SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 [X]
MENTOR FUNDS
(Reserve Money Market Funds)
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] 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
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
MENTOR FUNDS
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 2 to Registrant's Registration Statement
No. 333-82853 and 811-06555 consists of the following pages, items of
information and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for Evergreen Reserve Money Market Fund
(formerly Mentor Money Market Portfolio)
Evergreen Reserve U.S. Government Money Market Fund
(formerly Mentor U.S. Government Money Market Portfolio)
Evergreen Reserve Tax-Exempt Money Market Fund
(formerly Mentor Tax-Exempt Money Markt Portfolio)
is contained herein.
PART B
------
Statement of Additional Information for Evergreen Reserve Money Market Fund
(formerly Mentor Money Market Portfolio)
Evergreen Reserve U.S. Government Money Market Fund
(formerly Mentor U.S. Government Money Market Portfolio)
Evergreen Reserve Tax-Exempt Money Market Fund
(formerly Mentor Tax-Exempt Money Market Portfolio)
is contained herein.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
RESERVE MONEY MARKET FUNDS
PART A
PROSPECTUS
<PAGE>
Evergreen
Reserve Money Market Funds
Evergreen Reserve Money Market Fund (Formerly Mentor Money Market Portfolio)
Evergreen Reserve U.S. Government Money Market Fund (Formerly Mentor U.S.
Government Money Market Portfolio)
Evergreen Reserve Tax-Exempt Money Market Fund (Formerly Mentor Tax-Exempt
Money Market Fund)
Retail shares
Institutional shares
Prospectus, February 1, 2000
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
1
<PAGE>
FUND RISK/RETURN SUMMARIES:
Overview of Fund Risks 1
Evergreen Reserve Money Market Fund 2
Evergreen Reserve U.S. Government Money
Market Fund 4
Evergreen Reserve Tax-Exempt Money Market Fund 6
GENERAL INFORMATION:
The Funds' Investment Advisor 8
Calculating the Share Price 8
How to Choose an Evergreen Fund 9
How to Choose the Share Class That Best Suits You 8
How to Buy Shares 10
How to Redeem
Shares 11
Other Services 12
The Tax Consequences of Investing in the Funds 12
Fees and Expenses of the Funds 13
Financial Highlights 15
Other Fund Practices 16
In general, Funds included in this prospectus seek to provide investors with a
high rate of current income consistent with preservation of capital and
maintenance of liquidity and, in the case of Evergreen Reserve Tax-Exempt Money
Market Fund, such income will be exempt from federal income tax.
Fund Summaries Key
Each Fund's summary is organized around the following basic topics and
questions:
Investment Goal
What is the Fund's financial objective? You can find clarification on how the
Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
Investment Strategy
How does the Fund go about trying to meet its goals? What types of investments
does it contain? What style of investing and investment philosophy does it
follow? Does it have limits on the amount invested in any particular type of
security?
Risk Factors
What are the specific risks for an investor in the Fund?
Performance
How well has the Fund performed in the past year? The past five years? The past
ten years?
Expenses
How much does it cost to invest in the Fund? What is the difference between
sales charges and expenses?
<PAGE>
Reserve Money Market Funds
typically rely on a combination of the following strategies:
o maintaining $1.00 per share net asset value;
o investing primarily in U.S. dollar-denominated high quality securities and
other U.S. dollar-denominated money market instruments meeting credit
criteria which the Fund's investment advisor believes present minimal
credit risk.
o investing in high quality, short-term money market instruments including
U.S. government securities;
o maintaining a dollar-weighted average maturity of 90 days or less and will
not invest in securities with remaining maturities of more than 397 days;
and
o selling a portfolio investment when the investment no longer appears to
meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the portfolio manager
deems necessary.
may be appropriate for investors who:
o are seeking current income consistent with preservation of capital and
maintenance of liquidity.
o are seeking a conservative investment offering maximum liquidity combined
with competitive yields and a portfolio consisting of only the highest
quality, most liquid short-term securities.
Following this overview, you will find information on each Money Market Fund's
specific investment strategies and risks.
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
o not guaranteed to achieve their investment goal
o not a deposit with a bank
o not insured, endorsed or guaranteed by the FDIC or any government agency
o subject to investment risks, including possible loss of your original
investment
Although the Reserve Money Market Funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Funds.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following this
overview:
Interest Rate Risk
When interest rates go up, the value of debt securities and certain
dividend-paying stocks tends to fall. If your Fund invests a significant portion
of its portfolio in debt securities or stocks purchased primarily for dividend
income and, if interest rates rise, then the value of your investment may
decline. When interest rates go down, interest earned by your Fund on its
investments may also decline, which could cause the Fund to reduce the dividends
it pays.
Credit Risk
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. If your Fund invests in debt
securities, then the value of and total return earned on your investment may
decline if an issuer fails to pay an obligation on a timely basis.
<PAGE>
FUND FACTS:
Goals:
o High Current Income
o Maintain Liquidity
o Preservation of Capital
Principal Investment:
o High Quality Short-Term Instruments
Classes of Shares Offered in this Prospectus:
o Retail shares
o Institutional shares
Investment Advisor:
o Mentor Investment Advisors, LLC
NASDAQ Symbol:
o None
Dividend Payment Schedule:
o Monthly
Reserve Money Market Fund
investment Goal
The Fund seeks as high a rate of current income as the investment advisor
believes is consistent with preservation of capital and maintenance of
liquidity.
investment Strategy
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund will invest in high quality, short-term instruments consisting of any
or all of the following: U.S. Government securities, bankers' acceptances, prime
commercial paper, repurchase agreements and other short-term obligations of
corporate issuers.
The Fund primarily invests in U.S. dollar-denominated high quality securities
and other U.S. dollar-denominated money market instruments meeting credit
criteria which the Fund's investment advisor believes present minimal credit
risk. "High quality securities," in the case of the Money Market Funds, are (i)
commercial paper or other short-term obligations rated A-1 by Standard & Poor's
Ratings Services ("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's")
and (ii) obligations rated AAA or AA by S&P and Aaa or Aa by Moody's at the time
of investment.
The Fund may invest in obligations of foreign issuers and in bank certificates
of deposit and bankers' acceptances payable in U.S. dollars and issued by
foreign banks (including U.S. branches of foreign banks) or by foreign branches
of U.S. banks.
Risk Factors
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
If your Fund invests in non-U.S. securities it could be exposed to certain
unique risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. Certain foreign countries have less developed and
less regulated securities markets and accounting systems than the U.S. This may
make it harder to get accurate information about a security or company, and
increase the likelihood that an investment will not perform as well as expected.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
Performance
The following charts show how the Fund has performed in the past. Past
performance is not an indication of future results.
The chart below shows the percentage gain or loss for Institutional shares of
the Fund in each calendar year since its inception on 11/19/1997. It should give
you a general idea of how the Fund's return has varied from year-to-year. This
graph includes the effects of Fund expenses.
