with income equivalents as provided under the
Agreement. Each Compensation Deferral (as defined in the Agreement)
shall be deemed invested pursuant to Section 3.3 of the Agreement as of
the same day it would have been paid to me.
I wish the Compensation Deferral to be invested in the Funds
and percentages noted in Annex A to this Form.
I understand that the amounts held in the Deferral Account
shall remain the general assets of The Evergreen Funds and that, with
respect to the payment of such amounts, I am merely a general creditor
of The Evergreen Funds. I may not sell, encumber, pledge, assign or
otherwise alienate the amounts held under the Deferral Account.
<PAGE>
Distribution from Deferral Account
I hereby elect that distributions from my Deferral Account be
paid:
______ in a lump sum or
______ in quarterly installments for ___ years (specify a
number of years not to exceed ten); commencing on the first business
day of January following:
______ the year in which I cease to be a member of the
Board of Trustees of the Funds, or
______ a calendar year but not a year earlier than 2000.
I hereby agree that the terms of the Agreement are incorporated
herein and are made a part hereof. Dated as of the day and year first
above written.
WITNESS: TRUSTEE:
__________________ __________________
RECEIVED:
THE EVERGREEN FUNDS
By:____________________
Name:__________________
Title:_________________
Date:__________________
<PAGE>
ANNEX A
I desire that my deferred Compensation be invested as follows:
Evergreen International Equity Fund %_____
Evergreen Aggressive Growth Fund %_____
Evergreen Fund %_____
Evergreen Foundation Fund %_____
Evergreen Growth & Income Fund %_____
Evergreen Value %_____
Evergreen Fixed Income %_____
Evergreen Money Market Fund %_____
______________________
100% of Deferred
Compensation Amount
<PAGE>
ATTACHMENT D
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
DESIGNATION OF BENEFICIARY
You may designate one or more beneficiaries to receive any
amount remaining in your Deferral Account at your death. If your
Designated Beneficiary survives you, but dies before receiving the full
amount of the Deferral Account to which he or she is entitled, the
remainder will be paid to the Designated Beneficiary's estate, unless
you specifically elect otherwise in your Designation of Beneficiary
form.
You may indicate the names not only of one or more primary
Designated Beneficiaries but also the names of secondary beneficiaries
who would receive amounts in your Deferral Account in the event the
primary beneficiary or beneficiaries are not alive at your death. In
the case of each Designated Beneficiary, give his or her name, address,
relationship to you, and the percentage of your Deferral Account he or
she is to receive. You may change your Designated Beneficiaries at any
time, without their consent, by filing a new Designation of Beneficiary
form with the Secretary of the Funds.
******************************************
As a participant in the Evergreen Funds' Deferred Compensation
Plan (the "Plan"), I hereby designate the person or persons listed
below to receive any amount remaining in my Deferral Account in the
event of my death. This designation of beneficiary shall become
effective upon its delivery to the Secretary of the Funds prior to my
death, and revokes any designation(s) of beneficiary previously made by
me. I reserve the right to revoke this designation of beneficiary at
any time without notice to any beneficiary.
I hereby name the following as primary Designated Beneficiaries
under the Plan:
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
_____________________________________________________________________
Name Relationship Percentage Address
In the event that one or more of my primary Designated
Beneficiaries predeceases mer his or her share shall be allocated among
the Surviving primary Designated Beneficiaries. I name the following as
secondary Designated Beneficiaries under the Plan, in the event that no
primary Designated Beneficiary survives me:
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
______________________________________________________________________
Name Relationship Percentage Address
In the event that no primary Designated Beneficiary
survives me and one or more of the secondary Designated Beneficiaries
predeceases me, his or her share shall be allocated among the
surviving secondary Designated Beneficiaries.
___________________ _____________________
(witness) (Signature of Trustee)
Date: Date:
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this 1st day of April,
1997 between Evergreen Investment Trust, a Massachusetts business trust (herein
called the "Trust"), and Evergreen Keystone Investment Services, Inc. (herein
called "EKIS").
WHEREAS, the Trust is a Massachusetts business trust consisting of one or
more portfolios which operates as an open-end management investment company and
is so registered under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain EKIS as its Administrator to provide
it with administrative services, and EKIS is willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Trust hereby appoints EKIS as
Administrator of the Trust and each of its portfolios on the terms and
conditions set forth in this Agreement; and EKIS hereby accepts such appointment
and agrees to perform the services and duties set forth in Section 2 of this
Agreement in consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to the supervision
and control of the Trustees of the Trust, EKIS will hereafter provide
facilities, equipment and personnel to carry out the following administrative
services for operation of the business and affairs of the Trust and each of its
portfolios:
(a) prepare, file and maintain the Trust's governing documents, including
the Declaration of Trust (which has previously been prepared and filed), the By-
laws, minutes of meetings of Trustees and shareholders, and proxy statements for
meetings of shareholders;
(b) prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for the
Trust and the Trust's shares and all amendments thereto, reports to regulatory
authorities and shareholders, prospectuses, proxy statements, and such other
documents as may be necessary or convenient to enable the Trust to make a
continuous offering of its shares;
(c) prepare, negotiate and administer contracts on behalf of the Trust
with, among others, the Trust's distributor, custodian and transfer agent;
(d) supervise the Trust's fund accounting agent in the maintenance of the
Trust's general ledger and in the preparation of the Trust's financial
statements, including oversight of expense accruals and payments and the
determination of the net asset value of the Trust's assets and of the Trust's
shares, and of the declaration and payment of dividends and other distributions
to shareholders;
(e) calculate performance data of the Trust for dissemination to
information services covering the investment company industry;
(f) prepare and file the Trust's tax returns;
(g) examine and review the operations of the Trust's custodian and transfer
agent;
(h) coordinate the layout and printing of publicly disseminated
prospectuses and reports;
(i) prepare various shareholder reports;
(j) assist with the design, development and operation of new portfolios of
the Trust;
(k) coordinate shareholder meetings;
(l) provide general compliance services; and
(m) advise the Trust and its Trustees on matters concerning the Trust and
its affairs.
