-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qAfLZ0bUiU9MR3RNHQNs2hG/buTIyCzK6F5YDE4pIMm6FzYVqIy0Lw0qfkRN2TaD vG07f0ygN40Cv73MacokAA== 0000082693-95-000025.txt : 199507070000082693-95-000025.hdr.sgml : 19950707 ACCESSION NUMBER: 0000082693-95-000025 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 64 FILED AS OF DATE: 19950706 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION FUNDS/ CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-94560 FILM NUMBER: 95552314 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04154 FILM NUMBER: 95552315 BUSINESS ADDRESS: STREET 1: 99 HIGH ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173383200 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 FORMER COMPANY: FORMER CONFORMED NAME: SALEM FUNDS DATE OF NAME CHANGE: 19920703 485APOS 1 POST-EFFECTIVE AMENDMENT 1933 Act File No. 2-94560 1940 Act File No. 811-4154 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X Pre-Effective Amendment No. Post-Effective Amendment No. 40 X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X Amendment No. 40 X EVERGREEN INVESTMENT TRUST (formerly First Union Funds) (Exact Name of Registrant as Specified in Charter) Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) (914) 694-2020 (Registrant's Telephone Number) Joseph J. McBrien, Esquire, 2500 Westchester Avenue Purchase, New York 10577 (Name and Address of Agent for Service) Copies to: John A. Dudley, Esquire Sullivan & Worcester 1025 Connecticut Ave., N.W. Washington, D.C. 20036 It is proposed that this filing will become effective (check appropriate box) / / Immediately upon filing pursuant to paragraph (b) or / / on (date) pursuant to paragraph (b) or /X/ 60 days after filing pursuant to paragraph (a)(i) or / / on (date) pursuant to paragraph (a)(i) or / / 75 days after filing pursuant to paragraph (a)(ii) or / / on (date) pursuant to paragraph (a)(ii) of Rule 485 If appropriate, check the following box: / / This post-effective amendment designates a new effective date for a previously filed post-effective amendment / / 60 days after filing pursuant to paragraph (a)(i) / / on (date) pursuant to paragraph (a)(i) Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940, and: /X/ filed the Notice required by that Rule on February 16, 1995; or / / intends to file the Notice required by that Rule on or about (date); or / / during the most recent fiscal year did not sell any securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need not file the Notice. CROSS REFERENCE SHEET This Amendment to the Registration Statement of EVERGREEN INVESTMENT TRUST, formerly known as FIRST UNION FUNDS, which is comprised of fifteen portfolios: (1) Evergreen Value Fund (formerly, First Union Value Portfolio), (2) Evergreen Fixed Income Fund (formerly, First Union Fixed Income Portfolio), (3) Evergreen High Grade Tax Free Fund (formerly, First Union High Grade Tax Free Portfolio), (4) Evergreen Treasury Money Market Fund (formerly, First Union Treasury Money Market Portfolio), (5) Evergreen Balanced Fund (formerly, First Union Balanced Portfolio), (6) Evergreen Managed Bond Fund (formerly, First Union Managed Bond Portfolio), (7) Evergreen North Carolina Municipal Bond Fund (formerly, First Union North Carolina Municipal Bond Portfolio), (8) Evergreen U.S. Government Fund (formerly, First Union U.S. Government Portfolio), (9) Evergreen Florida Municipal Bond Fund (formerly, First Union Florida Municipal Bond Portfolio), (10) Evergreen Georgia Municipal Bond Fund (formerly, First Union Georgia Municipal Bond Portfolio), (11) Evergreen Virginia Municipal Bond Fund (formerly, First Union Virginia Municipal Bond Portfolio), (12) Evergreen Utility Fund (formerly, First Union Utility Portfolio), (13) Evergreen South Carolina Municipal Bond Fund (formerly, First Union South Carolina Municipal Bond Portfolio); (14) Evergreen Emerging Markets Growth Fund (formerly, First Union Emerging Markets Growth Portfolio); and (15) Evergreen International Equity Fund (formerly, First Union International Equity Portfolio). Each of the portfolios consist of four separate classes of shares: (a) Y Shares, (b) Class A Shares, (c) Class B Shares, and (d) Class C Shares, with the following exceptions: Evergreen North Carolina Municipal Bond Fund, Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, which consists of: (a) Y Shares, (b) Class A Shares, and (c) Class B Shares; Evergreen Managed Bond Fund, which consists of: (a) Y Shares; Evergreen High Grade Tax Free Fund, which consists of: (a) Y Shares, (b) Class A Shares (c) Class B Shares; and Evergreen Treasury Money Market Fund, which consist of: (a) Y Shares and (b) Class A Shares. CROSS REFERENCE SHEET (as required by Rule 481(a)) N-1A Item No. Location in Prospectus(es) Part A Item 1. Cover Page Cover Page Item 2. Synopsis and Fee Table Overview of the Fund(s); Expense Information Item 3. Condensed Financial Information Financial Highlights Item 4. General Description of Registrant Cover Page; Description of the Funds; General Information Item 5. Management of the Fund Management of the Fund(s); General Information Item 5A. Management's Discussion Management's Discussion of Fund Performance Item 6. Capital Stock and Other Securities Dividends, Distributions and Taxes; General Information Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares Item 8. Redemption or Repurchase Purchase and Redemption of Shares Item 9. Pending Legal Proceedings Not Applicable Location in Statement of Part B Additional Information Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History Not Applicable Item 13. Investment Objectives and Policies Investment Objectives and Policies;Investment Restrictions; Other Restrictions and Operating Policies Item 14. Management of the Fund Management Item 15. Control Persons and Principal Management Holders of Securities Item 16. Investment Advisory and Other Services Investment Adviser; Purchase of Shares Item 17. Brokerage Allocation Allocation of Brokerage Item 18. Capital Stock and Other Securities Purchase of Shares Item 19. Purchase, Redemption and Pricing of Distribution Plans; Purchase Securities Being Offered of Shares; Net Asset Value Item 20. Tax Status Additional Tax Information Item 21. Underwriters Distribution Plans; Purchase of Shares Item 22. Calculation of Performance Data Performance Information Item 23. Financial Statements Financial Statements Part C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement. ****************************************************************************** PROSPECTUS July 7, 1995 EVERGREEN(SM) GROWTH AND INCOME FUNDS (Evergreen Logo appears here) EVERGREEN BALANCED FUND EVERGREEN GROWTH AND INCOME FUND EVERGREEN VALUE FUND EVERGREEN AMERICAN RETIREMENT FUND EVERGREEN FOUNDATION FUND EVERGREEN TOTAL RETURN FUND CLASS A SHARES CLASS B SHARES CLASS C SHARES The Evergreen Growth and Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide capital growth, income and diversification. This Prospectus provides information regarding the Class A, Class B and Class C shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 14 Investment Practices and Restrictions 18 MANAGEMENT OF THE FUNDS Investment Advisers 23 Sub-Adviser 24 Distribution Plans and Agreements 25 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 26 How to Redeem Shares 28 Exchange Privilege 29 Shareholder Services 30 Effect of Banking Laws 30 OTHER INFORMATION Dividends, Distributions and Taxes 31 Management's Discussion of Fund Performance 32 General Information 35
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN FOUNDATION FUND, and EVERGREEN TOTAL RETURN FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND. EVERGREEN BALANCED FUND (formerly First Union Balanced Portfolio) seeks to produce long-term total return through capital appreciation, dividends, and interest income. EVERGREEN GROWTH AND INCOME FUND seeks to achieve a return composed of capital appreciation in the value of its shares and current income. The Fund will attempt to meet its objective by investing in the securities of companies which are undervalued in the marketplace relative to those companies' assets, breakup value, earnings, or potential earnings growth. EVERGREEN VALUE FUND (formerly First Union Value Portfolio) seeks long-term capital growth, with current income as a secondary objective. EVERGREEN AMERICAN RETIREMENT FUND seeks, in order of priority, conservation of capital, reasonable income and capital growth. To achieve these objectives, the Fund invests in a diversified and balanced portfolio of equity and fixed income securities, with emphasis on income-producing securities which appear to have potential for capital appreciation. Investments in equity securities will be limited to 75% of the value of the Fund's total assets measured at the time any such investment is made. Normally, the Fund anticipates that approximately half of the fixed income portion of the Fund's portfolio will be invested in marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities. EVERGREEN FOUNDATION FUND seeks, in order of priority, reasonable income, conservation of capital and capital appreciation. The Fund invests principally in income-producing common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. EVERGREEN TOTAL RETURN FUND attempts to maximize the "total return" on its portfolio of investments. It invests primarily in common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in each Class A, Class B and Class C Shares of the Fund. For further information see "Purchase and Redemption of Fund Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares Maximum Sales Charge Imposed on Purchases 4.75% None None (as a % of offering price) Sales Charge on Dividend Reinvestments None None None Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the 1% during the original purchase price or redemption second year, 3% during the third and fourth first year and proceeds, whichever is lower) years, 2% during the fifth year, 1% during 0% thereafter the sixth and seventh years and 0% after the seventh year Redemption Fee None None None Exchange Fee None None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return, and (ii) redemption at the end of each period and, additionally for Class B and C, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares and Class C Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflects the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN BALANCED FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .50% .50% .50% After 1 Year $ 56 $ 66 $ 26 $ 16 Administrative Fees .06% .06% .06% After 3 Years $ 74 $ 81 $ 51 $ 81 12b-1 Fees* .25% .75% .75% After 5 Years $ 93 $ 108 $ 88 $ 88 Shareholder Service Fees -- .25% .25% After 10 Years $ 150 $ 163 $ 192 $ 163 Other Expenses .06% .06% .06% Total .87% 1.62% 1.62% Class C Advisory Fees $ 16 Administrative Fees $ 51 12b-1 Fees* $ 88 Shareholder Service Fees $ 192 Other Expenses Total
EVERGREEN GROWTH AND INCOME FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees 1.00% 1.00% 1.00% After 1 Year $ 63 $ 74 $ 34 $ 24 12b-1 Fees* .25% 1.00% 1.00% After 3 Years $ 95 $ 103 $ 73 $ 73 Other Expenses .33% .33% .33% After 5 Years $ 129 $ 145 $ 125 $ 125 Total 1.58% 2.33% 2.33% After 10 Years $ 226 $ 239 $ 267 $ 239 Class C Advisory Fees $ 24 12b-1 Fees* $ 73 Other Expenses $ 125 Total $ 267
EVERGREEN VALUE FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .50% .50% .50% After 1 Year $ 56 $ 67 $ 27 $ 17 Administrative Fees .06% .06% .06% After 3 Years $ 75 $ 82 $ 52 $ 52 12b-1 Fees* .25% .75% .75% After 5 Years $ 95 $ 110 $ 90 $ 90 Shareholder Service Fees -- .25% .25% After 10 Years $ 154 $ 167 $ 197 $ 167 Other Expenses .10% .10% .10% Total .91% 1.66% 1.66% Class C Advisory Fees $ 17 Administrative Fees $ 52 12b-1 Fees* $ 90 Shareholder Service Fees $ 197 Other Expenses Total
3 EVERGREEN AMERICAN RETIREMENT FUND
EXAMPLES Assuming Assuming Redemption at End of No ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .75% .75% .75% After 1 Year $ 62 $ 73 $ 33 $ 23 12b-1 Fees* .25% 1.00% 1.00% After 3 Years $ 94 $ 101 $ 71 $ 71 Other Expenses .53% .53% .53% After 5 Years $ 127 $ 142 $ 122 $ 122 Total 1.53% 2.28% 2.28% After 10 Years $ 221 $ 234 $ 262 $ 234 Class C Advisory Fees $ 23 12b-1 Fees* $ 71 Other Expenses $ 122 Total $ 262
EVERGREEN FOUNDATION FUND
EXAMPLES Assuming Assuming Redemption at End of No ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .875% .875% .875% After 1 Year $ 61 $ 72 $ 32 $ 22 12b-1 Fees* .250% 1.000% 1.000% After 3 Years $ 89 $ 97 $ 67 $ 67 Other Expenses .265% .265% .265% After 5 Years $ 120 $ 135 $ 115 $ 115 Total 1.390% 2.140% 2.140% After 10 Years $ 206 $ 219 $ 247 $ 219 Class C Advisory Fees $ 22 12b-1 Fees* $ 67 Other Expenses $ 115 Total $ 247
EVERGREEN TOTAL RETURN FUND
EXAMPLES Assuming Assuming Redemption at End of No ANNUAL OPERATING EXPENSES Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees 1.00% 1.00% 1.00% After 1 Year $ 62 $ 73 $ 33 $ 23 12b-1 Fees* .25% 1.00% 1.00% After 3 Years $ 92 $ 100 $ 70 $ 70 Other Expenses .24% .24% .24% After 5 Years $ 125 $ 140 $ 120 $ 120 Total 1.49% 2.24% 2.24% After 10 Years $ 217 $ 230 $ 257 $ 230 Class C Advisory Fees $ 23 12b-1 Fees* $ 70 Other Expenses $ 120 Total $ 257
*Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1 Fee. For the forseeable future, the Class A 12b-1 Fees will be limited to .25 of 1% of average net assets. For Class B and Class C Shares of EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN FOUNDATION FUND and EVERGREEN TOTAL RETURN FUND, a portion of the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1% of average net assets as permitted under the rules of the National Association of Securities Dealers, Inc. From time to time, each Fund's investment adviser may, at its descretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, for EVERGREEN FOUNDATION FUND has been audited by Price Waterhouse LLP, the Fund's independent auditors and for EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN TOTAL RETURN FUND has been audited by Ernst & Young LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No financial highlights are shown for Class A, B or C Shares of EVERGREEN GROWTH and INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND or EVERGREEN FOUNDATION FUND, since these classes did not have any operations prior to December 31, 1994. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN BALANCED FUND -- CLASS A, B, C AND Y SHARES
CLASS A SHARES CLASS C CLASS Y SHARES CLASS B SHARES SHARES JUNE 10, JANUARY 26, SEPTEMBER 2, 1991* 1993* 1994* YEAR ENDED THROUGH YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1994 1993 1994 1994 1993 1992 PER SHARE DATA Net asset value, beginning of period............. $12.07 $11.41 $11.02 $10.00 $12.08 $11.54 $12.00 $12.07 $11.41 $11.02 Income (loss) from investment operations: Net investment income............. .43 .42 .42 .30 .36 .34 .18 .46 .45 .46 Net realized and unrealized gain (loss) on investments........ (.71) .75 .43 1.08 (.71) .65 (.61) (.71) .75 .42 Total from investment operations....... (.28) 1.17 .85 1.38 (.35) .99 (.43) (.25) 1.20 .88 Less distributions to shareholders from: Net investment income............. (.43) (.42) (.42) (.35) (.36) (.34) (.21) (.46) (.45) (.45) Net realized gains.............. (.19) (.09) (.04) (.01) (.19) (.09) (.19) (.19) (.09) (.04) In excess of net investment income............. -- -- -- -- -- (.02)(a) -- -- -- -- Total distributions.... (.62) (.51) (.46) (.36) (.55) (.45) (.40) (.65) (.54) (.49) Net asset value, end of period.......... $11.17 $12.07 $11.41 $11.02 $11.18 $12.08 $11.17 $11.17 $12.07 $11.41 TOTAL RETURN+....... (2.4%) 10.4% 7.9% 11.8% (3.0%) 8.7% (3.6%) (2.2%) 10.7% 8.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $41,010 $35,032 $17,408 $334 $100,052 $ 65,475 $195 $778,657 $760,147 $520,232 Ratios to average net assets: Expenses........... .89% .91% .91% .92%++ 1.48% 1.41%++ 1.64%++ .64% .66% .66% Net investment income............. 3.69% 3.61% 3.93% 4.38%++ 3.12% 3.09%++ 3.23%++ 3.93% 3.86% 4.20% Portfolio turnover rate............... 35% 19% 12% 19% 35% 19% 35% 35% 19% 12% APRIL 1, 1991* THROUGH DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period............. $10.00 Income (loss) from investment operations: Net investment income............. .36 Net realized and unrealized gain (loss) on investments........ 1.03 Total from investment operations....... 1.39 Less distributions to shareholders from: Net investment income............. (.36) Net realized gains.............. (.01) In excess of net investment income............. -- Total distributions.... (.37) Net asset value, end of period.......... $11.02 TOTAL RETURN+....... 15.0% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $247,472 Ratios to average net assets: Expenses........... .68%++ Net investment income............. 4.86%++ Portfolio turnover rate............... 19%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Distributions in excess of net investment income for the year ended December 31, 1993 were the result of certain book and tax differences. These differences did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993. 5 EVERGREEN GROWTH AND INCOME FUND -- CLASS Y SHARES
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 1988** PER SHARE DATA Net asset value, beginning of period................. $15.41 $14.18 $12.99 $10.72 $12.03 $10.62 $9.38 Income (loss) from investment operations: Net investment income....... .14 .14 .15 .19 .30 .52 .19 Net realized and unrealized gain (loss) on investments............... .12 1.91 1.65 2.58 (.84) 2.17 2.10 Total from investment operations.............. .26 2.05 1.80 2.77 (.54) 2.69 2.29 Less distributions to shareholders from: Net investment income....... (.14) (.14) (.15) (.19) (.30) (.52) (.19) Net realized gains.......... (1.01) (.68) (.46) (.31) (.47) (.76) (.86) Total distributions....... (1.15) (.82) (.61) (.50) (.77) (1.28) (1.05) Net asset value, end of period.................... $14.52 $15.41 $14.18 $12.99 $10.72 $12.03 $10.62 TOTAL RETURN+............... 1.7% 14.4% 13.8% 25.8% (4.5%) 25.4% 24.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........... $73,457 $77,062 $63,841 $47,763 $36,222 $31,540 $24,399 Ratios to average net assets: Expenses.................. 1.33% 1.26% 1.33% 1.41% 1.50% 1.54% 1.56% Net investment income..... .96% .99% 1.18% 1.55% 2.62% 4.13% 1.70% Portfolio turnover rate..... 29% 28% 30% 23% 41% 53% 41% OCTOBER 15, 1986* THROUGH DECEMBER 31, 1987** 1986** PER SHARE DATA Net asset value, beginning of period................. $10.05 $10.00 Income (loss) from investment operations: Net investment income....... .20 .07 Net realized and unrealized gain (loss) on investments............... (.63) (.02) Total from investment operations.............. (.43) .05 Less distributions to shareholders from: Net investment income....... (.24) -- Net realized gains.......... -- -- Total distributions....... (.24) -- Net asset value, end of period.................... $9.38 $10.05 TOTAL RETURN+............... (4.3%) .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........... $21,471 $20,696 Ratios to average net assets: Expenses.................. 1.76% 1.73%++ Net investment income..... 1.90% 3.23%++ Portfolio turnover rate..... 48% 4%
* Commencement of operations. ** Net investment income is based on the average monthly shares outstanding for the periods indicated. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. 6 EVERGREEN VALUE FUND -- CLASS Y SHARES
JANUARY 3, 1991* THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, 1994 1993 1992 1991 PER SHARE DATA Net asset value, beginning of period...................................... $17.63 $17.11 $17.08 $14.28 Income from investment operations: Net investment income..................................................... .56 .52 .49 .47 Net realized and unrealized gain (loss) on investments.................... (.20) 1.12 .90 3.53 Total from investment operations........................................ .36 1.64 1.39 4.00 Less distributions to shareholders from: Net investment income..................................................... (.56) (.52) (.49) (.47) Net realized gains........................................................ (.82) (.58) (.87) (.73) In excess of net investment income........................................ -- (.02)(b) -- -- Total distributions..................................................... (1.38) (1.12) (1.36) (1.20) Net asset value, end of period............................................ $16.61 $17.63 $17.11 $17.08 TOTAL RETURN+............................................................. 2.1% 9.7% 8.3% 25.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $507,028 $463,087 $326,154 $271,391 Ratios to average net assets: Expenses................................................................ .68% .65% .68%(a) .69%++(a) Net investment income................................................... 3.21% 2.98% 2.90%(a) 3.04%++(a) Portfolio turnover rate................................................... 70% 46% 56% 69%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 3, 1991 YEAR ENDED THROUGH DECEMBER 31, 1992 DECEMBER 31, 1991 Expenses.................................................. .69% .77% Net investment income..................................... 2.89% 2.96%
(b) Distributions in excess of net investment income for the period ended December 31, 1993 were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993. 7 EVERGREEN VALUE FUND -- CLASS A SHARES
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED MARCH 31, 1994 1993 1992 1991 1990* 1990 1989 1988 PER SHARE DATA Net asset value, beginning of period.......................... $17.63 $17.11 $17.08 $14.61 $15.12 $14.45 $12.83 $14.66 Income (loss) from investment operations...................... Net investment income............ .52 .47 .44 .46 .36 .54 .36 .26 Net realized and unrealized gain (loss) on investments........... (.20) 1.10 .89 3.17 (.44) 1.70 2.11 (1.30) Total from investment operations.................... .32 1.57 1.33 3.63 (.08) 2.24 2.47 (1.04) Less distributions to shareholders from: Net investment income............ (.51) (.47) (.43) (.43) (.36) (.57) (.38) (.26) Net realized gains............... (.82) (.58) (.87) (.73) (.02) (1.00) (.47) (.53) In excess of net investment income.......................... -- -- -- -- (.05)(c) -- -- -- Total distributions............. (1.33) (1.05) (1.30) (1.16) (.43) (1.57) (.85) (.79) Net asset value, end of period.......................... $16.62 $17.63 $17.11 $17.08 $14.61 $15.12 $14.45 $12.83 TOTAL RETURN+.................... 1.9% 9.3% 8.0% 25.1% (.5%) 15.5% 19.7% (7.1%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................. $188,807 $189,983 $169,310 $135,565 $104,637 $95,995 $83,121 $21,914 Ratios to average net assets: Expenses........................ .93% .99% 1.01%(a) .96%(a) 1.39%++ 1.55% 1.71% 1.74% Net investment income........................ 2.96% 2.63% 2.37%(a) 2.78%(a) 3.28%++ 3.42% 2.72% 1.92% Portfolio turnover rate (b)........................ 70% 46% 56% 69% 13% 11% 24% 24% 1987 1986 PER SHARE DATA Net asset value, beginning of period.......................... $12.35 $10.04 Income (loss) from investment operations...................... Net investment income............ .15 .19 Net realized and unrealized gain (loss) on investments........... 2.38 2.32 Total from investment operations.................... 2.53 2.51 Less distributions to shareholders from: Net investment income............ (.13) (.20) Net realized gains............... (.09) -- In excess of net investment income.......................... -- -- Total distributions............. (.22) (.20) Net asset value, end of period.......................... $14.66 $12.35 TOTAL RETURN+.................... 20.8% 25.3% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................. $23,221 $5,595 Ratios to average net assets: Expenses........................ 1.97% 2.00% Net investment income........................ 1.41% 2.34% Portfolio turnover rate (b)........................ 20% 20%
* The Fund changed its fiscal year end to December 31. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1992 1991 Expenses........................................................................... 1.02% 1.05% Net investment income.............................................................. 2.36% 2.69%
(b) Portfolio turnover rate for periods ending on or after March 31, 1986 include certain U.S. government obligations. (c) Distributions in excess of net investment income for the period ended December 31, 1990 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1990. 8 EVERGREEN VALUE FUND -- CLASS B AND C SHARES
CLASS C CLASS B SHARES SHARES FEBRUARY 2, SEPTEMBER 2, 1993* 1994* YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period.......................................... $17.63 $17.24 $18.28 Income (loss) from investment operations: Net investment income......................................................... .42 .35 .19 Net realized and unrealized gain (loss) on investments........................ (.20) 1.01 (.81) Total from investment operations............................................ .22 1.36 (.62) Less distributions to shareholders from: Net investment income......................................................... (.41) (.35) (.19) Net realized gains............................................................ (.82) (.58) (.82) In excess of net investment income............................................ -- (.04)(a) (.04)(a) Total distributions......................................................... (1.23) (.97) (1.05) Net asset value, end of period................................................ $16.62 $17.63 $16.61 TOTAL RETURN+................................................................. 1.3% 8.0% (3.4%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................................... $104,297 $ 59,953 $485 Ratios to average net assets: Expenses.................................................................... 1.53% 1.48%++ 1.68%++ Net investment income....................................................... 2.36% 2.09%++ 2.16%++ Portfolio turnover rate....................................................... 70% 46% 70%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. (a) Distributions in excess of net investment income, for the Class B Shares, for the period ended December 31, 1993 and for the Class C Shares, for the period ended December 31, 1994, were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993 and December 31, 1994. 9 EVERGREEN AMERICAN RETIREMENT FUND -- CLASS Y SHARES