Year-by-Year Total Return for Institutional Shares (%)
1998 1999
5.39%
Best Quarter: 3rd Quarter 1998 1.35%
Worst Quarter: 1st Quarter 1999 1.15%
This next table lists the Fund's average annual total return by class over the
past year and since inception (through 12/31/1999). This table is intended to
provide you with some indication of the risks of investing in the Fund.
Average Annual Total Return
(for the period ended 12/31/1999)*
Inception Performance
Date of Class 1 year 5 year 10 year Since
11/19/1997
Retail shares 10/15/1998 % NA NA %
Institutional 11/19/1997 % NA NA %
shares
*Historical performance shown for the Retail shares prior to its inception is
based on the performance of the Institutional shares, the original class
offered. These historical returns for the Retail shares have not been adjusted
to reflect the effect of the Class' 0.38% 12b-1 fee. The Institutional shares do
not pay a 12b-1 fee. If these fees had been reflected, returns would have been
lower.
To obtain current yield information call 1-800-343-2898.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) +
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Retail shares 0.17% 0.38% 0.27% 0.82%
Institutional 0.17% 0.00% 0.10% 0.27%
Shares
+ Restated to reflect current fees for the fiscal year ended 9/30/1999.
The table below shows the total expenses you would pay on a $10,000 investment
over one and three year periods. The example is intended to help you compare the
cost of investing in this Fund versus other mutual funds and is for illustration
only. The example assumes a 5% average annual return and that you reinvest all
of your dividends. Your actual costs may be higher or lower.
Example of Fund Expenses
Assuming Redemption at
End of Period
After: Retail shares Institutional shares
1 year $ 84 $ 28
3 years $ 262 $ 87
5 years $ 455 $ 152
10 years $ 1,014 $ 343
<PAGE>
FUND FACTS:
Goals:
o High Current Income
o Maintain Liquidity
o Preservation of Capital
Principal Investment:
o U.S. Government Securities
Classes of Shares Offered in this Prospectus:
o Retail shares
o Institutional shares
Investment Advisor:
o Mentor Investment Advisors, LLC
NASDAQ Symbol:
o None
Dividend Payment Schedule:
o Monthly
Reserve U.S. Government Money Market
Fund
investment Goal
The Fund seeks as high a rate of current income as is consistent with
preservation of capital and maintenance of liquidity .
investment Strategy
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund invests exclusively in short-term obligations of the U.S. Government,
its agencies, or instrumentalities and repurchase agreements with respect to
such obligations. Short-term U.S. Government obligations generally are
considered among the safest short-term investments. Because of their added
safety, the yields available from U.S. Government obligations are generally
lower than the yields available from comparable corporate debt securities. The
U.S. Government guarantee of securities owned by the Fund does not guarantee the
net asset value of the Fund's shares, which the Fund seeks to maintain at $1.00
per share.
Risk Factors
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
o Interest Rate Risk
o Credit Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
Performance
The following charts show how the Fund has performed in the past. Past
performance is not an indication of future results.
The chart below shows the percentage gain or loss for Institutional shares of
the Fund in each calendar year since inception. It should give you a general
idea of how the Fund's return has varied from year-to-year. This graph includes
the effects of Fund expenses.
Year-by-Year Total Return for Institutional Shares (%)
1998 1999
5.28%
Best Quarter: 1st Quarter 1999 1.35%
Worst Quarter: 4th Quarter 1997 1.14%
This next table lists the Fund's average annual total return by class over the
past year and since inception (through 12/31/1999). This table is intended to
provide you with some indication of the risks of investing in the Fund.
Average Annual Total Return
(for the period ended 12/31/1999)*
Inception Performance Since
Date of Class 1 year 5 year 10 year 11/19/1997
Retail shares 10/15/1998 % N/A N/A %
Institutional 6/27/1997 % N/A N/A %
shares
* Historical performance shown for the Retail shares prior to its inception is
based on the performance of the Institutional shares, the original class
offered. These historical returns for the Retail shares have not been adjusted
to reflect the effect of the Class' 0.38% 12b-1 fee. The Institutional shares do
not pay a 12b-1 fee. If these fees had been reflected, returns would have been
lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Retail shares 0.17% 0.38% 0.26% 0.81%
Institutional 0.17% 0.00% 0.11% 0.28%
shares
+Restated to reflect current fees for the fiscal year ended 9/30/1999.
The table below shows the total expenses you would pay on a $10,000 investment
over one and three year periods. The example is intended to help you compare the
cost of investing in this Fund versus other mutual funds and is for illustration
only. The example assumes a 5% average annual return and that you reinvest all
of your dividends. Your actual costs may be higher or lower.
Example of Fund Expenses
Assuming Redemption at
End of Period
After: Retail shares Institutional shares
1 year $ 83 $ 29
3 years $ 259 $ 90
5 years $ 450 $ 157
10 years $ 1,002 $ 356
<PAGE>
FUND FACTS:
Goals:
o High Current Income Exempt from Federal Income Tax
o Maintain Liquidity
o Preservation of Capital
Principal Investment:
o Tax-Exempt Securities
Class of Shares
Offered in this
Prospectus:
o Retail shares
Investment Advisor:
o Mentor Investment Advisors, LLC
NASDAQ Symbol:
o None
Dividend Payment Schedule:
o Monthly
Reserve Tax-Exempt Money Market Fund
investment Goal
The Fund seeks as high a rate of current income exempt from federal income tax
as the investment advisor believes is consistent with preservation of capital
and maintenance of liquidity.
investment Strategy
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund invests, as a fundamental policy, at least 80% of its net assets in
tax-exempt securities such as: municipal notes, municipal bonds, municipal
securities backed by the U.S. government or any of its agencies or
instrumentalities and tax-exempt commercial paper.
Tax-exempt securities are debt obligations issued by a state (including the
District of Columbia), a U.S. territory or possession, or any of their political
subdivisions, the interest from which is, in the opinion of bond counsel, exempt
from federal income tax including the alternative minimum tax. The two principal
classifications of tax-exempt securities are general obligation and special
obligation (or revenue) securities. General obligation securities involve the
credit of an issuer possessing taxing power and are payable from the issuer's
general unrestricted revenues. Special obligations are payable only from the
revenues derived from a particular facility or class of facilities, or a
specific revenue source and generally are not payable from the unrestricted
revenues of the issuer.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return and
loss of market opportunity.
Risk Factors
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
o Interest Risk
o Credit Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how the Fund has performed in the past. Past
performance is not an indication of future results.
The chart below shows the percentage gain or loss for Retail shares of the Fund
in each calendar year since inception on 10/16/1998. It should give you a
general idea of how the Fund's return has varied from year-to-year. This graph
includes the effects of Fund expenses.
Year-by-Year Total Return for Retail Shares (%)
1998 1999
N/A
Best Quarter: 3rd Quarter 1999 0.64%
Worst Quarter: 1st Quarter 1999 0.56%
This next table lists the Fund's average annual total return by class over the
past year and since inception (through 12/31/1999). This table is intended to
provide you with some indication of the risks of investing in the Fund.