The foregoing, along with any additional services that EKIS shall agree in
writing to perform for the Trust hereunder, shall hereafter be referred to as
"Administrative Services." Administrative Services shall not include any duties,
functions, or services to be performed for the Trust by the Trust's investment
adviser, distributor, custodian or transfer agent pursuant to their agreements
with the Trust.
3. Expenses. EKIS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Administrative Services to the Trust. The Trust shall be responsible
for all other expenses incurred by EKIS on behalf of the Trust, including
without limitation postage and courier expenses, printing expenses, registration
fees, filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees who are not EKIS employees, and trade
association dues.
4. Compensation. For the Administrative Services provided, the Trust hereby
agrees to pay and EKIS hereby agrees to accept as full compensation for its
services rendered hereunder an administrative fee, calculated daily and payable
monthly, at an annual rate determined in accordance with the table below.
Aggregate Daily Net Assets of
Funds Administered by EKIS
For Which any Affiliate of First Union
Administrative National Bank of North Carolina
Fee Serves as Investment Adviser
.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
Each portfolio of the Trust shall pay a portion of the administrative fee
equal to the rate determined above times that portfolios average annual daily
net assets.
5. Responsibility of Administrator. EKIS shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. EKIS shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Any person, even though also an officer,
director, partner, employee or agent of EKIS, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the Trust (other than
services or business in connection with the duties of EKIS hereunder) to be
rendering such services to or acting solely for the Trust and not as an officer,
director, partner, employee or agent or one under the control or direction of
EKIS even though paid by EKIS.
6. Duration and Termination.
(a) This Agreement shall be in effect until June 30, 1998, and shall
continue in effect from year to year thereafter, provided it is approved, at
least annually, by a vote of a majority of Trustees of the Trust including a
majority of the disinterested Trustees.
(b) This Agreement may be terminated at any time, without payment of any
penalty, on sixty (60) day's prior written notice by a vote of a majority of the
Trust's Trustees or by EKIS.
7. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. Notices. Notices of any kind to be given to the Trust hereunder by EKIS
shall be in writing and shall be duly given if delivered to the Trust and to its
investment adviser at the following address: First Union National Bank of North
Carolina, One First Union Center, Charlotte, NC 28288. Notices of any kind to be
given to EKIS hereunder by the Trust shall be in writing and shall be duly given
if delivered to EKIS at 200 Berkeley Street, Boston MA, Attention: Chief
Administrative Officer.
9. Limitation of Liability. EKIS is hereby expressly put on notice of the
limitation of liability as set forth in Article IX of the Declaration of Trust
and agrees that the obligations pursuant to this Agreement of a particular
portfolio and of the Trust with respect to that particular portfolio be limited
solely to the assets of that particular portfolio, and EKIS shall not seek
satisfaction of any such obligation from the assets of any other portfolio, the
shareholders of any portfolio, the Trustees, officers, employees or agents of
the Trust, or any of them.
10. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court or
regulatory agency decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the provisions of Section 5
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by New
York law; provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
EVERGREEN INVESTMENT TRUST
By_____________________ Its: President
Attest:____________________
Its:_______________________
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By_____________________ Its:__________________
Attest:____________________
Its:_______________________
<PAGE>
SCHEDULE A
Evergreen Investment Trust
-Evergreen Emerging Markets Growth Fund
-Evergreen International Equity Fund
-Evergreen Balanced Fund
-Evergreen Value Fund
-Evergreen Utility Fund
-Evergreen Short-Intermediate Bond Fund
-Evergreen U.S. Government Fund
-Evergreen Florida Municipal Bond Fund
-Evergreen Georgia Municipal Bond Fund
-Evergreen North Carolina Municipal Bond Fund
-Evergreen South Carolina Municipal Bond Fund
-Evergreen Virginia Municipal Bond Fund
-Evergreen High Grade Tax Free Fund
-Evergreen Treasury Money Market Fund
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of January,
1997 between Evergreen Keystone Investment Services, a Delaware Corporation
(herein called "EKIS"), and BISYS Fund Services Limited Partnership DBA as BISYS
Fund Services, an Ohio Limited Partnership (herein called "BISYS").
WHEREAS, EKIS has been appointed as investment adviser or administrator to
certain open-end management investment companies, or to one or more separate
investment series thereof, listed on Schedule A, as the same may be amended from
time to time to reflect additions or deletions of such companies or series,
which are registered under the Investment Company Act of 1940 (the "Funds");
WHEREAS, in its capacity as investment adviser or administrator to the
Funds, EKIS has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, EKIS desires to retain BISYS as Sub-Administrator to the Funds for
the purpose of providing the Funds with personnel to act as officers of the
Funds and to provide certain administrative services in addition to those
provided by EKIS ("Sub-Administrative Services"), and BISYS is willing to render
such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. EKIS hereby appoints BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS hereby accepts such appointment and agrees to perform the
services and duties set forth in Section 2 of this Agreement in consideration of
the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the
supervision and control of EKIS and the Trustees or Directors of the Funds,
BISYS will hereafter provide facilities, equipment and personnel to carry out
the following Sub-Administrative services to assist in the operation of the
business and affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for nomination,
appointment or election as officers of the Funds and who will be responsible for
the management of certain of each Fund's affairs as determined from time to time
by the Trustees or Directors of the Funds;
(b) review filings with the Securities and Exchange Commission and state
securities authorities that have been prepared on behalf of the Funds by the
administrator and take such actions as may be reasonably requested by the
administrator to effect such filings;
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for the
disbursement of cash, issuance of shares, tender and receipt of portfolio
securities, payment of expenses and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters concerning the
Funds and their affairs.