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period........... $11.60 $10.95 $10.52 $9.59 $10.41 $10.09 Income (loss) from investment operations: Net investment income.......................... .60 .56 .66 .60 .60 .57 Net realized and unrealized gain (loss) on investments.................................. (.93) .96 .55 1.15 (.66) .76 Total from investment operations............. (.33) 1.52 1.21 1.75 (.06) 1.33 Less distributions to shareholders from: Net investment income.......................... (.60) (.60) (.61) (.60) (.60) ) (.59 Net realized gains............................. -- (.24) (.17) (.22) (.16) ) (.42 In excess of net realized gains................ -- (.03)(b) -- -- -- -- Total distributions.......................... (.60) (.87) (.78) (.82) (.76) )(1.01 Net asset value, end of period................. $10.67 $11.60 $10.95 $10.52 $9.59 $10.41 TOTAL RETURN+.................................. (2.9%) 14.1% 11.8% 18.8% (.5%) 13.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)...... $37,176 $37,336 $23,781 $15,632 $12,351 $ 11,610 Ratios to average net assets: Expenses..................................... 1.28% 1.36% 1.51%(a) 1.50%(a) 1.50%(a) (1.88%a) Net investment income........................ 5.40% 5.13% 6.23%(a) 5.91%(a) 6.04%(a) (5.49%a) Portfolio turnover rate........................ 136% 92% 151% 97% 33% 152% MARCH 14, 1988* THROUGH DECEMBER 31, 1988** PER SHARE DATA Net asset value, beginning of period........... $10.00 Income (loss) from investment operations: Net investment income.......................... .39 Net realized and unrealized gain (loss) on investments.................................. .18 Total from investment operations............. .57 Less distributions to shareholders from: Net investment income.......................... (.36) Net realized gains............................. (.12) In excess of net realized gains................ -- Total distributions.......................... (.48) Net asset value, end of period................. $10.09 TOTAL RETURN+.................................. 5.8% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)...... $9,449 Ratios to average net assets: Expenses..................................... 2.00%++ Net investment income........................ 5.01%++ Portfolio turnover rate........................ 52%
* Commencement of operations. ** Investment income, expenses and net investment income are based upon the average monthly shares outstanding for the period indicated. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1992 1991 1990 1989 Expenses.................................................... 1.59% 1.82% 1.95% 2.03% Net investment income....................................... 6.15% 5.59% 5.59% 5.34%
(b) Distributions in excess of net realized gains were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes. 10 EVERGREEN FOUNDATION FUND -- CLASS Y SHARES
JANUARY 2, 1990* YEAR ENDED DECEMBER 31, THROUGH 1994 1993 1992 1991 DECEMBER 31, 1990 PER SHARE DATA Net asset value, beginning of period................................. $13.12 $11.98 $10.75 $8.95 $10.00 Income (loss) from investment operations: Net investment income................................................ .42 .31 .27 .33 1.23(b) Net realized and unrealized gain (loss) on investments............... (.57) 1.55 1.83 2.77 (.59) Total from investment operations................................... (.15) 1.86 2.10 3.10 .64 Less distributions to shareholders from: Net investment income................................................ (.42) (.31) (.24) (.33) (1.17) Net realized gains................................................... (.28) (.41) (.63) (.97) (.52) Total distributions................................................ (.70) (.72) (.87) (1.30) (1.69) Net asset value, end of period....................................... $12.27 $13.12 $11.98 $10.75 $8.95 TOTAL RETURN+........................................................ (1.1%) 15.7% 20.0% 36.4% 6.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions).............................. $332 $240 $64 $11 $2 Ratios to average net assets: Expenses........................................................... 1.14% 1.20% 1.40%(a) 1.20%(a) 0%(a)++ Net investment income.............................................. 3.51% 2.81% 2.93%(a) 2.86%(a) 15.07%(a,b)++ Portfolio turnover rate.............................................. 33% 60% 127% 178% 131%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized (a) Net of expense waivers and reimbursements by the Adviser. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 2, 1990 YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, 1992 1991 1990 Expenses................................................... 1.43% 2.58% 3.64% Net investment income...................................... 2.90% 1.48% 11.43%
(b) Includes receipt of a special dividend representing $.62 per share net investment income and 7.59% of average net assets. 11 EVERGREEN TOTAL RETURN FUND -- CLASS A, B AND C SHARES
CLASS A CLASS B CLASS C SHARES SHARES SHARES JANUARY 3, 1995* THROUGH JANUARY 31, 1995 PER SHARE DATA Net asset value, beginning of period........................................................ $17.09 $17.09 $17.09 Income from investment operations: Net investment income....................................................................... .02 .02 .01 Net realized and unrealized gain on investments............................................. .17 .17 .17 Total from investment operations.......................................................... .19 .19 .18 Net asset value, end of period.............................................................. $17.28 $17.28 $17.27 TOTAL RETURN+............................................................................... 1.1% 1.1% 1.1% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................................... $119 $599 $24 Ratios to average net assets: Expenses.................................................................................. 1.45% ++ 2.23% ++ 2.22% ++ Net investment income..................................................................... 4.09% ++ 3.23% ++ 2.68% ++ Portfolio turnover rate**................................................................... 151% 151% 151%
* Commencement of class operations. ** Portfolio turnover rate is calculated for the ten month period ended January 31, 1995. + Total return calculated is for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. 12 EVERGREEN TOTAL RETURN FUND -- CLASS Y SHARES
TEN MONTHS ENDED JANUARY YEAR ENDED MARCH 31, 31, 1995* 1994 1993 1992 1991 1990 1989 1988 1987 PER SHARE DATA Net asset value, beginning of period........................... $18.29 $20.90 $18.82 $18.12 $18.26 $17.92 $17.11 $20.37 $19.72 Income (loss) from investment operations: Net investment income................. 87 1.08 1.11 1.08 1.02 1.07 1.12 1.06 1.14 Net realized and unrealized gain (loss) on investments............... (.55) (1.41) 2.51 .70 (.08) .36 .79 (2.64) 1.76 Total from investment operations........................ .32 (.33) 3.62 1.78 .94 1.43 1.91 (1.58) 2.90 Less distributions to shareholders from: Net investment income................. (1.08) (1.08) (1.08) (1.08) (1.08) (1.09) (1.08) (.80) (1.14) Net realized gains.................... (.25) (1.20) (.46) -- -- -- (.02) (.88) (1.11) Total distributions................. (1.33) (2.28) (1.54) (1.08) (1.08) (1.09) (1.10) (1.68) (2.25) Net asset value, end of period........ $17.28 $18.29 $20.90 $18.82 $18.12 $18.26 $17.92 $17.11 $20.37 TOTAL RETURN+......................... 1.9% (2.1%) 20.2% 10.2% 5.8% 7.9% 1.3% (7.8%) 15.7% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)....................... $942 $1,065 $1,142 $1,032 $1,151 $1,292 $1,312 $1,346 $1,636 Ratios to average net assets: Expenses............................ 1.24%++ 1.18% 1.18% 1.21% 1.23% 1.18% 1.02%** 1.01%** 1.02%** Net investment income............... 5.70%++ 5.29% 5.65% 5.73% 5.90% 5.64% 6.36%** 5.80%** 5.68%** Portfolio turnover rate............... 151% 106% 164% 137% 137% 89% 86% 81% 44% 1986 PER SHARE DATA Net asset value, beginning of period........................... $16.63 Income (loss) from investment operations: Net investment income................. 1.03 Net realized and unrealized gain (loss) on investments............... 4.26 Total from investment operations........................ 5.29 Less distributions to shareholders from: Net investment income................. (1.22) Net realized gains.................... (.98) Total distributions................. (2.20) Net asset value, end of period........ $19.72 TOTAL RETURN+......................... 35.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)....................... $408 Ratios to average net assets: Expenses............................ 1.11%** Net investment income............... 6.06%** Portfolio turnover rate............... 65%
* On September 21, 1994, the Fund changed its fiscal year end to January 31. ** Net of expense limitation in fiscal years 1986, 1987, 1988 and 1989. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. 13 14 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Balanced Fund The investment objective of the Evergreen Balanced Fund (formerly First Union Balanced Portfolio) is to achieve a long-term total return through capital appreciation, dividends and interest income. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund invests in common and preferred stocks for growth and fixed income securities to provide a stable income flow. There can be no assurance that the Fund's investment objective will be achieved. The percentage of the Fund's assets invested in common and preferred stocks will vary from time to time in accordance with changing economic and market conditions. It is anticipated that over the long term the Fund's portfolio will average 60% in common and preferred stocks and 40% in bonds. However, normally the Fund's asset allocation will range between 40-75% in common and preferred stocks, 25-50% fixed income securities (including some convertible securities) and 0-25% cash equivalents. Moderate shifts between types of assets are made in an attempt to maximize returns or reduce risk. The Funds invest in common, preferred and convertible preferred stocks and bonds of U.S. companies with a minimum of $100 million in market capitalization and which are listed on major stock exchanges or traded over-the-counter. The criteria for such investment selection includes a company's financial strength (such as cash flow and low debt-to-equity ratio), earnings growth and price in relation to current earnings, dividends and book value to identify growth opportunities. The Fund may also invest in American Depositary Receipts ("ADRs") of foreign companies which are traded on the New York or American Stock Exchanges or the over-the-counter market. The fixed income portion of the Fund's portfolio may be invested in corporate bonds (including convertible bonds) which are rated A or higher by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or any other nationally recognized statistical rating organization ("SRO"), or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser. Bonds are selected based upon the outlook for interest rates and their yield in relation to other bonds of similar quality and maturity. The maturities of these bonds may be medium (i.e., from five to ten years) to long-term (i.e., over ten years), but in no event will they be longer than twenty years. The Fund also invests in securities which are either issued or guaranteed by the U.S. government, its agencies or instrumentalities. These securities include direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds and discount notes of U.S. government agencies or instrumentalities, such as the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, Tennessee Valley Authority, Export-Import Bank of the United State, Commodity Credit Corporation, Federal Financing Bank and National Credit Union Administration. Some of these securities are supported by the full faith and credit of the U.S. government, and others are supported only by the credit of the agency or instrumentality. The Fund may also invest short-term in cash equivalents for defensive purposes; securities issued and/or guaranteed by the U.S. government, its agencies or instrumentalities, and repurchase agreements collateralized by eligible investments. As of December 31, 1992, 1993 and 1994, approximately 59%, 63% and 55%, respectively, of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Growth and Income Fund The investment objective of Evergreen Growth and Income Fund (formerly known as the Evergreen Value Timing Fund) is to achieve a return composed of capital appreciation in the value of its shares and current income. (The Fund's investment objective is a fundamental policy.) There can be no assurance that the Fund's investment objective will be achieved. The Fund seeks to achieve its investment objective by investing in the securities of companies which are undervalued in the marketplace relative to those companies' assets, breakup value, earnings or potential earnings growth. These companies are often found among those which have had a record of financial success but are currently in disfavor in the marketplace for reasons the Fund's investment adviser perceives as temporary or erroneous. Such investments when successfully timed are expected to be the means for achieving the Fund's investment objective. This inherently contrarian approach may require greater reliance upon the analytical and research capabilities of the Fund's investment adviser than an investment in certain other equity funds. Consequently, an investment in the Fund may involve more risk than other equity funds. The Fund should not be considered suitable for investors who are unable or unwilling to assume the risks of loss inherent in such a program. Nor should the Fund be considered a balanced or complete investment program. The Fund will use the "value timing" approach as a process for purchasing securities when events indicate that fundamental investment values are being ignored in the marketplace. Fundamental investment value is based on one or more of the following: assets -- tangible and intangible (examples of the latter include brand names or licenses), capitalization of earnings, cash flow or potential earnings growth. A discrepancy between market valuation and fundamental value often arises due to the presence of unrecognized assets or business opportunities, or as a result of incorrectly perceived or short-term negative factors. Changes in regulations, basic economic or monetary shifts and legal action (including the initiation of bankruptcy proceedings) are some of the factors that create these capital appreciation opportunities. If the securities in which the Fund invests never reach their perceived potential or the valuation of such securities in the marketplace does not in fact reflect significant undervaluation, there may be little or no appreciation or a depreciation in the value of such securities. The Fund will invest primarily in common stocks and securities convertible into or exchangeable for common stock. It is anticipated that the Fund's investments in these securities will contribute to the Fund's return primarily through capital appreciation. In addition, the Fund will invest in nonconvertible preferred stocks and debt securities. It is anticipated that the Fund's investments in these securities will also produce capital appreciation but the current income component of return will be a more significant factor in their selection. However, the Fund will invest in nonconvertible preferred stock and debt securities only if the anticipated capital appreciation plus income from such investments is equivalent to that anticipated from investments in equity or equity-related securities. The Fund may invest up to 5% of its total assets in debt securities which are rated below investment grade, commonly known as "junk bonds". Investments of this type are subject to greater risk of loss of principal and interest. It is anticipated that the annual portfolio turnover rate for the Fund will not exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Value Fund The investment objective of the Evergreen Value Fund (formerly the First Union Value Portfolio) is long-term capital appreciation with current income as a secondary objective. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. Normally, at least 75% of the Fund's assets will be invested in equity securities of U.S. companies with prospects for earnings growth and dividends. There can be no assurance that the Fund's investment objective will be achieved. The Fund's investments, in order of priority, consist of: common and preferred stocks, bonds and convertible preferred stock of U.S. companies with a minimum market capitalization of $100 million which are listed on the New York or American Stock Exchanges or traded in over-the-counter markets. The primary consideration is for those industries and companies with the potential for capital appreciation; income is a secondary consideration; ADRs of foreign companies traded on the New York or American Stock Exchanges or the over-the-counter market; foreign securities (either foreign or U.S. securities traded in foreign markets). The Fund may also invest in obligations denominated in foreign currencies. In making these decisions, the Fund's investment adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation implications and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions Special Risk Considerations"); convertible bonds rated no lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be of comparable quality by the Fund's investment adviser; money market instruments; fixed rate notes and bonds and adjustable and variable rate notes of companies whose common stock the Fund may acquire rated no lower than BBB by S&P or Baa by Moody's or which, if not rated, determined to be of comparable quality by the Fund's investment adviser (up to 5% of total assets); zero coupon bonds issued or guaranteed by the U.S. government, its agencies or instrumentalities (up to 5% of total assets); obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits and insured by the Bank Insurance Fund or the Savings Association Insurance Fund, including U.S. branches of foreign banks and foreign branches of U.S. banks; and prime commercial paper, including master demand notes rated no lower than A-1 by S&P or Prime 1 by Moody's. Bonds rated BBB by S&P or Baa by Moody's may have speculative characteristics. Changes in economic conditions or other circumstances are more likely to weaken such bonds' prospects for principal and interests payments than higher rated bonds. However, like the higher rated bonds, these securities are considered investment grade. As of December 31, 1992, 1993 and 1994, approximately 92%, 95% and 97%, respectively, of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen American Retirement Fund The investment objectives of Evergreen American Retirement Fund in order of priority are conservation of capital, reasonable income and capital growth. The Fund offers a structured investment approach designed specifically for retirees and persons contemplating retirement which may also be appropriate for the qualified retirement plans of smaller companies. There can be no assurance that the Fund's investment objectives will be achieved. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. The Fund will invest in a diversified and balanced portfolio of equity and fixed income securities, with emphasis on income-producing securities which appear to have potential for capital enhancement. Ordinarily, the Fund anticipates that approximately 50% of its portfolio will consist of equity securities (including securities convertible into equity securities) and 50% of fixed income securities. The Fund's investment adviser may vary the amount invested in each type of security in response to changing market conditions to take advantage of relative undervaluation in either the stock or bond markets. The Fund will, however, not make an additional investment in equity securities if more than 75% of its total assets at the time the investment is made would include investments in equity securities. Generally, approximately half of the equity portion of the Fund's portfolio will be invested in common stocks which the Fund's investment adviser believes will yield current income and have potential for long-term capital growth and half in bonds and preferred stocks convertible into such common stock. With respect to the fixed income portion of the Fund's portfolio, emphasis will be placed on acquiring non-speculative issues expected to fluctuate little in value, except with changes in prevailing interest rates. The market value of the debt obligations in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short and medium to long-term maturities. Investment in medium (i.e., with maturities from five to ten years) to long-term (i.e., with maturities over ten years) debt securities may also be made with a view to realizing capital appreciation when the Fund's investment adviser believes that interest rates on such investments may decline, thereby increasing their market value. Normally, the Fund anticipates that approximately half of the fixed income portion of the Fund's portfolio will be invested in marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities which are supported by the full faith and credit of the United States or by the right of the issuer to borrow from the U.S. Treasury. These include issues of the Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Examples of agencies or instrumentalities whose securities are supported by the right of the issuer to borrow from the Treasury include, but are not limited to, the Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal National Mortgage Association and Tennessee Valley Authority. The balance will be invested in corporate obligations rated no lower than A by Moody's or S&P. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Foundation Fund The investment objectives of Evergreen Foundation Fund, in order of priority, are reasonable income, conservation of capital and capital appreciation. The Fund seeks to achieve these objectives by investing in a combination of common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, corporate and U.S. Government debt obligations, and short-term debt instruments, such as commercial paper. Additionally, income from time to time may be generated by the lending of securities. The Fund's common stock investments will include those which (at the time of purchase) pay dividends and in the view of the Fund's investment adviser have potential for capital enhancement. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objectives will be achieved. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. The Fund's asset allocation will vary from time to time in accordance with changing economic and market conditions, including: inflation rates, business cycle trends, business regulations and tax law impacts on the investment markets. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Under normal circumstances, the Fund anticipates that at least 25% of its net assets will consist of fixed income securities. The balance will be invested in equity securities (including securities convertible into equity securities). In selecting fixed income securities for the Fund's portfolio, emphasis will be placed on issues expected to fluctuate little in value other than as a result of changes in prevailing interest rates. The market value of the debt obligations in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short, medium or long-term maturities. While fixed income investments will generally be made for the purpose of generating interest income, investments in medium to long-term debt securities (i.e., those with maturities from five to ten years and those with maturities over ten years, respectively) may be made with a view to realizing capital appreciation when the Fund's investment adviser believes changes in interest rates will lead to an increase in the value of such securities. The fixed income portion of the Fund's portfolio may include: 1. Marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities, including issues of the U.S. Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Some of these securities are supported by the full faith and credit of the U.S. Government, and others are supported only by the credit of the agency or instrumentality. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Agencies or instrumentalities whose securities are supported only by the credit of the agency or instrumentality include the Interamerican Development Bank and the International Bank for Reconstruction and Development. These obligations are supported by appropriated but unpaid commitments of their member countries. There are no assurances that the commitments will be fulfilled in the future. 2. Corporate obligations rated no lower than A by Moody's or S&P. 3. Obligations of banks or banking institutions having total assets of more than $2 billion which are members of the Federal Deposit Insurance Corporation. 4. Commercial paper of high quality (rated no lower than A-2 by S&P or Prime-2 by Moody's or, if not rated, issued by companies which have an outstanding long-term debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's). Certain obligations may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Total Return Fund The investment objective of Evergreen Total Return Fund is to achieve a return consisting of current income and capital appreciation in the value of its shares. The emphasis on current income and capital appreciation will be relatively equal although, over time, changes in the outlook for market conditions and the level of interest rates will cause the Fund to vary its emphasis between these two elements in its search for the optimum return for its shareholders. The Fund seeks to achieve its investment objective through investments in common stocks, preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. The Fund may invest up to 20% of its total assets in the securities of foreign issuers either directly or in the form of ADRs, European Depository Receipts ("EDRs") or other securities convertible into securities of foreign issuers. The Fund may also write covered call options. The Fund's investment objective is a fundamental policy. There can be no assurance that the Fund's investment objective will be achieved. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities (other than options) regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields, as well as opportunities to realize net gains from a covered call options writing program, are expected to fluctuate over time because of varying general economic and market conditions. The Fund's portfolio will vary over time depending upon the economic outlook and market conditions. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Ordinarily, the Fund anticipates that approximately 75% of its portfolio will consist of equity securities and the other 25% of debt securities (including convertible debt securities). As of March 31, 1993 and 1994 and January 31, 1995, approximately 88%, 96% and 91%, respectively, of the Fund's portfolio consisted of equity securities. The balance of the Fund's portfolio consisted of debt securities (including convertible debt securities). If, in the judgment of the Fund's investment adviser, the appreciation potential for equity securities exceeds the return available from debt securities or government securities, investments in equity securities could exceed 75% of the Fund's portfolio. Most equity investments, however, will be income producing. The quality standards for debt securities include: Obligations of banks having total assets of at least one billion dollars which are members of the FDIC; commercial paper rated no lower than P-2 by Moody's or A-2 by S&P; and non-convertible debt securities rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated Baa or BBB may have speculative characteristics. See the discussion above with respect to Evergreen Value Fund. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of the Funds' investment advisers, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund must pay. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for the Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund on those exchanges. The portfolio turnover rate for each Fund is set forth in the tables contained in the section entitled "Financial Highlights". See the Statement of Additional Information for further information regarding the brokerage allocation practices of the Funds. Borrowing. As a matter of fundamental policy, the Funds, except Evergreen American Retirement Fund, may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. Evergreen American Retirement Fund may borrow for purposes of leverage. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the net assets of the Evergreen Total Return Fund, Evergreen Growth and Income Fund and Evergreen American Retirement Fund, 30% of the net assets of the Evergreen Foundation Fund, and 5% of the value of the total assets of Evergreen Balanced Fund and Evergreen Value Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Short Sales. The Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen Balanced Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund may, as a defensive strategy, make short sales of securities. A short sale occurs when a seller sells a security and makes delivery to the buyer by borrowing the security. Short sales of a security are generally made in cases where the seller expects the market value of the security to decline. To complete a short sale, the seller must replace the security borrowed by purchasing it at the market price at the time of replacement, or by delivering securities from the seller's own position to the lender. In the event the market value of a security sold short were to increase, the seller would realize a loss to the extent that the cost of purchasing the security for delivery to the lender were greater than the proceeds from the short sale. In the event a short sale is completed by delivery of securities to the lender from the seller's own position, the seller would forego any gain that would otherwise be realized on such securities. The Evergreen American Retirement Fund and Evergreen Foundation Fund may only make short sales "against the box" which means it must own the securities sold short, or other securities convertible into, or which carry rights to acquire, such securities. Illiquid or Restricted Securities. Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund may invest up to 15% of their net assets, and Evergreen Balanced Fund and Evergreen Value Fund may invest up to 10% of their net assets, in illiquid securities and other securities which are not readily marketable, including non-negotiable time deposits, certain restricted securities not deemed by the Trustees to be liquid and repurchase agreements with maturities longer than seven days. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% or 10 % limits. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the Funds' investment advisers on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15%, or with respect to Evergreen Value Fund 10%, of its assets invested in illiquid or not readily marketable securities. Repurchase Agreements and Reverse Repurchase Agreements. Evergreen Growth and Income Fund, Evergreen Balanced Fund, Evergreen Value Fund and Evergreen Total Return Fund may enter into repurchase agreements with member banks of the Federal Reserve System, including the Custodian or primary dealers in U.S. Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during the holding period. A Fund requires continued maintenance of collateral with its Custodian in an amount at least equal to the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. The Funds' investment advisers will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. Evergreen Balanced Fund and Evergreen Value Fund may borrow money by entering into a "reverse repurchase agreement" by which it agrees to sell portfolio securities to financial institutions such as banks and broker-dealers, and to repurchase them at a mutually agreed upon date and price, for temporary or emergency purposes. At the time the Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, U.S. government securities or liquid high grade debt obligations having a value at least equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. Each Fund will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets. When-Issued and Delayed Delivery Transactions. Evergreen Balanced Fund and Evergreen Value Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which a Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause a Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, a Fund may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the Funds investment adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Fixed Income Securities - Downgrades. If any security invested in by any of the Funds 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. Options and Futures. Each of Evergreen Total Return Fund, Evergreen Growth and Income Fund and Evergreen American Retirement Fund may write covered call options on certain portfolio securities in an attempt to earn income and realize a higher return on its portfolio. A call option may not be written by the Funds if, afterwards, securities comprising more than 25% of the market value of the equity securities of Evergreen Growth and Income Fund and Evergreen Total Return Fund, or 15% of the market value of the equity securities of Evergreen American Retirement Fund would be subject to call options. A Fund realizes income from the premium paid to it in exchange for writing the call option. Once it has written a call option on a portfolio security and until the expiration of such option, a Fund forgoes the opportunity to profit from increases in the market price of such security in excess of the exercise price of the call option. Should the price of the security on which a call has been written decline, a Fund retains the risk of loss, which would be offset to the extent the Fund has received premium income. A Fund will only write "covered" call options traded on U.S. national securities exchanges. An option will be deemed covered when a Fund either (i) owns the security (or securities convertible into such security) on which the option has been written in an amount sufficient to satisfy the obligations arising under the option; or (ii) a Fund's Custodian maintains cash or high-grade liquid debt securities belonging to the Fund in an amount not less that the amount needed to satisfy the Fund's obligations with respect to options written on securities it does not own. A "closing purchase transaction" may be entered into with respect to a call option written by a Fund for the purpose of closing its position. Evergreen Balanced Fund and Evergreen Value Fund may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market, interest rate or exchange rate risk, and the Funds do not use these transactions for speculation or leverage. Evergreen Balanced Fund and Evergreen Value Fund may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights and segregated cash subject to puts and calls until the options are exercised, closed or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds may also write straddles (combinations of covered puts and calls on the same underlying security). Evergreen Balanced Fund and Evergreen Value Fund may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. Evergreen Balanced Fund and Evergreen Value Fund may also, as stated previously, purchase futures contracts and options thereon. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specific agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into currency and other financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities, currencies or index-based futures contracts in order to hedge against changes in interest or exchange rates or securities prices. A futures contract on securities or currencies is an agreement to buy or sell securities or currencies during a designated month at whatever price exists at that time. A futures contact on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase currency and other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities or currencies declines and to fall when the value of such securities or currencies increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities or currencies. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities or currencies increases and to fall when the value of such securities or currencies declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case the Funds would continue to bear market risk on the transaction. Risk Characteristics of Options and Futures. Although options and futures transactions are intended to enable the Funds to manage market, exchange or interest rate risks, these investment devices can be highly volatile, and the Funds use of them can result in poorer performance (i.e., the Funds return may be reduced). The Funds attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contract and options on financial futures contract as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the Funds investment adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements and other economic factors. Even if the Funds investment adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the Funds investment adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. Special Risk Considerations Investment in Foreign Securities. Evergreen Total Return Fund, Evergreen Balanced Fund and Evergreen Value Fund may invest in foreign securities. Investments in foreign securities require consideration of certain factors not normally associated with investments in securities of U.S. issuers. For example, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of securities denominated in that currency. Accordingly, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of the assets of the Fund denominated or traded in that currency. If the value of a particular foreign currency falls relative to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in such currency will also fall. The performance of a Fund will be measured in U.S. dollars. Securities markets of foreign countries generally are not subject to the same degree of regulation as the U.S. markets and may be more volatile and less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell large blocks of securities and thus obtain the best price. The lack of uniform accounting standards and practices among countries impairs the validity of direct comparisons of valuation measures (such as price/earnings ratios) for securities in different countries. In addition, a Fund may incur costs associated with currency hedging and the conversion of foreign currency into U.S. dollars and may be adversely affected by restrictions on the conversion or transfer of foreign currency. Other considerations include political and social instability, expropriation, the lack of available information, higher transaction costs (including brokerage charges), increased custodian charges associated with holding foreign securities and different securities settlement practices. Settlement periods for foreign securities, which are sometimes longer than those for securities of U.S. issuers, may affect portfolio liquidity. These different settlement practices may cause missed purchasing opportunities and/or the loss of interest on money market and debt investments pending further equity or long-term debt investments. In addition, foreign securities held by a Fund may be traded on days that the Fund does not value its portfolio securities, such as Saturdays and customary business holidays, and, accordingly, a Fund's net asset value may be significantly affected on days when shareholders do not have access to the Fund. Additionally, accounting procedures and government supervision may be less stringent than those applicable to U.S. companies. It may also be more difficult to enforce contractual obligations abroad than would be the case in the United States because of differences in the legal systems. Foreign securities may be subject to foreign taxes, which may reduce yield, and may be less marketable than comparable U.S. securities. All these factors are considered by each Fund's investment adviser before making any of these types of investments. ADRs and EDRs and other securities convertible into securities of foreign issuers may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. Unless otherwise noted, the restrictions and policies set forth above are not fundamental and may be changed without shareholder approval. Shareholders will be notified of any changes in policies that are not fundamental. - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). Evergreen Asset Management Corp. ("Evergreen Asset") has been retained by Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Balanced Fund and Evergreen Value Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds) . First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive a from each of Evergreen Total Return Fund and Evergreen Growth and Income Fund fee equal to 1% of average daily net assets on an annual basis on the first $750 million in assets, .9 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .8 of 1% of average daily net assets on an annual basis on assets over $1 billion. Evergreen Asset is entitled to receive from Evergreen Foundation Fund a fee equal to .875 of 1% of average daily net assets on an annual basis on the first $750 million in assets, .75 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion, and from Evergreen American Retirement Fund a fee equal to .75 of 1% of average daily net assets on an annual basis on the first $1 billion in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion. The fee paid by Evergreen Total Return Fund and Evergreen Growth and Income Fund is higher than the rate paid by most other investment companies. The total expenses of each Fund for the fiscal year ended December 31, 1994, expressed as a percentage of average daily net assets on an annual basis are set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen Balanced Fund and Evergreen Value Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund. The total annualized operating expenses of Evergreen Balanced Fund and Evergreen Value Fund for their most recent fiscal year ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Balanced Fund and Evergreen Value Fund and is entitled to receive a fee based on the average daily net assets of these Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Balanced Fund and Evergreen Value Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Total Return Fund is Nola Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of Evergreen Asset. Ms. Falcone has served as the principal manager of Evergreen Total Return Fund since 1985. The portfolio manager for Evergreen Foundation Fund is Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of the Evergreen Asset. Mr. Lieber has served as such Fund's principal manager since its inception. The portfolio manager for Evergreen Growth and Income Fund is Edmund H. Nicklin, Jr. C.F.A. Mr. Nicklin has served as the Fund's principal manager since its inception. The portfolio manager for Evergreen American Retirement Fund is Irene D. O'Neill, C.F.A. Ms. O'Neill has served as the Fund's principal manager since its inception. Each of the aforementioned individuals has been associated with the Evergreen Asset and its predecessor since prior to 1989. The portfolio manager for Evergreen Balanced Fund since its inception in January 1991 is R. Dean Hawes, who is a Vice President of FUNB and is the Director of Employee Benefit Portfolio Management. Mr. Hawes joined FUNB in 1981 after spending five years with Merrill Lynch, Pierce, Fenner, & Smith and Townsend Investments. William T. Davis, Jr., the portfolio manager of Evergreen Value Fund since March, 1991, is a Vice President of FUNB and has been with First Union since 1986. Prior to that, Mr. Davis served as a securities analyst for Seibels Bruce (Insurance) Group. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A, Class B and Class C shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, 1.00% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund, and .75 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen Balanced Fund and Evergreen Value Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Evergreen Balanced Fund and Evergreen Value Fund have each, in addition to the Plans adopted with respect to their Class B and Class C shares, adopted shareholder service plans ("Service Plans") relating to the Class B and Class C shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plan, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares, .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class C shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans ( and in the case of Evergreen Balanced Fund and Evergreen Value Fund, the Service Plans), in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B and Class C shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment program. Share certificates are not issued for Class A, Class B and Class C shares. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A, Class B and Class C shares are offered through this Prospectus (See "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee on transactions in shares of a Fund. Class A shares may also be purchased at net asset value by qualified and non-qualified employee benefit and savings plans which make shares of the Funds and the other Evergreen mutual funds available to their participants, and which: (a) are employee benefit plans having at least $1,000,000 in investable assets, or 250 or more eligible participants; or (b) are non-qualified benefit or profit sharing plans which are sponsored by an organization which also makes the Evergreen mutual funds available through a qualified plan meeting the criteria specified under (a). In connection with sales made to plans of the type described in the preceeding sentence that are clients of broker-dealers, and which do not qualify for sales at net asset value under the conditions set forth in the paragraph above, payments may be made in an amount equal to .50 of 1% of the net asset value of shares purchased. These payments are subject to reclaim in the event shares are redeemed within 12 months after purchase. When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .25 of 1% of the average daily value on an annual basis of Class A shares held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which it is expected that they will convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. Class C Shares--Level-Load Alternative. You can purchase Class C shares without any initial sales charge and, therefore, the full amount of your investment will be used to purchase Fund shares. However, you will pay a 1.0% CDSC if you redeem shares during the first year after purchase. Class C shares incur higher distribution and/or shareholder service fees than Class A shares but, unlike Class B shares, do not convert to any other class of shares of the Fund. The higher fees mean a higher expense ratio, so Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. No contingent deferred sales charge will be imposed on Class C shares purchased by institutional investors, and through employee benefit and savings plans eligible for the exemption from front-end sales charges described under "Class A Shares-Front End Sales Charge Alternative", above. Broker-dealers and other financial intermediaries whose clients have purchased Class C shares may receive a trailing commission equal to .75 of 1% of the average daily value of such shares on an annual basis held by their clients more than one year from the date of purchase. The payment of trailing commissions will commence immediately with respect to shares eligible for exemption from the contingent deferred sales charge normally applicable to Class C shares. With respect to Class B Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution charges and/or shareholder service fees, after seven years. If you are unsure of the time period of your investment, you might consider Class C shares since there are no initial sales charges and, although there is no conversion feature, the CDSC only applies to redemptions made during the first year. Consult your financial intermediary for further information. The compensation received by dealers and agents may differ depending on whether they sell Class A, Class B or Class C shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen mutual funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or its investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B or Class C shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 10 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B or C shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The redemption of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive sixty days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the Fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B or Class C shares are exchanged for Class B or Class C shares, respectively, of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B or Class C shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the phone number on the front page of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Funds and the other Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from front-end sales charges if they meet the criteria set forth under "Class A Shares-Front End Sales Charge Alternative". Each Fund's investment adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Internal Revenue Code of 1986, as amended (the "Code"). Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen Balanced Fund and Evergreen Value Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. Evergreen Growth and Income Fund The total return of the Class Y no-load shares of the Evergreen Growth and Income Fund was +1.69% for the year ended December 31, 1994. This return compared favorably with the +1.31% return of the Standard and Poor's 500 Reinvested Index (the "S&P 500 Index") and the -0.94% return from the Lipper Growth and Income Fund Average. This performance was achieved through the implementation of the "value timing" strategy which focuses on undervalued securities. At year-end 1994, the majority of the portfolio was comprised of out-of-favor growth companies, restructured companies and other companies which the Fund's investment adviser believes are substantially undervalued. While the domestic economy's rate of growth accelerated dramatically in 1994, the Federal Reserve's more stringent monetary policy resulted in a less hospitable environment for financial assets. The Fund performed well relative to its competition and the S&P 500 Index in 1994, but the Fed's tightening of monetary policy kept the absolute return low, in keeping with the depressing influence on financial assets generally. The principal contributors to the Fund's positive performance during 1994 were the following industries: (1) business equipment and services which facilitated the productivity enhancing efforts of their customers; (2) chemical issues which benefited from the robust economic growth and previous restructuring efforts that lowered cost structures; and (3) shares of healthcare companies which continued their rebound from the market's adverse reaction to the perceived impact of the healthcare program proposed by the Clinton Administration in 1993. The industry groups which had the largest negative impact on the Fund's performance were the following: (i) banks and thrifts, insurance and utilities, all of which suffered from the Federal Reserve's more stringent monetary policy; (ii) retail which suffered from lack of pricing flexibility and excess capacity; and (iii) energy which was negatively impacted by lower prices for natural gas and declining refining margins. [CHART] Evergreen American Retirement Fund The total return of the Class Y no-load shares of the Evergreen American Retirement Fund for the fiscal year ended December 31, 1994, was - -2.86%. This performance lagged the Wilshire 5000 Index which returned -.06% and exceeded the Lehman General Bond Mutual Fund Index which returned -3.51% for the year. The Fund concentrated the equity portion of its portfolio in high dividend-paying common stocks, convertible bonds and convertible preferreds. Fixed-income issues were represented by investments in U.S. Treasury and agency obligations and high quality corporate bonds and notes. Interest rates rose through much of 1994 as the Federal Reserve moved to slow the rapid and potentially inflationary pace of U.S. economic growth. Over the course of the year, the Federal Fund's rate was increased from 3.0% to 5.5%, and market forces lifted interest rates on 30 year U.S. Treasury bonds from 6.35% to 7.88%. This rising interest rate environment was negative for the bond market and produced mixed results for the stock market. Because of the Fund's income-oriented style of investing, this period of rising interest rates negatively affected performance. The industry groups which had the largest positive impact on the Fund's performance included the chemicals and metals industries which benefited from rising demand and product prices, and bank stocks which rose in response to stronger loan growth and reduced loan loss provisions. The Fund was negatively impacted by its holdings in the automotive industry and related suppliers, and utility stocks which declined in response to higher interest rates. The Fund's exposure to utilities was reduced in early 1994 to a group of special situation companies. But even the improving fundamentals of these companies could not overcome the impact of rising rates. Despite strong earnings for the auto industry and suppliers, these stocks declined as the market anticipated slower consumer spending in response to higher rates. The Fund's practice has been to provide a stable quarterly income dividend. During the past fiscal year, the Fund distributed a dividend of $0.15 per quarter. These distributions were funded entirely from net investment income. None represented a return of capital. To maintain the dividend rate the Fund purchased issues which had dividend increases, and frequently repositioned the portfolio in order to assure participation in large dividends (particularly from utility stocks or special dividends announced by other types of companies). The repositioning of the portfolio resulted in higher brokerage commissions. As noted above, the Fund's investment objectives in order of priority are conservation of capital, reasonable income and capital growth. To the extent that the Fund sought to maintain a stable dividend during the past fiscal year and therefore emphasized current income over capital growth, the Fund's overall return may have been reduced. Beginning in the first quarter of 1995, the Fund changed its dividend strategy. The Fund's income dividend distribution will move toward a fluctuating dividend and away from the stable dividend pattern of the past. [CHART] Evergreen Foundation Fund. The total return of the Class Y no-load shares of the Evergreen Foundation Fund for the almost five years since inception on January 2, 1990 to December 31, 1994 was +99.57%, which calculated to an average annual compounded return of +14.83%. This compared favorably with the return of the Standard & Poor's 500 Reinvested Index (+51.45%) and the Lipper Balanced Fund Average (+44.03%) for the same time period. For the fiscal year ended 1994, the Fund produced a total return of -1.12% versus returns of +1.31% for the Standard & Poor's 500 Reinvested Index and -2.52% for the Lipper Balanced Fund Average. Asset allocation was a primary determinant of performance. Consistent with the Fund's investment objectives of reasonable