Average Annual Total Return
(for the period ended 12/31/1999)*
Inception Performance Since
Date of Class 1 year 5 year 10 year 10/16/1998
Retail shares 10/16/1998 NA NA NA %
To obtain current yield information call 1-800-343-2898.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Retail shares0.21% 0.33% 0.20% 0.74%
The table below shows the total expenses you would pay on a $10,000 investment
over one and three year periods. The example is intended to help you compare the
cost of investing in this Fund versus other mutual funds and is for illustration
only. The example assumes a 5% average annual return and that you reinvest all
of your dividends. Your actual costs may be higher or lower.
Example of Fund Expenses
Assuming Redemption at
End of Period
After: Retail shares
1 year $ 76
3 years $ 237
5 years $ 411
10 years $ 918
<PAGE>
The Funds' Investment Advisor
The investment advisor manages a Fund's investments and supervises its daily
business affairs. There is one investment advisor for the Evergreen Reserve
Money Market Funds. All investment advisors for the Evergreen Funds are
subsidiaries of First Union Corporation, the sixth largest bank holding company
in the United States, with over $XXX billion in consolidated assets of X/X/1999.
First Union Corporation is located at 301 South College Street, Charlotte, North
Carolina 28288-0013.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment advisor to
the Funds.
Mentor Advisors currently serves as investment advisor to ____ Evergreen Funds
and currently has over $15 billion in assets under management. Mentor Advisors
is located at 901 East Byrd Street, Richmond, Virginia 23219.
For the fiscal year ended 9/30/1999, the aggregate advisory fee paid to Mentor
Advisors by the Funds were as follows:
% of the Fund's average
Fund daily net assets
Reserve Money Fund 0.17%
Reserve U.S. Government Fund 0.17%
Reserve Tax-Exempt Fund 0.21%
Calculating The Share Price
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated twice daily on each day the New York Stock Exchange is open at 12
noon (Eastern time) and as of the time the Exchange closes (normally 4 p.m.
Eastern time). The Fund calculates its share price for each share by adding up
its total assets, subtracting all liabilities, then dividing the result by the
total number of shares outstanding. Each class of shares is calculated
separately. Each security held by a Fund is valued on an amortized cost basis
according to Rule 2a-7 under the Investment Company Act of 1940. Under this
method of valuation, a security is initially valued at its acquisition cost, and
thereafter a constant straightline amortization of any discount or premium is
assumed each day regardless of the impact of fluctuating interest rates on the
market value of the security.
The price per share for a Fund purchase or the amount received for a Fund
redemption is based on the next price calculated after the order is received and
all required information is provided. The value of your account at any given
time is the lates share price multiplied by the number of shares you own.
How To Choose AN EVERGREEN Fund
When choosing an Evergreen Fund, you should:
o Most importantly, read the prospectus to see if the Fund is suitable
for you.
o Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading
the Fund's prospectus.
He or she can also assist you through all phases of opening your account.
o Request any additional information you want about the Fund, such as the
Statement of Additional Information, Annual Report or Semi-annual Report by
calling 1-800-343-2898. In addition, any of these documents, with the
exception of the SAI, may be downloaded off our website at
www.evergreen-funds.com.
How To Choose The Share
Class That Best Suits You
After choosing a Fund, you select a share class. Each Funds in this prospectus
offers up to two different share classes: Retail and Institutional shares. Pay
particularly close attention to the fee structure of each class so you know how
much you will be paying before you invest.
Retail shares
Each Fund offers Class Retail shares at net asset value without an initial sales
charge or deferred sales charge. Class Retail shares are subject to 12b-1 fees.
There is no minimum investment required.
Institutional shares
Each Fund (except Reserve Tax-Exempt Money Market Fund) offers Class
Institutional shares at net asset value without an initial sales charge,
deferred sales charge or 12b-1 fees. Investors will be required to make minimum
initial investments of $500,000 and minimum subsequent investments of $25,000.
Investments made through advisory accounts maintained with investment advisers
registered under the Investment Advisors Act of 1940, as amended (including
"wrap" accounts), are not subject to these minimum investment requirements. The
Portfolios reserve the right at any time to change the initial and subsequent
investment minimums required of investors.
<PAGE>
How To Buy Shares
Once you decide on an amount and a share class, simply fill out an application
and send in your payment, or talk to your investment professional.
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<S> <C> <C>
By Mail or through o Complete and sign the account application. o Make your check payable to
an Investment o Make the check payable to Evergreen Funds. Evergreen Funds.
Professional o Mail the application and your check to the address o Write a note specifying:
below: - The Fund name
Evergreen Service Company Overnight Address: - Share class
P.O. Box 2121 Evergreen Service Company - Your account number
Boston, MA 02106-2121 200 Berkeley Street - The name(s) in which the account is
Boston, MA 02106-2121 Boston, MA 02116-5039 registered.
o Mail to the address to the left or
o Or deliver them to your investment
o Or deliver them to your investment representative representative
(provided he or she has a broker/dealer arrangement with EDI).
By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express Line at
and get wiring instructions (call before 12 noon if 1-800-346-3858 24 hours a day or
you want wired funds to be credited that day). 1-800-343-2898 between 8 a.m. and 6
o Instruct your bank to wire or transfer your p.m. Eastern time, on any business
purchase (they may charge a wiring fee). day.
o Complete the account application and mail to: o If your bank account is set up on
Evergreen Service Company Overnight Address: file, you can request either:
P.O. Box 2121 Evergreen Service Company - Federal Funds Wire (offers
Service Company 200 Berkeley Street immediate access to funds) or
Boston, MA 02106-2121 Boston, MA 02116-5039 - Electronic transfer through the
Automated Clearing House which avoids
wiring fees.
o Wires received after 4 p.m. Eastern time on market
trading days will receive the next market day's
closing price.*
By Exchange o You can make an additional investment by
exchange from an existing Evergreen Fund's account
by contacting your investment representative or
calling the Evergreen Express Line at
1-800-346-3858.**
o You can only exchange shares within the same class.
o There is no sales charge or redemption fee when exchanging Funds within the Evergreen Funds
family.***
o Orders placed before 4 p.m. Eastern time on market
trading days will receive that day's closing share
price (if not, you will receive the next market
day's closing price).*
o Exchanges are limited to three per calendar quarter,
but in no event more than five per calendar year.
o Exchanges between accounts which do not have
identical ownership must be made in writing with a
signature guarantee (see below).
Systematic o You can transfer money automatically from your bank account
Investment Plan into your Fund on a monthly basis.
(SIP) o Initial investment minimum is $50 if you invest at least $25
(Retail shares per month with this service.
Only) o To enroll, check off the box on the account application and
provide:
- Your bank account information
- The amount and date of your monthly investment.
</TABLE>
* The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with EDI.
The Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the required
account information (including your broker) can request a telephone transaction
in your account. All calls are recorded or monitored for verification,
recordkeeping and quality-assurance purposes. The Evergreen Funds reserve the
right to terminate the exchange privilege of any shareholder who exceeds the
listed maximum number of exchanges, as well as to reject any large dollar
exchange if placing it would, in the judgment of the portfolio manager,
adversely affect the price of the Fund.