BISYS may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. BISYS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. EKIS and/or the Funds
shall be responsible for all other expenses incurred by BISYS on behalf of the
Funds pursuant to this Agreement at the direction of EKIS, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not BISYS employees, and
trade association dues.
4. Compensation. For the Sub-Administrative Services provided, EKIS hereby
agrees to pay and BISYS hereby agrees to accept as full compensation for its
services rendered hereunder a sub- administrative fee, calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which BISYS Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of BISYS. The duties of
BISYS shall be limited to those expressly set forth herein or later agreed to in
writing by BISYS, and no implied duties are assumed by or may be asserted
against BISYS hereunder. BISYS shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Section, the term "BISYS" shall include partners,
officers, employees and other agents of BISYS as well as BISYS itself).
So long as BISYS acts in good faith and with due diligence and without
negligence, EKIS shall indemnify BISYS and hold it harmless from any and all
actions, suits and claims, and from any and all losses, damages, costs, charges,
reasonable counsel fees and disbursements, payments, expenses and liabilities
(including reasonable investigation expenses) arising directly or indirectly out
of BISYS' actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
survive the termination of this Agreement for a period of three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case EKIS maybe asked to indemnify or hold BISYS
harmless, EKIS shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that BISYS
will use all reasonable care to identify and notify EKIS promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against EKIS.
EKIS shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If EKIS elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by EKIS and satisfactory
to BISYS, whose approval shall not be unreasonably withheld. In the event that
EKIS elects to assume the defense of any suit and retain counsel, BISYS shall
bear the fees and expenses of any additional counsel retained by it. If EKIS
does not elect to assume the defense of a suit, it will reimburse BISYS for the
reasonable fees and expenses of any counsel retained by BISYS.
BISYS may apply to EKIS at any time for instructions and may consult
counsel for EKIS or its own counsel and with accountants and other experts with
respect to any matter arising in connection with BISYS' duties, and BISYS shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of BISYS, who may be or become an officer, trustee, employee or agent of
the Funds, shall be deemed, when rendering services to a Fund or acting on any
business of a Fund (other than services or business in connection with the
duties of BISYS hereunder) to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee or agent or one
under the control or direction of BISYS even though paid by BISYS.
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall commence
on the date this Agreement is executed by both parties, shall continue until
April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. In the event of' any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as BISYS,
with the written consent of EKIS, in fact continues to perform any one or more
of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by EKIS upon such termination shall be
immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from EKIS, in addition to the compensation
described herein, all costs reasonably incurred in connection with BISYS's
activities in effecting such termination, including without limitation, the
delivery to the Funds and/or their designees of each Fund's property, records,
instruments and documents, or any copies thereof. To the extent that BISYS may
retain in its possession copies of any Fund documents or records subsequent to
such termination which copies had not been requested by or on behalf of a Fund
in connection with the termination process described above, BISYS will provide
such Fund with reasonable access to such copies; provided, however, that, in
exchange therefor, EKIS shall reimburse BISYS for all costs reasonably incurred
in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by BISYS and, with respect to one or more of the Funds a vote of a
majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
BISYS is replaced as sub-administrator, then EKIS shall make a one-time cash
payment to BISYS equal to the unpaid balance due BISYS for the first six-months
this Agreement in effect, assuming for purposes of calculation of the payment
that the asset level of each Fund on the date BISYS is replaced will remain
constant for the balance of such term. Once this Agreement has been in effect
for more than six months from the commencement date, this paragraph (c) shall be
null, void and of no further effect.
7. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. Notices. Notices of any kind to be given to EKIS hereunder by BISYS
shall be in writing and shall be duly given if delivered to EKIS at the
following address: Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577, ATT: Legal Department. Notices of any kind to be given
to BISYS hereunder by EKIS or the Funds shall be in writing and shall be duly
given if delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219
Attention: George O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and BISYS shall not seek satisfaction of any
such obligation from the assets of any other Fund, the shareholders of any Fund,
the Trustees, officers, employees or agents of any Fund, or any of them.
10. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court or
regulatory agency decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the provisions of Section 5
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by New
York law; provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
EVERGREEN KEYSTONE INVESTMENT SERVICES
By__________________________________________
Its:________________________________________
Attest:_________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By___________________________________________
BISYS FUND SERVICES, INC., its General Partner
Attest:________________________
<PAGE>
SCHEDULE A
Evergreen Trust on behalf of:
Evergreen Fund
The Evergreen Aggressive Growth Fund
The Evergreen Total Return Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Money Market Trust on behalf of:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