income, conservation of capital and capital appreciation, Evergreen Asset sought to strategically position the Fund to maximize opportunities in each asset class. The average allocation during 1994 was 62% equities, 28% fixed-income and 10% short-term cash equivalents. The equity portion of the portfolio had a return of +4.91% for 1994. The fixed-income segment of the portfolio, whose primary focus is income and preservation of capital, was comprised on average of three-quarters long-term U.S. government obligations and one-quarter short-term cash equivalents. It generated a return of -11.06%, which was in line with its benchmarks, when assessed in terms of credit quality, liquidity and overall weighted maturity. The equity segment of the portfolio was largely responsible for the capital appreciation during 1994. Stock selection focused on issues believed to be conservatively valued and financially strong. Concentration on health care issues provided relative outperformance as these issues benefited from renewed confidence in the growth of pharmaceutical and medical services industries. A secondary focus on technological issues (semi-conductors and electronic components) also provided excellent relative performance, as these sectors benefited from a resurgence in the U.S. economy. The portfolio was negatively impacted by its investments in real estate companies, utilities and banks. Evergreen Total Return Fund. Steady income flow has been an important goal since the inception of the Fund. The Fund continued its annual $1.08 per share income dividend. The dividend was maintained for the seventh successive year. The portfolio of the Evergreen Total Return Fund, although primarily equities and convertibles, has a high level of interest rate sensitivity. Since the Fund seeks to pay a substantial dividend, Evergreen Asset looked toward the utility sector, financial issues, real estate investment trusts, convertible preferreds and convertible debentures to provide high yields. The sharp downward swing in the 1994 bond market had a deleterious effect on the interest sensitive sectors of the equity and convertible markets, particularly impacting utilities, financial and convertible issues. During the period from March 31, 1994 through January 31, 1995, the Dow Jones Utility Average was down -6.23%, the New York Stock Exchange Financial Index was down -3.00%, the Merrill Lynch Convertible Index was down -4.85%, and the Wilshire Real Estate Securities Index was down -3.80%. The performance of the Class Y no-load shares of the Fund for the same period was up +1.86%. This compares also with the performance of the Wilshire 5000 of +6.04% and +3.01% for the Lipper Equity Income Average. One of the best groups in the portfolio was the health sector which rebounded when the Clinton Health Care Plan ran into trouble. Restructured companies as well as selected cyclicals, such as banks and thrift issues and chemicals and energy issues, also helped the portfolio. Five bank and thrift mergers produced gains. During the year, the portfolio was restructured to reduce the utility sector especially electric utilities. Evergreen Asset decided to reduce dependence on this sector as it faces deregulation and resulting competitive pressures. Currently, the Fund's focus is on special situations resulting from such events as rate relief or corporate changes. Evergreen Asset also switched into international issues in order to diversify risk across country lines and to reduce the portfolio's sensitivity to changes in U.S. interest rates. Toward the end of the year, Evergreen Asset added to the portfolio's holdings in the retail sector as it saw a number of these companies at attractive valuation levels. Many of these issues were in the process of restructuring, thereby providing the possibility of improved margins in the near future. The Fund's dividend was funded entirely from net investment income. It did not represent a return of capital. To maintain the dividend rate the Fund purchased issues which had dividend increases, and frequently repositioned the portfolio in order to assure participation in large dividends, particularly from utility stocks or special dividends announced by other types of companies. The repositioning of the portfolio resulted in higher brokerage commissions. As noted above, the Fund's investment objective is to achieve a return consisting of current income and capital appreciation. To the extent that the Fund sought to maintain a stable dividend during the past fiscal year and therefore emphasized current income over capital appreciation, the Fund's overall return may have been reduced. On January 3, 1995, the Fund introduced a multiple class distribution structure. The Fund's total return for the period 1/3/95 to 1/31/95 for the A, B, C and Y Class of Shares was -3.45% (reflects maximum front end sales charge of 4.75%), -3.53% (reflects maximum contingent deferred sales charge of 5%), - -0.41% (reflects 1% contingent deferred sales charge within first year of purchase), and 1.47% (no-load), respectively. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Total Return Fund is a Massachusetts business trust organized in 1986, and was originally organized as Maryland corporation in 1978. Evergreen Growth and Income Fund is a Massachusetts business trust organized in 1986. The Evergreen American Retirement Fund is a separate series of The Evergreen American Retirement Trust, a Massachusetts business trust organized in 1987. Evergreen Foundation Fund is a separate series of the Evergreen Foundation Trust, a Massachusetts business trust organized in 1989. Evergreen Balanced Fund and Evergreen Value Fund are separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Balanced Fund and Evergreen Value Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission ("SEC"), the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN FOUNDATION FUND, EVERGREEN TOTAL RETURN FUND Capital Management Group of First Union National Bank, 210 South College Street, Charlotte, North Carolina, 28228 EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN FOUNDATION FUND Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072 EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 PROSPECTUS July 7, 1995 EVERGREEN(SM) GROWTH AND INCOME FUNDS (Evergreen Logo appears here) EVERGREEN BALANCED FUND EVERGREEN GROWTH AND INCOME FUND EVERGREEN VALUE FUND EVERGREEN AMERICAN RETIREMENT FUND EVERGREEN FOUNDATION FUND EVERGREEN TOTAL RETURN FUND CLASS Y SHARES The Evergreen Growth and Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide capital growth, income and diversification. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Advisers Sub-Adviser Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN FOUNDATION FUND, and EVERGREEN TOTAL RETURN FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND. EVERGREEN BALANCED FUND (formerly First Union Balanced Portfolio) seeks to produce long-term total return through capital appreciation, dividends, and interest income. EVERGREEN GROWTH AND INCOME FUND seeks to achieve a return composed of capital appreciation in the value of its shares and current income. The Fund will attempt to meet its objective by investing in the securities of companies which are undervalued in the marketplace relative to those companies' assets, breakup value, earnings, or potential earnings growth. EVERGREEN VALUE FUND (formerly First Union Value Portfolio) seeks long-term capital growth, with current income as a secondary objective. EVERGREEN AMERICAN RETIREMENT FUND seeks, in order of priority, conservation of capital, reasonable income and capital growth. To achieve these objectives, the Fund invests in a diversified and balanced portfolio of equity and fixed income securities, with emphasis on income-producing securities which appear to have potential for capital appreciation. Investments in equity securities will be limited to 75% of the value of the Fund's total assets measured at the time any such investment is made. Normally, the Fund anticipates that approximately half of the fixed income portion of the Fund's portfolio will be invested in marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities. EVERGREEN FOUNDATION FUND seeks, in order of priority, reasonable income, conservation of capital and capital appreciation. The Fund invests principally in income-producing common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. EVERGREEN TOTAL RETURN FUND attempts to maximize the "total return" on its portfolio of investments. It invests primarily in common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN BALANCED FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .50% After 1 Year $ 6 Administrative Fees .06% After 3 Years $ 20 12b-1 Fees -- After 5 Years $ 35 Other Expenses .06% After 10 Years $ 77 Total .62%
EVERGREEN GROWTH AND INCOME FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees 1.00% After 1 Year $ 14 12b-1 Fees -- After 3 Years $ 42 Other Expenses .33% After 5 Years $ 73 After 10 Years $ 160 Total 1.33%
EVERGREEN VALUE FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .50% After 1 Year $ 7 Administrative Fees .06% After 3 Years $ 21 12b-1 Fees -- After 5 Years $ 37 Other Expenses .10% After 10 Years $ 82 Total .66%
EVERGREEN AMERICAN RETIREMENT FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .75% After 1 Year $ 13 12b-1 Fees -- After 3 Years $ 41 Other Expenses .53% After 5 Years $ 70 After 10 Years $ 155 Total 1.28%
3 EVERGREEN FOUNDATION FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .875% After 1 Year $ 12 12b-1 Fees -- After 3 Years $ 36 Other Expenses .265% After 5 Years $ 63 After 10 Years $ 139 Total 1.14%
EVERGREEN TOTAL RETURN FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees 1.00% After 1 Year $ 13 12b-1 Fees -- After 3 Years $ 39 Other Expenses .24% After 5 Years $ 68 After 10 Years $ 150 Total 1.24%
The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund's Y Class for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent years or the life of the Fund if shorter for EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, for EVERGREEN FOUNDATION FUND has been audited by Price Waterhouse LLP, the Fund's independent auditors and for EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN TOTAL RETURN FUND has been audited by Ernst & Young LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No financial highlights are shown for Class A, B or C shares of EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND or EVERGREEN FOUNDATION FUND, since these classes did not have any operations prior to December 31, 1994. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN BALANCED FUND -- CLASS A, B, C AND Y SHARES
CLASS A CLASS Y SHARES CLASS B CLASS C SHARES SHARES SHARES JUNE 10, JANUARY 26, SEPTEMBER 2, 1991* 1993* 1994* YEAR ENDED THROUGH YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1992 1991 1994 1993 1994 1994 1993 1992 PER SHARE DATA Net asset value, beginning of period............. $12.07 $11.41 $11.02 $10.00 $12.08 $11.54 $12.00 $12.07 $11.41 $11.02 Income (loss) from investment operations: Net investment income............. .43 .42 .42 .30 .36 .34 .18 .46 .45 .46 Net realized and unrealized gain (loss) on investments........ (.71) .75 .43 1.08 (.71) .65 (.61) (.71) .75 .42 Total from investment operations....... (.28) 1.17 .85 1.38 (.35) .99 (.43) (.25) 1.20 .88 Less distributions to shareholders from: Net investment income............. (.43) (.42) (.42) (.35) (.36) (.34) (.21) (.46) (.45) (.45) Net realized gains.............. (.19) (.09) (.04) (.01) (.19) (.09) (.19) (.19) (.09) (.04) In excess of net investment income............. -- -- -- -- -- (.02)(a) -- -- -- -- Total distributions..... (.62) (.51) (.46) (.36) (.55) (.45) (.40) (.65) (.54) (.49) Net asset value, end of period.......... $11.17 $12.07 $11.41 $11.02 $11.18 $12.08 $11.17 $11.17 $12.07 $11.41 TOTAL RETURN+....... (2.4%) 10.4% 7.9% 11.8% (3.0%) 8.7% (3.6%) (2.2%) 10.7% 8.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $41,010 $35,032 $17,408 $334 $100,052 $65,475 $195 $778,657 $760,147 $520,232 Ratios to average net assets: Expenses........... .89% .91% .91% .92%++ 1.48% 1.41%++ 1.64%++ .64% .66% .66% Net investment income............. 3.69% 3.61% 3.93% 4.38%++ 3.12% 3.09%++ 3.23%++ 3.93% 3.86% 4.20% Portfolio turnover rate............... 35% 19% 12% 19% 35% 19% 35% 35% 19% 12% APRIL 1, 1991* THROUGH DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period............. $10.00 Income (loss) from investment operations: Net investment income............. .36 Net realized and unrealized gain (loss) on investments........ 1.03 Total from investment operations....... 1.39 Less distributions to shareholders from: Net investment income............. (.36) Net realized gains.............. (.01) In excess of net investment income............. -- Total distributions..... (.37) Net asset value, end of period.......... $11.02 TOTAL RETURN+....... 15.0% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $247,472 Ratios to average net assets: Expenses........... .68%++ Net investment income............. 4.86%++ Portfolio turnover rate............... 19%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Distributions in excess of net investment income for the year ended December 31, 1993 were the result of certain book and tax differences. These differences did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993. 5 EVERGREEN GROWTH AND INCOME FUND -- CLASS Y SHARES