*** This does not apply to exchanges from Class A shares of an Evergreen
Money Market Fund.
How To Redeem Shares
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
Methods Requirements
<S> <C>
Call Us o Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-2898 between 8 a.m.
and 6 p.m. Eastern time, on any business day.
o This service must be authorized ahead of time, and is only
available for regular accounts.**
o All authorized requests made before 4 p.m. Eastern time on market trading days will be
processed at that day's closing price. Requests after 4 p.m. will be processed the following business day.*
o We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank
account via the Automated Clearing House service
- mail you a check.
o All telephone calls are recorded for your protection. We are not responsible for acting on telephone orders
we believe are genuine.
o See exceptions list below for requests that must be made in writing.
Write Us o You can mail a redemption request to: Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116-5039
o Your letter of instructions must:
- list the Fund name and the account number
- indicate the number of shares or dollar value you wish to redeem - be signed by the registered owner(s).
o See exceptions list below for requests that must be signature guaranteed.
o To redeem from an IRA or other retirement account, call
1-800-343-2898 for a special application.
Sell Your o You may also redeem your shares through participating broker-dealers
Shares in by delivering a letter as Shares in Person described above to your
Person broker-dealer.
o A fee may be charged for this service.
Systematic o You can transfer money automatically from your Fund account on a
Withdrawal monthly or quarterly basis Withdrawal without redemption fees. Plan (SWP)
Plan (SWP) o The withdrawal can be mailed to you, or deposited directly to your bank account. (Retail shares
(Retail shares o The minimum is $75 per month.
Only) o The maximum is 1% of your account per month or 3% per quarter.
o To enroll, call 1-800-343-2898 for an application.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days for
investments made by Automated Clearing House transfer. We also reserve the right
to redeem in kind by paying you the proceeds of a redemption in securities
rather than in cash, and to redeem the remaining amount in the account if your
redemption brings the account balance below the initial minimum of $1,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
o You are redeeming more than $50,000. (Retail shares Only)
o You want the proceeds transmitted to a bank account not listed on the account. Who Can Provide A Signature
o You want the proceeds payable to anyone other than the registered owner(s) of Guarantee:
the account. o Commercial Bank
o Either your address or the address of your bank account has been changed within o Trust Company
30 days. o Savings Association
o The account is registered in the name of a fiduciary corporation or any other o Credit Union
organization. o Member of a U.S. stock
In these cases, additional documentation is required: (Retail shares Only) exchange
corporate accounts: certified copy of corporate resolution
fiduciary accounts: copy of the power of attorney or other governing document
<PAGE>
</TABLE>
* The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with EDI.
The Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the required
account information (including your broker) can request a telephone transaction
in your account. All calls are recorded or monitored for verification,
recordkeeping and quality-assurance purposes. The Evergreen Funds reserve the
right to terminate the exchange privilege of any shareholder who exceeds the
listed maximum number of exchanges, as well as to reject any large dollar
exchange if placing it would, in the judgment of the portfolio manager,
adversely affect the price of the Fund.
*** This does not apply to exchanges from Class A shares of an Evergreen
Money Market Fund.
<PAGE>
Other Services
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can be
made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will be
included on your statement.
Payroll Deduction (Retail shares only)
If you want to invest automatically through your paycheck, call us to find out
how you can set up direct payroll deductions. The amounts deducted will be
invested in your Fund account using the Electronic Funds Transfer System. We
will provide the Fund account number. Your payroll department will let you know
the date of the pay period when your investment begins.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
at amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request is
received.
Dividend Exchange
You may elect on the application to reinvest capital gains and/or dividends
earned in one Evergreen Fund into an existing account in another Evergreen Fund
in the same share class -- automatically. Please indicate on the application the
Evergreen Fund(s) into which you want to invest the distributions.
Reinvestment Privileges
Under certain circumstances, shareholders may, within one year of redemption,
reinstate their accounts at the current price. This is the Fund's net asset
value, also sometimes referred to as the Fund's "NAV."
The Tax Consequences of Investing in the funds
You may be taxed in two ways:
o On Fund distributions (dividends and capital gains)
o On any profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Reserve Tax-Exempt Money Market Fund expect that
substantially all of their regular dividends will be exempt from federal income
tax including alternative minimum tax. Otherwise, the Funds will distribute two
types of taxable income to you:
o Dividends. To the extent that the regular dividends are derived from interest
that is not tax exempt, or from short-term capital gains, you will have to
include them in your federal taxable income. Each Fund pays a monthly
dividend from the dividends, interest and other income on the securities in
which it invests.
o Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. Evergreen Reserve Money Market Funds generally
distribute capital gains, if any, at least once a year, near the end of the
calendar year. Short-term capital gains reflect securities held by the Fund
for a year or less and are considered ordinary income just like dividends.
Profits on securities held longer than 12 months are considered long-term
capital gains and are taxed at a special tax rate (20% for most taxpayers).
It is not anticipated that any significant capital gains will be realized by
the Funds.
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and capital
gain payments will be reinvested to buy additional shares. Distribution checks
that are returned and distribution checks that are uncashed when the shareholder
has failed to respond to mailings from the shareholder servicing agent will
automatically be reinvested to buy additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by each Fund during the previous calendar year.
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital gains.
It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gains or losses you incur when you
sell shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend and
capital gains distributions for each calendar year on Form 1099 DIV. Proceeds
from a sale are reported on Form 1099B. You must report these on your tax
return. Since the IRS receives a copy as well, you could pay a penalty if you
neglect to report them.
Evergreen Service Company will send you a tax information guide each year during
tax season, which may include a cost basis statement detailing the gain or loss
on taxable transactions you had during the year. Please consult your own tax
advisor for further information regarding the federal, state and local tax
consequences of an investment in the Funds.
Retirement Plans
You may invest in each Fund through various retirement plans, including IRAs,
401(k) plans, Simplified Employee Plans, (SEPs), IRAs, 403(b) plans, 457 plans
and others. For special rules concerning these plans, including applications,
restrictions, tax advantages, and potential sales charge waivers, contact your
broker-dealer. To determine if a retirement plan may be appropriate for you,
consult your tax advisor.
FEES and Expenses OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Retail shares of the Funds. Up to 0.75% of the average daily net assets of
Class R shares are payable as 12b-1 fees. However, currently the 12b-1 fees for
Retail shares is limited to 0.33% of the average daily net assets of the class.
These fees increase the cost of your investment. The purpose of these 12b-1 fees
is to promote the sale of more shares of the Funds to the public. The Funds
might use these fees for advertising and marketing and as "service fees" to the
broker-dealer for additional shareholder services.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken out
before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your total
return in the Fund is reduced in direct proportion to the fees; 2) expense
ratios can vary greatly between funds and fund families, from under 0.25% to
over 3.0%; and 3) a Fund's advisor may waive a portion of the Fund's expenses
for a period of time, reducing its expense ratio.
<PAGE>
Financial Highlights
This section looks in detail at the results for one share in each share class of
the Funds -- how much income it earned, how much of this income was passed along
as a distribution and how much the return was reduced by expenses. The tables
have been derived from financial information audited by [auditor], the Funds'
independent auditor. For a more complete picture of the Funds' financial
statements, please see the Funds' Annual Report as well as the Statement of
Additional Information.