The Evergreen American Retirement Trust on behalf of:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Municipal Trust on behalf of:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Tax Exempt Money Market Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Institutional Tax-Exempt Money Market Fund
Evergreen Equity Trust on behalf of:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Foundation Trust on behalf of:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Investment Trust on behalf of:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen U.S. Government Fund
Evergreen Variable Trust on behalf of:
Evergreen VA Foundation Fund
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
Evergreen Tax Free Trust on behalf of:
Evergreen New Jersey Tax-Free Income Fund
Evergreen Pennsylvania Tax-Exempt Money Market Fund
Evergreen Lexicon Fund on behalf of:
Evergreen Fixed Income Fund
Evergreen Short-Intermediate U.S. Government Securities Fund
Keystone America Hartwell Emerging Growth Fund ("Emerging Growth")
Keystone Balanced Fund II ("Balanced Fund")
Keystone Capital Preservation and Income Fund ("Capital Preservation and
Income")
Keystone Emerging Markets Fund ("Emerging Markets")
Keystone Fund For Total Return ("Total Return")
Keystone Fund of the Americas ("Fund of the Americas")
Keystone Global Opportunities Fund ("Global Opportunities")
Keystone Global Resources and Development Fund ("Global Resources")
Keystone Government Securities Fund ("Government Securities")
Keystone Intermediate Term Bond Fund ("Intermediate Term")
Keystone Liquid Trust ("Liquid Trust")
Keystone Omega Fund ("Omega")
Keystone Small Company Growth Fund II ("Small Company Growth")
Keystone State Tax Free Fund ("State Tax Free")
- Florida Tax Free Fund ("Florida Tax Free")
- Massachusetts Tax Free Fund ("Massachusetts Tax Free")
- Pennsylvania Tax Free Fund ("Pennsylvania Tax Free")
- New York Insured Tax Free Fund ("New York Insured")
Keystone State Tax Free Fund-Series II ("State Tax Free II")
- California Insured Tax Free Fund ("California Insured")
- Missouri Tax Free Fund ("Missouri Tax Free")
Keystone Strategic Income Fund ("Strategic Income")
Keystone Tax Free Income Fund ("Tax Free Income")
Keystone Quality Bond Fund (B-1) ("B-1")
Keystone Diversified Bond Fund (B-2) ("B-2")
Keystone High Income Bond Fund (B-4) ("B-4")
Keystone Balanced Fund (K-1) ("K-1")
Keystone Strategic Growth Fund (K-2) ("K-2")
Keystone Growth and Income Fund (S-1) ("S-1")
Keystone Mid-Cap Growth Fund (S-3) ("S-3")
Keystone Small Company Growth Fund (S-4) ("S-4")
Keystone Institutional Adjustable Rate Fund ("Adjustable Rate")
Keystone Institutional Trust ("Institutional")
Keystone International Fund Inc. ("International")
Keystone Precious Metals Holdings, Inc. ("Precious Metals")
Keystone Tax Free Fund ("Tax Free")
James P. Wallin
2500 Westchester Avenue
Purchase, New York 10577
September 4, 1997
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02110
Dear Sirs:
Evergreen Municipal Trust, a Massachusetts business trust (the "Fund"), is
filing with the Securities and Exchange Commission a Post-Effective Amendment to
its Registration Statement on Form N-1A (the "Amendment") for the purpose of
registering additional shares pursuant to Rule 24e-2 under the Investment
Company Act of 1940 (the "Rule"). The effect of the Amendment, when accompanied
by this Opinion, will be to register additional shares of beneficial interest of
the EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND series of the Fund (the
"Shares") in the amounts set forth on the facing page of the Amendment.
I have, as counsel, participated in various proceedings relating to the Fund and
to the Amendment. I have examined copies, either certified or otherwise proved
to our satisfaction to be genuine, of the Fund's Declaration of Trust, as now in
effect, the minutes of meetings of the Trustees of the Fund and other documents
relating to the organization and operation of the Fund. I have also reviewed the
form of the Amendment being filed by the Fund. I am generally familiar with the
business affairs of the Fund.
The Fund has advised me that the Shares will only be sold in the manner
contemplated by the prospectus of the Fund current at the time of sale, and that
the Shares will only be sold for a consideration not less than the net asset
value thereof as required by the Investment Company Act of 1940 and not less
than the par value thereof.
Based upon the foregoing, it is my opinion that the shares will be, when issued,
fully paid and non-assessable. However, I note that as set forth in the
Registration Statement, the Fund's shareholders might, under certain
circumstances, be liable for transactions effected by the Fund.
I hereby consent to the filing of this Opinion with the Securites and Exchange
Commission together with the Amendment, and to the filing of this Opinion under
the securities laws of any state.
I am a member of the Bar of the State of New York and do not hold myself out as
being conversant with the laws of any jurisdiction other than those of the
United States of America and the State of New York. I note that I am not
licensed to practice law in The Commonwealth of Massachusetts, and to the extent
that any opinion expressed herein involves the law of Massachusetts, such
opinion would be understood to be to be based solely upon my review of the
documents referred to above, the published statutes of that Commonwealth and,
where applicable, published cases, rules or regulations or regularly bodies of
that Commonwealth.
Very truly yours,
/s/ James P. Wallin
-------------------
James P. Wallin
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A (the "Registration
Statement") of our reports dated July 8, 1997, relating to the financial
statements and financial highlights appearing in the May 31, 1997 Annual Reports
to Shareholders of the Evergreen High Grade Tax Free Fund and the Evergreen
Short-Intermediate Municipal Fund, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Auditors" in the Prospectuses
and under the heading "Financial Statements" in the Statement of Additional
Information.
/s/Price Waterhouse LLP
New York, NY
September 2, 1997
A SHORT-INTERMEDIATE MUNI
PRICING DATE 05/31/97
..........
30 DAY YTM 3.74213%
..........
<TABLE>
....................... ...............................................
..........
<CAPTION>
PRICE ST VARIABLE ZERO COUPLONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
<S> <C> <C> <C> <C> <C> <C>
................................................................................