<PAGE>
OTHER FUND PRACTICES
The Funds may purchase securities on a when-issued or delayed delivery basis and
may purchase or sell securities on a forward commitment basis. Settlement of
such transactions normally occurs within a month or more after the purchase or
sale commitment is made. Purchases made under such conditions may involve the
risk that the security may be valued at less than its purchase price, causing an
unrealized loss to the Fund. In addition, when the Fund engages in such
purchases, it relies on the other party to consummate the sale, if the other
party fails to perform its obligations, the Fund may be disadvantaged. The Funds
do not intend to purchase when-issued securities for speculative purposes.
In addition, the Funds may borrow money and lend their securities. Borrowing is
a form of leverage that may magnify a Fund's gain or loss. Lending securities
may cause the Fund to lose the opportunity to sell these securities at the most
desirable price and, therefore, lose money.
<PAGE>
Please consult the Statement of Additional Information for more information
regarding these and other investment practices used by the Funds, including
risks.
Evergreen Funds
<PAGE>
Money Market
Florida Municipal Money Market Fund
Money Market Fund
Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Treasury Municipal Money Market Fund
U.S. Government Money Market Fund
Tax Advantaged Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
High Grade Municipal Bond Fund
Maryland Municipal Bond Fund
Municipal Bond Fund
Municipal Income Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
Short-Intermediate Municipal Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Diversified Bond Fund
High Income Fund
High Yield Bond Fund
Intermediate Term Bond Fund
Quality Income Fund
Short-Duration Income Fund
Short-Intermediate Bond Fund
Strategic Income Fund
U.S. Government Fund
Balanced
Balanced Fund
Capital Balanced Fund
Capital Income and Growth Fund
Foundation Fund
Tax Strategic Foundation Fund
Growth & Income
America's Utility Fund
Blue Chip Fund
Equity Income Fund
Growth and Income Fund
Income and Growth Fund
Small Cap Value Fund
Utility Fund
Value Fund
Domestic Growth
Aggressive Growth Fund
Capital Growth Fund
Evergreen Fund
Growth Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Stock Selector Fund
Strategic Growth Fund
Tax Strategic Equity Fund
Select Equity Fund
Select Equity Index Fund
Select Special Equity Fund
Global International
Emerging Markets Growth Fund
Global Leaders Fund
Global Opportunities Fund
International Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Precious Metals Fund
Investor Services
800.343.2898
www.evergreen-funds.com
<PAGE>
1. Non-retirement account holders
Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m. Eastern time to
o buy, redeem or exchange shares
o order applications
o get assistance with your account
2. Information Line for Hearing and Speech Impaired (TTY/TDD) Call
1-800-343-2888 Monday through Friday, 8 a.m. to 6 p.m. Eastern time
3. Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
o to buy, redeem or exchange shares
o to change the registration on your account
o for general correspondence
4. For express, registered or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
5. Visit us on-line:
www.evergreen-funds.com
6. Regular communications you will receive:
Account Statements -- You will receive quarterly statements for each Fund
you own.
Confirmation Notices -- We send a confirmation of any transaction you make
within five days of the transaction.
Annual and Semi-annual reports -- You will receive a detailed financial
report on your Fund(s) twice a year.
Tax Forms -- Each January you will receive any tax forms you need to file
your taxes as well as the Evergreen Tax Information Guide.
<PAGE>
For More Information About the Evergreen Reserve Money Market Funds, Ask
for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's holdings as of a specific date, as well as commentary from the
Fund's portfolio manager. This Report discusses the market conditions and
investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has
been filed with the Securities and Exchange Commission (SEC) and its
contents are legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days. In
addition, any of these documents, with the exception of the SAI, may be
downloaded off our website at www.evergreen-funds.com.
Information about these Funds (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov, or, for a duplication fee,
by writing the SEC Public Reference Section, Washington, DC 20549-6009.
This material can also be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. For more information, call the SEC at
1-800-SEC-0330.
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.:
<PAGE>
EVERGREEN RESERVE MONEY MARKET FUNDS
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
RESERVE MONEY MARKET FUNDS
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
Evergreen Reserve Money Market Fund ("Reserve Money Fund")
Evergreen Reserve U.S. Government Money Market Fund ("Reserve U.S. Government
Fund")
Evergreen Reserve Tax-Exempt Money Market Fund ("Reserve Tax-Exempt Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of Mentor Funds
(the "Trust").
This statement of additional information ("SAI") pertains to all
classes of shares of the Funds. It is not a prospectus but should be read in
conjunction with the prospectus dated February 1, 2000 for the Fund in which you
are interested. The Funds are offered through one single prospectus offering
Retail shares and Institutional shares of the Funds. The information in Part 1
of this SAI is specific information about the Funds in the prospectus. The
information in Part 2 of this SAI contains more general information that may or
may not apply to the Fund or Class of shares in which you are interested.
Certain information may be incorporated by reference to the Funds'
Annual Report dated June 30, 1999. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898 or downloading it off our website at
www.evergreen-funds.com.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY..............................................................1-
INVESTMENT RESTRICTIONS....................................................1-
MONEY MARKET SECURITIES AND PRACTICES......................................1-
PRINCIPAL HOLDERS OF FUND SHARES...........................................1-
EXPENSES...................................................................1-
PERFORMANCE................................................................1-
SERVICE PROVIDERS..........................................................1-
FINANCIAL STATEMENTS.......................................................1-
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES..............1-
PURCHASE AND REDEMPTION OF SHARES ........................................1-
PRICING OF SHARES.........................................................1-
PERFORMANCE CALCULATIONS..................................................1-
PRINCIPAL UNDERWRITER.....................................................1-
DISTRIBUTION EXPENSES UNDER RULE 12b-1 1-
TAX INFORMATION...........................................................1-
BROKERAGE.................................................................1-
ORGANIZATION..............................................................1-
INVESTMENT ADVISORY AGREEMENT.............................................1-
MANAGEMENT OF THE TRUST...................................................1-
CORPORATE AND MUNICIPAL BOND RATINGS......................................1-
ADDITIONAL INFORMATION....................................................1-
<PAGE>
1-2
1-1
PART 1
TRUST HISTORY
The Mentor Funds is an open-end management investment company, which
was organized as a Massachusetts business trust on January 20, 1992. Each Fund
is a diversified series of the Trust. A copy of the Declaration of Trust is on
file as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. The foregoing is qualified in its entirety by reference to the Declaration
of Trust.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed with
respect to a Portfolio without approval by the holders of a majority of the
outstanding shares of that Portfolio, a Portfolio may not:
1. Purchase any security (other than U.S. Government securities) if as a
result: (i) as to 75% of such Portfolio's total assets, more than 5% of the
Portfolio's total assets (taken at current value) would then be invested in
securites of a single issuer, or (ii) more than 25% of the Portfolio's total
assets would be invested in a single industry; except that the Institutional
Money Market Portfolio may invest up to 100% of its assets in securities of
issuers in the banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to the extent
that, in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under certain federal securities laws.