05/02/97 8,313.41 239.78 8,553.19 40.003,421
05/03/97 8,313.41 239.78 8,553.19 40.003,421
05/04/97 8,313.41 239.78 8,553.19 40.003,421
05/05/97 8,326.20 229.10 8,555.30 40.033,425
05/06/97 8,309.69 229.10 8,538.79 40.043,419
05/07/97 8,312.02 0.00 8,312.02 38.063,164
05/08/97 8,305.15 0.00 8,305.15 38.103,165
05/09/97 8,297.90 0.00 8,297.90 38.083,160
05/10/97 8,297.90 0.00 8,297.90 38.083,160
05/11/97 8,297.90 0.00 8,297.90 38.083,160
05/12/97 8,289.19 0.00 8,289.19 38.083,157
05/13/97 8,140.98 0.00 8,140.98 38.143,105
05/14/97 8,098.54 0.00 8,098.54 38.173,091
05/15/97 8,099.24 0.00 8,099.24 38.183,092
05/16/97 5,588.87 186.30 5,775.17 13.447 776
05/17/97 5,588.87 186.30 5,775.17 13.447 776
05/18/97 5,588.87 186.30 5,775.17 13.447 776
05/19/97 5,591.01 168.49 5,759.50 13.447 774
05/20/97 5,591.81 160.27 5,752.08 13.461 774
05/21/97 5,592.58 164.38 5,756.96 13.463 775
05/22/97 5,580.83 178.76 5,759.59 13.463 775
05/23/97 5,578.97 189.04 5,768.01 13.462 776
05/24/97 5,578.97 189.04 5,768.01 13.462 776
05/25/97 5,578.97 189.04 5,768.01 13.462 776
05/26/97 5,578.97 189.04 5,768.01 13.462 776
05/27/97 5,577.47 189.04 5,766.51 13.463 776
05/28/97 5,578.16 194.78 5,772.94 13.448 776
05/29/97 5,572.77 196.84 5,769.61 13.457 776
05/30/97 5,505.42 182.87 5,688.29 13.451 765
05/31/97 5,505.42 182.87 5,688.29 13.451 765
0.00 0.00 204,892.90 4,110.90 209,003.80 57,760
</TABLE>
TOTAL INCOME FOR PERIOD 57,760.95
TOTAL EXPENSES FOR PERIOD 10,442.52
AVERAGE SHARES OUTSTANDING 1,466,119.22
LAST PRICE DURING PERIOD 10.43
<TABLE>
.........................................................................
<CAPTION>
ADJ DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INC EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C>
........................................................................
.36 612.84 2,582,828.878 10.41 3,421.36 612.84 2,582,828.878
.36 612.84 2,582,828.878 10.41 6,842.72 1,225.67 5,165,657.756
.36 612.84 2,582,828.878 10.41 10,264.08 1,838.51 7,748,486.634
.45 613.01 2,582,813.822 10.41 13,689.53 2,451.52 10,331,300.456
.02 613.01 2,583,215.844 10.42 17,108.55 3,064.53 12,914,516.300
.08 565.97 2,384,105.349 10.42 20,272.63 3,630.50 15,298,621.649
.03 566.31 2,385,544.888 10.42 23,437.66 4,196.81 17,684,166.537
.46 566.43 2,385,544.888 10.42 26,598.12 4,763.24 20,069,711.425
.46 566.43 2,385,544.888 10.42 29,758.58 5,329.62 2,455,256.313
.46 566.43 2,385,544.888 10.42 32,919.04 5,896.09 24,840,801.201
.28 566.52 2,385,544.888 10.42 36,076.32 6,462.61 27,226,346.089
.44 566.66 2,385,549.848 10.43 39,181.76 7,029.27 29,611,895.937
.62 566.87 2,385,549.848 10.42 42,273.38 7,596.14 31,997,445.785
.74 566.42 2,385,549.848 10.42 45,366.12 8,162.56 34,382,995.633
.64 142.47 600,035.076 10.42 46,142.76 8,305.03 34,983,030.709
.64 142.47 600,035.076 10.42 46,919.40 8,447.50 35,583,065.785
.64 142.47 600,035.076 10.42 47,696.04 8,589.97 36,183,100.861
.50 142.48 600,035.076 10.42 48,470.54 8,732.45 36,783,135.937
.30 142.47 600,035.076 10.42 49,244.84 8,874.92 37,383,171.013
.11 142.46 600,035.076 10.42 50,019.95 9,017.38 37,983,206.089
.46 142.46 600,035.076 10.42 50,795.41 9,159.84 38,583,241.165
.51 142.51 600,035.076 10.42 51,571.92 9,302.35 39,183,276.241
.51 142.51 600,035.076 10.42 52,348.43 9,444.87 39,783,311.317
.51 142.51 600,035.076 10.42 53,124.94 9,587.38 40,383,346.393
.51 142.51 600,035.076 10.42 53,901.45 9,729.89 40,983,381.469
.40 142.52 600,035.076 10.42 54,677.85 9,872.41 41,583,416.545
.35 142.52 600,040.036 10.42 55,454.20 10,014.93 42,183,456.581
.45 142.53 600,040.036 10.42 56,230.65 10,157.46 42,783,496.617
.15 142.53 600,040.036 10.43 56,995.80 10,299.99 43,383,536.653
.15 142.53 600,040.036 10.43 57,760.95 10,442.52 43,983,576.689
.910,442.52 1,466,119.223
</TABLE>
B
PRICING DATE 05/31/97
...........
30 DAY YTM 2.93671%
...........
<TABLE>
<CAPTION>
................................................................................
PRICE ST VARIABLZERO COUPONLONG TERM AMORTIATION TOTAL
DATE INCOME AND DIV INC INCOME INCOME INCOME
<S> <C> <C> <C> <C> <C>
................................................................................
05/02/97 0.00 0.00 8,313.41 239.78 8,553.19
05/03/97 0.00 0.00 8,313.41 239.78 8,553.19
05/04/97 0.00 0.00 8,313.41 239.78 8,553.19
05/05/97 0.00 0.00 8,326.20 229.10 8,555.30
05/06/97 0.00 0.00 8,309.69 229.10 8,538.79
05/07/97 0.00 0.00 8,312.02 0.00 8,312.02
05/08/97 0.00 0.00 8,305.15 0.00 8,305.15
05/09/97 0.00 0.00 8,297.90 0.00 8,297.90
05/10/97 0.00 0.00 8,297.90 0.00 8,297.90
05/11/97 0.00 0.00 8,297.90 0.00 8,297.90
05/12/97 0.00 0.00 8,289.19 0.00 8,289.19
05/13/97 0.00 0.00 8,140.98 0.00 8,140.98
05/14/97 0.00 0.00 8,098.54 0.00 8,098.54
05/15/97 0.00 0.00 8,099.24 0.00 8,099.24
05/16/97 0.00 0.00 5,588.87 186.30 5,775.17
05/17/97 0.00 0.00 5,588.87 186.30 5,775.17
05/18/97 0.00 0.00 5,588.87 186.30 5,775.17
05/19/97 0.00 0.00 5,591.01 168.49 5,759.50
05/20/97 0.00 0.00 5,591.81 160.27 5,752.08
05/21/97 0.00 0.00 5,592.58 164.38 5,756.96
05/22/97 0.00 0.00 5,580.83 178.76 5,759.59
05/23/97 0.00 0.00 5,578.97 189.04 5,768.01
05/24/97 0.00 0.00 5,578.97 189.04 5,768.01
05/25/97 0.00 0.00 5,578.97 189.04 5,768.01
05/26/97 0.00 0.00 5,578.97 189.04 5,768.01
05/27/97 0.00 0.00 5,577.47 189.04 5,766.51
05/28/97 0.00 0.00 5,578.16 194.78 5,772.94
05/29/97 0.00 0.00 5,572.77 196.84 5,769.61
05/30/97 0.00 0.00 5,505.42 182.87 5,688.29
05/31/97 0.00 0.00 5,505.42 182.87 5,688.29
</TABLE>
TOTAL INCOME FOR PERIOD 26,250.15
TOTAL EXPENSES FOR PERIOD 9,779.30
AVERAGE SHARES OUTSTANDING 670,434.94
LAST PRICE DURING PERIOD 10.10
<TABLE>
<CAPTION>
.........................................................................................
DIV ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
FAC INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
................................................................................
10.514 889 6899.36 329.68 679,069.939 10.07 899.36 329.68 679,069.939
10.514 889 6899.36 329.68 679,069.939 10.07 1,798.72 659.36 1,358,139.878
10.514 889 6899.36 329.68 679,069.939 10.07 2,698.08 989.04 2,037,209.817
10.514 618 5899.56 329.46 678,402.506 10.07 3,597.64 1,318.50 2,715,612.323
10.513 469 1897.72 329.39 678,417.401 10.07 4,495.36 1,647.89 3,394,029.724
10.829 722 9900.17 329.51 678,417.401 10.07 5,395.53 1,977.40 4,072,447.125
10.835 363 0899.89 329.53 678,417.401 10.08 6,295.42 2,306.93 4,750,864.526
10.829 177 5898.59 329.59 678,417.401 10.08 7,194.01 2,636.52 5,429,281.927
10.829 177 5898.59 329.59 678,417.401 10.08 8,092.60 2,966.11 6,107,699.328
10.829 177 5898.59 329.59 678,417.401 10.08 8,991.19 3,295.70 6,786,116.729
10.829 588 7897.69 329.64 678,417.401 10.08 9,888.88 3,625.34 7,464,534.130
10.685 869 9869.93 324.88 668,421.840 10.08 10,758.81 3,950.22 8,132,955.970
10.694 067 3866.06 324.97 668,421.840 10.09 11,624.87 4,275.19 8,801,377.810
10.697 180 5866.39 324.73 667,470.879 10.09 12,491.26 4,599.92 9,468,848.689
14.981 104 6865.18 324.81 667,635.234 10.09 13,356.44 4,924.73 10,136,483.923
14.981 104 6865.18 324.81 667,635.234 10.09 14,221.62 5,249.54 10,804,119.157
14.981 104 6865.18 324.81 667,635.234 10.09 15,086.80 5,574.35 11,471,754.391
14.980 461 0862.80 324.83 667,635.234 10.09 15,949.60 5,899.18 12,139,389.625
14.940 102 3859.37 323.58 665,147.666 10.09 16,808.97 6,222.76 12,804,537.291
14.943 018 2860.26 323.57 665,147.666 10.09 17,669.23 6,546.33 13,469,684.957
14.943 018 2860.66 323.56 665,147.666 10.09 18,529.89 6,869.89 14,134,832.623
14.941 363 9861.82 323.70 665,147.666 10.09 19,391.71 7,193.59 14,799,980.289
14.941 363 9861.82 323.70 665,147.666 10.09 20,253.53 7,517.28 15,465,127.955
14.941 363 9861.82 323.70 665,147.666 10.09 21,115.35 7,840.98 16,130,275.621
14.941 363 9861.82 323.70 665,147.666 10.09 21,977.17 8,164.67 16,795,423.287
14.884 395 3858.31 322.46 662,533.911 10.09 22,835.48 8,487.13 17,457,957.198
14.866 725 1858.25 322.44 662,533.911 10.09 23,693.73 8,809.57 18,120,491.109
14.877 208 0858.36 322.43 662,533.911 10.09 24,552.09 9,132.00 18,783,025.020
14.926 004 2849.03 323.65 665,011.611 10.10 25,401.12 9,455.65 19,448,036.631
14.926 004 2849.03 323.65 665,011.611 10.10 26,250.15 9,779.30 20,113,048.242
</TABLE>
Y
PRICING DATE 05/31/97
...........
30 DAY YTM 3.93379%
...........
<TABLE>
<CAPTION>
...................................................................................
PRICE ST FIXED ZERO COUPONLONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
<S> <C> <C> <C> <C> <C> <C>
...................................................................................