4. Issue any class of securities which is senior to the Portfolio's shares
of beneficial interest.
5. Purchase or sell real estate or interest in real estate, including real
estate mortgage loans, although it may purchase and sell securities which are
secured by real estate and securities of companies that invest or deal in real
estate or real estate limited partnership interests. (For purpose of this
restriction, investments by a Portfolio in mortgage-backed securities and other
securities representing interest in mortgage pools shall not constitute the
purchase or sale of real estate or interests in real estate or real estate
mortgage loans.)
6. Borrow money in excess of 5% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes.
7.Purchase or sell commodities or commodity contracts, except that a
Portfolio may purchase or sell financial futures contracts, options on futures
contracts, and futures contracts, and futures contracts, forward contracts, and
options with respect to foreing currencies, and may enter into swap
transactions.
8. Make loans, except by purchase of debt obligations in which the
Portfolio may invest consistent with its investment policies, by entering into
repurchase agreements. or by lending its portfolio securities.
In addition, it is contrary to the current policy of each Portfolio, which
policy may be changed without shareholder approval, to invest in (a) securities
which at the time of such investment are not readily marketable, (b) securities
restricted as to resale (excluding securities determined by the Trustees of the
Trust (or the person designated by the Trustees to make such determinations) to
be readily marketable), and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 10% of the Portfolio's net assets (taken
at current value) would then be invested in securities described in (a), (b) and
(c).
All percentage limitations on investment will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental or to the extent
designated as such in a Prospectus with respect to a Portfolio, the other
investment policies described in this Statement or in a Prospectus are not
fundamental and may be changed by approval of the Trustees.
The Investment Company Act of 1940, as amended (the "1940 Act"), provides
that a "vote of a majority of the outstanding voting securities" of a Portfolio
means the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Portfolio, and (2) 67% or more of the shares present at a meeting
if more than 50% of the outstanding shares are represented at the meeting in
person or by proxy.
MONEY MARKET SECURITIES AND PRACTICES
Listed below are securities and investment practices the Funds may use in
addition to those discussed in the prospectus. The information below applies to
all Funds unless otherwise noted.
When-Issued, Delayed Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Illiquid and Restricted Securities
Investment in Other Investment Companies
Short Sales
Securities Lending
Borrowing
U.S. Treasury Obligations
Stand-by Commitments
Floating Rate and Variable Rate Obligations
Foreign Securities (Reserve Money Market Fund only)
Municipal Securities
Loans of Portfolio Securities
Tax-Exempt Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the 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. The Fund's investment advisor 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. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the 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 the 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 the
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.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions. These transactions must be fully collateralized at all
times with cash or short-term debt obligations, but involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from exercising its rights in respect of the collateral. Any
investment of collateral by the Fund would be made in accordance with the Fund's
investment objective and policies described in the prospectus.
Stand-by Commitments When the Tax-Exempt Money Market Portfolio purchases
Tax-Exempt Securities, it has the authority to acquire stand-by commitments from
banks and broker-dealers with respect to those Tax-Exempt Securities. A stand-by
commitment may be considered a security independent of the state tax-exempt
security to which it relates. The amount payable by a bank or dealer during the
time a stand-by commitment is exercisable, absent unusual circumstances, would
be substantially the same as the market value of the underlying Tax-Exempt
Security to a third party at any time. The Tax-Exempt Money Market Portfolio
expects that stand-by commitments generally will be available without the
payment of direct or indirect consideration. No Fund expects to assign any value
to stand-by commitments.
Borrowing
U.S. Treasury Obligations
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Foreign Securities (Reserve Money Market Fund only)
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
The fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
EXPENSES
Advisory Fees
The Funds investment advisor is Mentor Investment Advisors, LLC
("Mentor Advisors"). For more information, see Investment Advisory Agreements in
Part 2 of this SAI.
Mentor Advisors serves as investment advisor to each Fund pursuant to a
Management Contract with the Trust. Subject to the supervision and direction of
the Trustees, Mentor Advisors manages a Fund's portfolio in accordance with the
stated policies of that Fund and of the Trust. Mentor Advisors makes investment
decisions for the Funds and places the purchase and sale orders for portfolio
transactions. Mentor Advisors bears all of its expenses in connection with the
performance of its services. In addition, Mentor Advisors pays the salaries of
all officer and employees who are employed by it and the Trust.
Average Daily Net Assets Fee
First $500 million 0.22%
Next $500 million 0.20%
Next $1 billion 0.175%
Next $1 billion 0.16%
Over $3 billion 0.15%
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
Fiscal Period/Fund Advisory Fee
Year or Period Ended September 30, 1999
Reserve Money Fund $307,339
Reserve U.S. Government Fund $301,770
Reserve Tax-Exempt Fund $64,707
Year or Period Ended September 30, 1998
Reserve Money Fund $52,000
Reserve U.S. Government Fund $202,000
Reserve Tax-Exempt Fund NA
Year or Period Ended September 30, 1997
Reserve Money Fund N/A
Reserve U.S. Government Fund 29,982
Reserve Tax-Exempt Fund N/A
Brokerage Commissions
The Funds paid no brokerage commissions during the fiscal year or
period ended September 30, 1997, 1998 and 1999.
Underwriting Commissions
For each Fund, there are no Underwriting Commissions for the last two
fiscal periods. For more information, see "Principal Underwriter" in Part 2 of
this SAI.
12b-1 Fees
Below are the 12b-1 fees paid by each Fund with respect to the Retail
shares of the Funds for the fiscal year ended September 30, 1999. For more
information, see "Distribution Expenses Under Rule 12b-1" in Part 1 of this SAI.
Fund Service Fees
Reserve Money Fund $527,195
Reserve U.S. Government Fund $180,368
Reserve Tax-Exempt Fund $100,106
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services.
See "Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, K. Dunn Gifford and Russell Salton, each of whom
is an Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
As of December 15, 1999, each of the following was elected Trustee of
the Trust.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/2/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) 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 (leather goods purveyor);
former Managing Partner, Roscommon Capital Corp.;
former Chief Executive Officer, Gifford Gifts of Fine
Foods; former Chairman, Gifford, Drescher & Associates
(environmental consulting).
James S. Howell* Chairman of the Board Former Chairman of the Distribution Committee, Foundation
(DOB: 8/13/24) of Trustees for the Carolinas; and former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR
(DOB: 9/14/41) International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield* Vice Chairman of the Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) Board of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Anthony J. Fischer** President and Treasurer Vice President/Client Services, BISYS Fund Services.
(DOB:2/10/59)
Nimish S. Bhatt*** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National Bank; former
Senior Tax Consulting/Acting Manager, Investment Companies
Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft*** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
</TABLE>
* As of January 1, 2000, Michael S. Scofield will become Chairman of the
Board and James S. Howell will become Trustee Emeritis.
** Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016
*** Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
for the fiscal year ended September 30, 1999 and by the Trust and the eleven
other trusts in the in the Evergreen Fund Complex for the calendar year ended
December 31, 1999. The Trustees do not receive pension or retirement benefits
from the Funds. For more information, see "Management of the Trust" in Part 2 of
this SAI.
Total Compensation from the
Trust and Fund Complex Paid to
Trustees for the calendar year
Trustee Aggregate Compensation from ended 12/31/1999**
Mentor Funds for the fiscal
year ended 9/30/1999
Daniel J. Ludeman $ $
Arnold H. Dreyfuss $ $
Thomas F. Keller $ $
Louis W. Moelchert, Jr. $ $
Troy A. Peery, Jr. $ $
Peter J. Quinn, Jr. $ $
Arch T. Allen, III $ $
Weston E. Edwards $ $
Jerry R. Barrientine $ $
J. Garnett Nelson $ $
Paul F. Costello $ $
Terry L. Perkins $ $
Michael Wade $ $
PRINCIPAL HOLDERS OF FUND SHARES
As of January 1, 2000 the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
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 the
outstanding shares of any class of each Fund as of January 1, 2000.
- -----------------------------------------------------
Reserve Money Fund Retail shares
- -----------------------------------------------------
- -----------------------------------------------------
%
- -----------------------------------------------------
- -----------------------------------------------------
Reserve Money Fund Institutional shares
- -----------------------------------------------------
- -----------------------------------------------------
%
- -----------------------------------------------------
- -----------------------------------------------------
Reserve U.S. Government Fund Retail shares
- -----------------------------------------------------
%
- -----------------------------------------------------
Reserve U.S. Government Fund Institutional shares
- -----------------------------------------------------
%
- -----------------------------------------------------
Reserve Tax-Exempt Fund Retail shares
- -----------------------------------------------------
%
- -----------------------------------------------------
PERFORMANCE
Current, Effective and Tax Equivalent Yields
Below are the yields for each class of shares of the Funds for the
seven-day period ended September 30, 1999. With respect to the tax-equivalent
yield of the Reserve Tax-Exempt Money Markt Fund, a combined federal and state
rate (36.0%)is assumed.
Fund/Class Current Effective Tax Equivalent Yield
Reserve Money Fund
Retail shares 4.58% 4.68% 7.16%
Institutional shares 5.21% 5.34% 8.14%
Reserve U.S. Government Fund
Retail shares 4.53% 4.64% 7.08%
Institutional shares 5.16% 5.29% 8.06%
Reserve Tax-Exempt Fund
Retail shares 3.00% 3.04% 4.69%
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of September 30, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
- ----------------------- -------------------- --------------------- -------------------- =====================
Fund/Class One Year Five Years Ten Years or Since Inception Date
Inception
<S> <C> <C> <C> <C>
Money Fund
4.43% N/A 4.93% 10/15/1998
Retail shares
4.95% N/A 5.21% 11/19/1998
Institutional shares
U.S. Government Fund
4.31% N/A 4.93% 10/15/1998
Retail shares
4.80% N/A 5.15% 06/27/1997
Institutional shares
Tax-Exempt Fund
N/A N/A 2.53% 10/16/1998
Retail shares
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Funds, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Funds with facilities, equipment and personnel and is
entitled to receive a fee from each Fund at the annual rate of 0.10% of the
Fund's average daily net assets.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Fund pays ESC annual fees as follows:
Annual Fee Per Annual Fee Per
Fund Type Open Account Closed Account**
Monthly Dividend Funds $25.50 $9.00
Quarterly Dividend Funds $24.50 $9.00
Semiannual Dividend Funds $23.50 $9.00
Annual Dividend Funds $23.50 $9.00
Money Market Funds $25.50 $9.00
*For shareholder accounts only. The Fund pays ESC cost plus 15% for broker
accounts.
** Closed account are maintained on the system in order to facilitate historical
and tax information.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Retail Shares
Each Fund offers Class Retail shares at net asset value without an
initial sales charge or deferred sales charge. Class Retail shares are subject
to 12b-1 fees. There is no minimum investment required.
Institutional Shares
Each Fund (except Reserve Tax-Exempt Money Market Fund) offers Class
Institutional shares at net asset value without an initial sales charge,
deferred sales charge or 12b-1 fees. Investors will be required to make minimum
initial investments of $500,000 and minimum subsequent investments of $25,000.
Investments made through advisory accounts maintained with investment advisers
registered under the Investment Advisors Act of 1940, as amended (including
"wrap" accounts), are not subject to these minimum investment requirements. The
Portfolios reserve the right at any time to change the initial and subsequent
investment minimums required of investors.
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Fund within the Mentor Funds which offers the same class of shares.
See "By Exchange" under "How to Buy Shares" in the prospectus. Before you make
an exchange, you should read the prospectus of the Evergreen Fund into which you
want to exchange. The Trust's Board of Trustees reserves the right to
discontinue, alter or limit the exchange privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") twice daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded or
on the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in the investment advisor's opinion, the last sales price does not
reflect an accurate current market value; and other assets are valued
at prices deemed in good faith to be fair under procedures established
by the Board of Trustees.
(6) Municipal bonds are valued by an independent pricing service at
fair value using a variety of factors which may include yield,
liquidity, interest rate risk, credit quality, coupon, maturity and
type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and 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
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the
Fund's yield that is not tax exempt. Depending on the Fund's objective, the
income tax rate used in the formula above may be federal or a combination of
federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that EDI will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it.
All subscriptions and sales of shares by EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust and each person who has been,
is, or may be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim, action, suit, or
proceeding to which any of them may be a party that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of EDI or any other person for whose acts EDI is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class Retail shares, as
applicable, including certain advertising, marketing and shareholder service
expenses, pursuant to Rule 12b-1 of the 1940 Act. These 12b-1 fees are
indirectly paid by the shareholder, as shown by the Fund's expense table in the
prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class Retail shares, as applicable, the Fund
may incur expenses for 12b-1 fees up to a maximum annual percentage of the
average daily net assets attributable to a class, as follows:
------------------------------- ---------------
Class Retail 0.75%*
------------------------------- ---------------
* Currently limited to 0.33% or less to be used exclusively as
a shareholder service fee. See the expense table in the
prospectus of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.33% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above. Service fees are accrued daily and paid at least annually on
Class Retail and are charged as class expenses, as accrued.
Amounts paid under the Plans are used to compensate EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class Retail shares, as
applicable. The compensation is based on a maximum annual percentage of the
average daily net assets attributable to a class, as follows:
----------------------------- -------------
Class Retail 0.25%*
----------------------------- -------------
*May be lower. See the expense table in the prospectus of the Fund in which you
are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
Retail shares and are charged as class expenses, as accrued. The distribution
fees attributable to the Class Retail 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 EDI to compensate
broker-dealers in connection with the sale of such shares.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class Retail shares. The Plans
are designed to (i) stimulate brokers to provide distribution and administrative
support services to the Fund and holders of Class Retail shares and (ii)
stimulate administrators to render administrative support services to the Fund
and holders of Class Retail 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 Retail shares; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as the Fund reasonably requests for its Class
Retail shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent 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 the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. 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
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) 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 (b) 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, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond fund, distributions will be taxable
to shareholders whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond fund or U.S. Treasury or
U.S. Government money market fund, it anticipates that all or a portion of the
ordinary dividends which it pays will qualify for the 70% dividends-received
deduction for corporations. The Fund will inform shareholders of the amounts
that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S.