05/02/97 0.00 0.00 8,313.41 239.78 8,553.19 49.484,23
05/03/97 0.00 0.00 8,313.41 239.78 8,553.19 49.484,23
05/04/97 0.00 0.00 8,313.41 239.78 8,553.19 49.484,23
05/05/97 0.00 0.00 8,326.20 229.10 8,555.30 49.444,23
05/06/97 0.00 0.00 8,309.69 229.10 8,538.79 49.444,22
05/07/97 0.00 0.00 8,312.02 0.00 8,312.02 51.104,24
05/08/97 0.00 0.00 8,305.15 0.00 8,305.15 51.054,24
05/09/97 0.00 0.00 8,297.90 0.00 8,297.90 51.084,23
05/10/97 0.00 0.00 8,297.90 0.00 8,297.90 51.084,23
05/11/97 0.00 0.00 8,297.90 0.00 8,297.90 51.084,23
05/12/97 0.00 0.00 8,289.19 0.00 8,289.19 51.084,23
05/13/97 0.00 0.00 8,140.98 0.00 8,140.98 51.164,16
05/14/97 0.00 0.00 8,098.54 0.00 8,098.54 51.134,14
05/15/97 0.00 0.00 8,099.24 0.00 8,099.24 51.114,14
05/16/97 0.00 0.00 5,588.87 186.30 5,775.17 71.574,13
05/17/97 0.00 0.00 5,588.87 186.30 5,775.17 71.574,13
05/18/97 0.00 0.00 5,588.87 186.30 5,775.17 71.574,13
05/19/97 0.00 0.00 5,591.01 168.49 5,759.50 71.574,12
05/20/97 0.00 0.00 5,591.81 160.27 5,752.08 71.594,11
05/21/97 0.00 0.00 5,592.58 164.38 5,756.96 71.594,12
05/22/97 0.00 0.00 5,580.83 178.76 5,759.59 71.594,12
05/23/97 0.00 0.00 5,578.97 189.04 5,768.01 71.594,12
05/24/97 0.00 0.00 5,578.97 189.04 5,768.01 71.594,12
05/25/97 0.00 0.00 5,578.97 189.04 5,768.01 71.594,12
05/26/97 0.00 0.00 5,578.97 189.04 5,768.01 71.594,12
05/27/97 0.00 0.00 5,577.47 189.04 5,766.51 71.654,13
05/28/97 0.00 0.00 5,578.16 194.78 5,772.94 71.684,13
05/29/97 0.00 0.00 5,572.77 196.84 5,769.61 71.664,13
05/30/97 0.00 0.00 5,505.42 182.87 5,688.29 71.624,07
05/31/97 0.00 0.00 5,505.42 182.87 5,688.29 71.624,07
0.00 0.00 204,892.90 4,110.90 209,003.80
</TABLE>
TOTAL INCOME FOR PERIOD 124,992.62
TOTAL EXPENSES FOR PERIOD 20,109.71
AVERAGE SHARES OUTSTANDING 3,193,628.51
LAST PRICE DURING PERIOD 10.10
<TABLE>
<CAPTION>
..............................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATE
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C>
.....................................................................
4,232.47 669.97 3,196,754.771 10.07 4,232.47 669.97 3,196,754.771
4,232.47 669.97 3,196,754.771 10.07 8,464.94 1,339.94 6,393,509.542
4,232.47 669.97 3,196,754.771 10.07 12,697.41 2,009.91 9,590,264.313
4,230.29 669.01 3,191,274.662 10.07 16,927.70 2,678.92 12,781,538.975
4,222.04 668.95 3,191,630.497 10.07 21,149.74 3,347.87 15,973,169.472
4,247.77 671.47 3,202,355.423 10.07 25,397.51 4,019.34 19,175,524.895
4,240.23 670.48 3,197,653.337 10.07 29,637.74 4,689.82 22,373,178.232
4,238.84 671.35 3,201,228.312 10.07 33,876.58 5,361.17 25,574,406.544
4,238.84 671.35 3,201,228.312 10.07 38,115.42 6,032.52 8,775,634.856
4,238.84 671.35 3,201,228.312 10.07 42,354.26 6,703.83 1,976,863.168
4,234.22 671.43 3,200,951.438 10.08 46,588.48 7,375.31 35,177,814.606
4,165.60 671.77 3,201,655.804 10.08 50,754.08 8,047.08 38,379,470.410
4,140.85 670.93 3,196,859.381 10.09 54,894.93 8,718.01 41,576,329.791
4,140.11 670.08 3,190,534.700 10.09 59,035.04 9,388.09 44,766,864.491
4,133.35 670.07 3,190,549.567 10.09 63,168.39 10,058.16 47,957,414.058
4,133.35 670.07 3,190,549.567 10.09 67,301.74 10,728.24 51,147,963.625
4,133.35 670.07 3,190,549.567 10.09 71,435.09 11,398.31 54,338,513.192
4,122.20 670.15 3,190,737.872 10.09 75,557.29 12,068.46 57,529,251.064
4,188.41 669.65 3,188,616.996 10.09 79,675.70 12,738.11 60,717,868.060
4,121.59 669.46 3,187,744.846 10.09 83,797.29 13,407.57 63,905,612.906
4,123.47 669.45 3,187,744.846 10.09 87,920.76 14,077.02 67,093,357.752
4,129.68 669.78 3,188,240.386 10.09 92,050.44 14,746.80 70,281,598.138
4,129.68 669.78 3,188,240.386 10.09 96,180.12 15,416.58 73,469,838.524
4,129.68 669.78 3,188,240.386 10.09 100,309.80 16,086.36 76,658,078.910
4,129.68 669.78 3,188,240.386 10.09 104,439.48 16,756.14 79,846,319.296
4,131.80 670.29 3,190,332.784 10.09 108,571.28 17,426.43 83,036,652.080
4,138.34 671.34 3,195,624.518 10.09 112,709.62 18,097.77 86,232,276.598
4,134.80 670.66 3,192,485.997 10.09 116,844.42 18,768.43 89,424,762.595
4,074.10 670.64 3,192,046.415 10.10 120,918.52 19,439.07 92,616,809.010
4,074.10 670.64 3,192,046.415 10.10 124,992.62 20,109.71 95,808,855.425
124,992.62 20,109.71 3,193,628.514
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNI
967.50
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
A NAV A A
TIME ACCOUNT A AVERAGE A/C VALUE A AVERAGE
PERIOD VALUE CLASS ANNNUAL W/LOAD CLASS ANNNUAL
- ----------------------------------------------------------------------------------------------------
BLANK 1,120.19 0.00% 967.50 -3.25% -3.25%
9 MO 1,086.77 3.08% 3.08% 997.30 -0.27% -0.27%
QTR 1,119.25 0.08% 0.08% 968.31 -3.17% -3.17%
YTD 1,109.53 0.96% 0.96% 976.79 -2.32% -2.32%
1 1,073.90 4.31% 4.31% 1,009.20 0.92% 0.92%
3 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 12.02% 4.83% 1,083.78 8.38% 3.40%
INCEPTION FACTOR: 2.4055
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,000
B NAV LEVEL VALUE OF VALUE OF
TIME ACCOUNT B AVERAGE LOAD CLASS B CLASS B INIT. B AVERAGE
PERIOD VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- -----------------------------------------------------------------------------------------------------------------------------
BLANK 1,097.59 0.00% 50.000 1,000.00 1,000.00 0.00%
9 MO 1,070.91 2.49% 2.49% 50.000 1,024.91 1,001.98 -2.51% -2.51%
QTR 1,098.04 -0.04% -0.04% 49.607 999.59 992.14 -5.00% -5.00%
YTD 1,090.14 0.68% 0.68% 49.705 1,006.84 994.09 -4.29% -4.29%
1 1,060.62 3.49% 3.49% 50.000 1,034.86 1,003.98 -1.51% -1.51%
3 0.00 #VALUE! #VALUE! 29.619 #VALUE! 987.29 #VALUE! #VALUE!
5 0.00 #VALUE! #VALUE! 20.000 #VALUE! 4,950.98 #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 9.76% 3.95%30.000 1,097.59 1,013.04 6.76% 2.76%
INCEPTION FACTOR: 2.4055
</TABLE>
Y
ACCOUNT Y AVERAGE
VALUE CLASS ANNNUAL
- -----------------------------------------------------------------------
31-May-97BLANK 1,302.39 0.00%
31-Aug-96 9 MO 1,260.11 3.36% 3.36%
28-Feb-97 QTR 1,298.41 0.31% 0.31%
31-Dec-96 YTD 1,286.92 1.20% 1.20%
31-May-96 1 1,244.87 4.62% 4.62%
31-May-94 3 1,159.43 12.33% 3.95%
31-May-92 5 1,048.10 24.26% 4.44%
31-May-87 10 0.00 #VALUE! #VALUE!
18-Nov-9INCEPT. 1,000.00 30.24% 4.88%
INCEPTION FACTOR: 5.5397
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 44,806,201
<INVESTMENTS-AT-VALUE> 45,244,479
<RECEIVABLES> 878,673
<ASSETS-OTHER> 97,050
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,220,202
<PAYABLE-FOR-SECURITIES> 1,008,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,041
<TOTAL-LIABILITIES> 1,113,601
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,910,978
<SHARES-COMMON-STOCK> 601,763
<SHARES-COMMON-PRIOR> 2,750,830
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 48,833
<ACCUM-APPREC-OR-DEPREC> 112,441
<NET-ASSETS> 6,072,252
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 916,034
<OTHER-INCOME> 0
<EXPENSES-NET> (160,096)
<NET-INVESTMENT-INCOME> 755,938
<REALIZED-GAINS-CURRENT> 25,961
<APPREC-INCREASE-CURRENT> 1,345
<NET-CHANGE-FROM-OPS> 783,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (755,942)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 182,673
<NUMBER-OF-SHARES-REDEEMED> (2,348,922)
<SHARES-REINVESTED> 17,182
<NET-CHANGE-IN-ASSETS> (21,649,553)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (95,964)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (160,096)
<AVERAGE-NET-ASSETS> 25,660,699
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 44,806,201
<INVESTMENTS-AT-VALUE> 45,244,479
<RECEIVABLES> 878,673
<ASSETS-OTHER> 97,050
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,220,202
<PAYABLE-FOR-SECURITIES> 1,008,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,041
<TOTAL-LIABILITIES> 1,113,601
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,731,133
<SHARES-COMMON-STOCK> 667,292
<SHARES-COMMON-PRIOR> 735,765
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,293)
<NET-ASSETS> 6,741,654
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 251,145
<OTHER-INCOME> 0
<EXPENSES-NET> (91,167)
<NET-INVESTMENT-INCOME> 159,978
<REALIZED-GAINS-CURRENT> (1,355)
<APPREC-INCREASE-CURRENT> 21,315
<NET-CHANGE-FROM-OPS> 179,938
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (159,979)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 144,261
<NUMBER-OF-SHARES-REDEEMED> (224,553)
<SHARES-REINVESTED> 11,819
<NET-CHANGE-IN-ASSETS> (671,503)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (26,292)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (91,167)
<AVERAGE-NET-ASSETS> 7,030,597
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND CLASS T
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 44,806,201
<INVESTMENTS-AT-VALUE> 45,244,479
<RECEIVABLES> 878,673
<ASSETS-OTHER> 97,050
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,220,202
<PAYABLE-FOR-SECURITIES> 1,008,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,041
<TOTAL-LIABILITIES> 1,113,601
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,707,978
<SHARES-COMMON-STOCK> 3,197,322
<SHARES-COMMON-PRIOR> 3,464,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (747,413)
<ACCUM-APPREC-OR-DEPREC> 332,130
<NET-ASSETS> 32,292,695
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,205,974
<OTHER-INCOME> 0
<EXPENSES-NET> (185,613)
<NET-INVESTMENT-INCOME> 1,020,361
<REALIZED-GAINS-CURRENT> (5,666)
<APPREC-INCREASE-CURRENT> 116,964
<NET-CHANGE-FROM-OPS> 1,131,659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,020,356)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 600,756
<NUMBER-OF-SHARES-REDEEMED> (934,601)
<SHARES-REINVESTED> 67,156
<NET-CHANGE-IN-ASSETS> (2,599,821)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (126,308)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (185,613)
<AVERAGE-NET-ASSETS> 33,774,637
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