Government money market fund, none of its income will consist of corporate
dividends; therefore, none of its distributions will qualify for the 70%
dividends-received deduction for corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
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 a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
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 advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund.
Each shareholder who is not a U.S. person should consult his or her tax
advisor regarding the U.S. and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
a U.S. withholding tax at a rate of 30% (or at a lower rate under a tax treaty)
on amounts treated as income from U.S. sources under the Code.
Distributor
Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is
125 W. 55th Street, New York, NY 10019.
Independent Auditor
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of each Fund.
Custodian
State Street Bank and Trust Company keeps custody of each Fund's
securities and cash and performs other related duties. The custodian's address
is 225 Franklin Street, Boston, Massachusetts 02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers,
industries, securities and economic factors and (b) other
information useful in making investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The foregoing is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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 Trust. 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 advisor, 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 its customer. FUNB and
its affiliates 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 FUNB and its affiliates 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
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters Fund ) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<TABLE>
<CAPTION>
COMPARISON OF LONG-TERM BOND RATINGS
----------------- ---------------- --------------- =================================================
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aaa AAA AAA Excellent Quality (lowest risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aa AA AA Almost Excellent Quality (very low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
A A A Good Quality (low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Baa BBB BBB Satisfactory Quality (some risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Ba BB BB Questionable Quality (definite risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
B B B Low Quality (high risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
D DDD/DD/D In Default
----------------- ---------------- --------------- =================================================
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
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
edged." 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 fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the 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 some time 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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) 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.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and
are extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds 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 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 fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds 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 some time in the future.
Baa Bonds 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.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds 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 both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds 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 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 rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) 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.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN RESERVE MONEY MARKET FUNDS
PART C
OTHER INFORMATION
Item 23 Exhibits
Unless otherwise indicated, each of the Exhibits listed below is filed
herewith.
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C>
<C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Registration Statement
Filed on December 12, 1997
(b) By-laws Incorporated by reference to
Registrant's Registration Statement
Filed on December 12, 1997
(c) Provisions of instruments defining the rights
of holders of the securities being registered
are contained in the Declaration of Trust
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII
included as part of Exhibits 1 and 2 of this
Registration Statement
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Post-Effective Amendment No. 10 to
Union National Bank Registrant's Registration Statement
Filed on August 6, 1999
(d)(2) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Post-Effective Amendment No. 10 to
Asset Management Corp. Registrant's Registration Statement
Filed on August 6, 1999
(e)(1) Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Post-Effective Amendment No. 10 to
Distributor, Inc. Registrant's Registration Statement
Filed on August 6, 1999
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to
Inc. (Evergreen) Registrant's Registration Statement
Filed on May 31, 1998 ("Post-
Effective Amendment No. 4")
(e)(3) Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 10 to
Inc. Registrant's Registration Statement
Filed on August 6, 1999
(e)(4) Specimen of Dealer Agreement used by Evergreen Incorporated by reference to
Distributor, Inc. Registrant's Registration Statement
Filed on December 12, 1997
(f) Form of Deferred Compensation Plan Incorporated by reference to
Registrant's Registration Statement
Filed on December 12, 1997
(g)(1) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Post-Effective Amendment No. 4
Registrant's Registration Statement
(g)(2) Letter Amendment to Custodian Agreement Incorporated by reference to
(California & U.S. Government Money Market Funds) Post-Effective Amendment No. 10 to
Registrant's Registration Statement
Filed on August 6, 1999
(h)(1) Administration Agreement between Evergreen Incorporated by reference to
Investment Services, Inc. and the Registrant Registrant's Registration Statement
Filed on August 6, 1999
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Post-Effective Amendment No. 4 to
Registrant's Registration Statement
(h)(3) Letter Amendment to Transfer Agent Agreement Incorporated by reference to
(California & U.S. Government Money Market Funds) Post-Effective Amendment No. 10 to
Registrant's Registration Statement
Filed on August 6, 1999
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Registration Statement
(j)(1) Consent of PriceWaterhouseCoopers, LLP. Incorporated by reference Post-Effective Amendment
(Money Market & Municipal Money Market Funds) No. 7 Filed on April 1, 1999
(j)(2) Consent of KPMG Peat Marwick, LLP. Incororated by reference Post-Effective Amendment
(FL, NJ PN Municipal and Treasury Money No. 7 Filed on April 1, 1999
Market Funds)
(j)(3) Consent of KPMG LLP To be filed by Amendment on or about January 26, 2000
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
Filed on August 6, 1999
(m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
(m)(3) 12b-1 Distribution Plan for Class C Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
(n) Not applicable
(o) Multiple Class Plan. Incorporated by reference to Post-Effective Amendment
No. 7 filed on April 1, 1999.
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and ommissions.
Provisions for the indemnification of the Registrant's Trustees and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of the Registrant's Investment
Advisors are contained in their respective Investment Advisory and Management
Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in the Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust Co., the
Registrant's custodian, are contained in the Custodian Agreement between State
Street Bank and Trust Co., and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
John Georgius President, Chief Operating Officer and
Director, First Union Corporation;
Vice Chairman, First Union National Bank
Mark C. Treanor Executive Vice President, Secretary &
General Counsel, First Union Corporation
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-5436) of Evergreen
Investment Management Company.
The information required by this item with respect to Meridian Investment
Company is incorporated by reference to the Form ADV (File No. 801-8327) of
Meridian Investment Company.
The information required by this item with respect to Mentor Investment
Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384)
of Mentor Investment Advisors, LLC.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund Complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Maryann Bruce Director, Chairman and Chief Executive
Officer
Dennis Sheehan Director, Chief Financial Officer
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address except Ms.
Bruce: Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10016.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
The information required by this item with respect to Mentor Investment
Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384)
of Mentor Investment Advisors, LLC.
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the principal underwriter in the last fiscal year.
Item 28. 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:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company (formerly Keystone Investment
Management Company), all located at 200 Berkeley Street, Boston,
Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Mentor Investment Advisors, LLC, 901 East Byrd Street, Richmond, Virginia
23219
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Meridian Investment Co., 55 Valley Stream Parkway, Malvern, Pennsylvania
19355
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The 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 has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and State of New York, on the 5th day of
January, 2000.
MENTOR FUNDS
By: /s/ Anthony J. Fischer
-----------------------------
Name: Anthony J. Fischer
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 5th day of January, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Anthony J. Fischer /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
Anthony J. Fischer Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Chairman of the Board and Trustee
Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Vice Chairman of the Board and
Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ------------------------------ ------------------------------- ---------------------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Catherine Foley
- -------------------------------
Catherine Foley
Attorney-in-Fact
*Catherine Foley, by signing her 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.
<PAGE>
INDEX TO EXHIBITS
Exhibit Letter Exhibit
- -------------- -------
None