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 1988** 1987** PER SHARE DATA Net asset value, beginning of period...... $15.41 $14.18 $12.99 $10.72 $12.03 $10.62 $9.38 $10.05 Income (loss) from investment operations: Net investment income..................... .14 .14 .15 .19 .30 .52 .19 .20 Net realized and unrealized gain (loss) on investments............................. .12 1.91 1.65 2.58 (.84) 2.17 2.10 (.63) Total from investment operations........ .26 2.05 1.80 2.77 (.54) 2.69 2.29 (.43) Less distributions to shareholders from: Net investment income..................... (.14) (.14) (.15) (.19) (.30) (.52) (.19) (.24) Net realized gains........................ (1.01) (.68) (.46) (.31) (.47) (.76) (.86) -- Total distributions..................... (1.15) (.82) (.61) (.50) (.77) (1.28) (1.05) (.24) Net asset value, end of period............ $14.52 $15.41 $14.18 $12.99 $10.72 $12.03 $10.62 $9.38 TOTAL RETURN+............................. 1.7% 14.4% 13.8% 25.8% (4.5%) 25.4% 24.6% (4.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................ $73,457 $77,062 $63,841 $47,763 $36,222 $31,540 $24,399 $21,471 Ratios to average net assets: Expenses................................ 1.33% 1.26% 1.33% 1.41% 1.50% 1.54% 1.56% 1.76% Net investment income................... .96% .99% 1.18% 1.55% 2.62% 4.13% 1.70% 1.90% Portfolio turnover rate................... 29% 28% 30% 23% 41% 53% 41% 48% OCTOBER 15, 1986* THROUGH DECEMBER 31, 1986** PER SHARE DATA Net asset value, beginning of period...... $10.00 Income (loss) from investment operations: Net investment income..................... .07 Net realized and unrealized gain (loss) on investments............................. (.02) Total from investment operations........ .05 Less distributions to shareholders from: Net investment income..................... -- Net realized gains........................ -- Total distributions..................... -- Net asset value, end of period............ $10.05 TOTAL RETURN+............................. .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................ $20,696 Ratios to average net assets: Expenses................................ 1.73%++ Net investment income................... 3.23%++ Portfolio turnover rate................... 4%
* Commencement of operations. ** Net investment income is based on the average monthly shares outstanding for the periods indicated. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. 6 EVERGREEN VALUE FUND -- CLASS Y SHARES
JANUARY 3, 1991* YEAR ENDED DECEMBER 31, THROUGH DECEMBER 1994 1993 1992 31, 1991 PER SHARE DATA Net asset value, beginning of period...................................... $17.63 $17.11 $17.08 $14.28 Income from investment operations: Net investment income..................................................... .56 .52 .49 .47 Net realized and unrealized gain (loss) on investments.................... (.20) 1.12 .90 3.53 Total from investment operations........................................ .36 1.64 1.39 4.00 Less distributions to shareholders from: Net investment income..................................................... (.56) (.52) (.49) (.47) Net realized gains........................................................ (.82) (.58) (.87) (.73) In excess of net investment income........................................ -- (.02)(b) -- -- Total distributions..................................................... (1.38) (1.12) (1.36) (1.20) Net asset value, end of period............................................ $16.61 $17.63 $17.11 $17.08 TOTAL RETURN+............................................................. 2.1% 9.7% 8.3% 25.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $507,028 $463,087 $326,154 $271,391 Ratios to average net assets: Expenses................................................................ .68% .65% .68%(a) .69%++(a) Net investment income................................................... 3.21% 2.98% 2.90%(a) 3.04%++(a) Portfolio turnover rate................................................... 70% 46% 56% 69%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 3, 1991 YEAR ENDED THROUGH DECEMBER 31, 1992 DECEMBER 31, 1991 Expenses.................................................. .69% .77% Net investment income..................................... 2.89% 2.96%
(b) Distributions in excess of net investment income for the period ended December 31, 1993 were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993. 7 EVERGREEN VALUE FUND -- CLASS A SHARES
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED MARCH 31, 1994 1993 1992 1991 1990* 1990 1989 1988 PER SHARE DATA Net asset value, beginning of period.......................... $17.63 $17.11 $17.08 $14.61 $15.12 $14.45 $12.83 $14.66 Income (loss) from investment operations: Net investment income............ .52 .47 .44 .46 .36 .54 .36 .26 Net realized and unrealized gain (loss) on investments........... (.20) 1.10 .89 3.17 (.44) 1.70 2.11 (1.30) Total from investment operations.................... .32 1.57 1.33 3.63 (.08) 2.24 2.47 (1.04) Less distributions to shareholders from: Net investment income.......................... (.51) (.47) (.43) (.43) (.36) (.57) (.38) (.26) Net realized gains............... (.82) (.58) (.87) (.73) (.02) (1.00) (.47) (.53) In excess of net investment income.......................... -- -- -- -- (.05)(c) -- -- -- Total distributions............. (1.33) (1.05) (1.30) (1.16) (.43) (1.57) (.85) (.79) Net asset value, end of period... $16.62 $17.63 $17.11 $17.08 $14.61 $15.12 $14.45 $12.83 TOTAL RETURN+.................... 1.9% 9.3% 8.0% 25.1% (.5%) 15.5% 19.7% (7.1%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................. $188,807 $189,983 $169,310 $135,565 $104,637 $95,995 $83,121 $21,914 Ratios to average net assets: Expenses........................ .93% .99% 1.01%(a) .96%(a) 1.39%++ 1.55% 1.71% 1.74% Net investment income........... 2.96% 2.63% 2.37%(a) 2.78%(a) 3.28%++ 3.42% 2.72% 1.92% Portfolio turnover rate (b)...... 70% 46% 56% 69% 13% 11% 24% 24% 1987 1986 PER SHARE DATA Net asset value, beginning of period.......................... $12.35 $10.04 Income (loss) from investment operations: Net investment income............ .15 .19 Net realized and unrealized gain (loss) on investments........... 2.38 2.32 Total from investment operations.................... 2.53 2.51 Less distributions to shareholders from: Net investment income.......................... (.13) (.20) Net realized gains............... (.09) -- In excess of net investment income.......................... -- -- Total distributions............. (.22) (.20) Net asset value, end of period... $14.66 $12.35 TOTAL RETURN+.................... 20.8% 25.3% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................. $23,221 $5,595 Ratios to average net assets: Expenses........................ 1.97% 2.00% Net investment income........... 1.41% 2.34% Portfolio turnover rate (b)...... 20% 20%
* The Fund changed its fiscal year end to December 31. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1992 1991 Expenses........................................................................... 1.02% 1.05% Net investment income.............................................................. 2.36% 2.69%
(b) Portfolio turnover rate for periods ended on or after March 31, 1986 include certain U.S. government obligations. (c) Distributions in excess of net investment income for the period ended December 31, 1990 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1990. 8 EVERGREEN VALUE FUND -- CLASS B AND C SHARES
CLASS B CLASS C SHARES SHARES FEBRUARY 2, SEPTEMBER 2, 1993* 1994* YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period.......................................... $17.63 $17.24 $18.28 Income (loss) from investment operations: Net investment income......................................................... .42 .35 .19 Net realized and unrealized gain (loss) on investments........................ (.20) 1.01 (.81) Total from investment operations............................................ .22 1.36 (.62) Less distributions to shareholders from: Net investment income......................................................... (.41) (.35) (.19) Net realized gains............................................................ (.82) (.58) (.82) In excess of net investment income............................................ -- (.04)(a) (.04)(a) Total distributions......................................................... (1.23) (.97) (1.05) Net asset value, end of period................................................ $16.62 $17.63 $16.61 TOTAL RETURN+................................................................. 1.3% 8.0% (3.4%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................................... $104,297 $ 59,953 $485 Ratios to average net assets: Expenses.................................................................... 1.53% 1.48%++ 1.68%++ Net investment income....................................................... 2.36% 2.09%++ 2.16%++ Portfolio turnover rate....................................................... 70% 46% 70%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. (a) Distributions in excess of net investment income, for the Class B Shares, for the period ended December 31, 1993 and for the Class C Shares, for the period ended December 31, 1994, were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1993 and December 31, 1994. 9 EVERGREEN AMERICAN RETIREMENT FUND -- CLASS Y SHARES
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period..... $11.60 $10.95 $10.52 $9.59 $10.41 $ 10.09 Income (loss) from investment operations: Net investment income.................... .60 .56 .66 .60 .60 .57 Net realized and unrealized gain (loss) on investments......................... (.93) .96 .55 1.15 (.66) .76 Total from investment operations....... (.33) 1.52 1.21 1.75 (.06) 1.33 Less distributions to shareholders from: Net investment income.................... (.60) (.60) (.61) (.60) (.60) (.59) Net realized gains....................... -- (.24) (.17) (.22) (.16) (.42) In excess of net realized gains.......... -- (.03)(b) -- -- -- -- Total distributions.................... (.60) (.87) (.78) (.82) (.76) (1.01) Net asset value, end of period........... $10.67 $11.60 $10.95 $10.52 $9.59 $ 10.41 TOTAL RETURN+............................ (2.9%) 14.1% 11.8% 18.8% (.5%) 13.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $37,176 $37,336 $23,781 $15,632 $12,351 $11,610 Ratios to average net assets: Expenses............................... 1.28% 1.36% 1.51%(a) 1.50%(a) 1.50%(a) 1.88%(a) Net investment income.................. 5.40% 5.13% 6.23%(a) 5.91%(a) 6.04%(a) 5.49%(a) Portfolio turnover rate.................. 136% 92% 151% 97% 33% 152% MARCH 14, 1988* THROUGH DECEMBER 31, 1988** PER SHARE DATA Net asset value, beginning of period..... $ 10.00 Income (loss) from investment operations: Net investment income.................... .39 Net realized and unrealized gain (loss) on investments......................... .18 Total from investment operations....... .57 Less distributions to shareholders from: Net investment income.................... (.36) Net realized gains....................... (.12) In excess of net realized gains.......... -- Total distributions.................... (.48) Net asset value, end of period........... $ 10.09 TOTAL RETURN+............................ 5.8% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $9,449 Ratios to average net assets: Expenses............................... 2.00%++ Net investment income.................. 5.01%++ Portfolio turnover rate.................. 52%
* Commencement of operations. ** Investment income, expenses and net investment income are based upon the average monthly shares outstanding for the period indicated. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1992 1991 1990 1989 Expenses...................................................... 1.59% 1.82% 1.95% 2.03% Net investment income......................................... 6.15% 5.59% 5.59% 5.34%
(b) Distributions in excess of net realized gains were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes. 10 EVERGREEN FOUNDATION FUND -- CLASS Y SHARES
JANUARY 2, 1990* YEAR ENDED DECEMBER 31, THROUGH 1994 1993 1992 1991 DECEMBER 31, 1990 PER SHARE DATA Net asset value, beginning of period................................. $13.12 $11.98 $10.75 $8.95 $10.00 Income (loss) from investment operations: Net investment income................................................ .42 .31 .27 .33 1.23(b) Net realized and unrealized gain (loss) on investments............... (.57) 1.55 1.83 2.77 (.59) Total from investment operations................................... (.15) 1.86 2.10 3.10 .64 Less distributions to shareholders from: Net investment income................................................ (.42) (.31) (.24) (.33) (1.17) Net realized gains................................................... (.28) (.41) (.63) (.97) (.52) Total distributions................................................ (.70) (.72) (.87) (1.30) (1.69) Net asset value, end of period....................................... $12.27 $13.12 $11.98 $10.75 $8.95 TOTAL RETURN+........................................................ (1.1%) 15.7% 20.0% 36.4% 6.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions).............................. $332 $240 $64 $11 $2 Ratios to average net assets: Expenses........................................................... 1.14% 1.20% 1.40%(a) 1.20%(a) 0%(a)++ Net investment income.............................................. 3.51% 2.81% 2.93%(a) 2.86%(a) 15.07%(a,b)++ Portfolio turnover rate.............................................. 33% 60% 127% 178% 131%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED JANUARY 2, 1990 DECEMBER 31, THROUGH DECEMBER 31, 1992 1991 1990 Expenses.............................................. 1.43% 2.58% 3.64% Net investment income................................. 2.90% 1.48% 11.43%
(b) Includes receipt of a special dividend representing $.62 per share net investment income and 7.59% of average net assets. 11 EVERGREEN TOTAL RETURN FUND -- CLASS Y SHARES
TEN MONTHS ENDED JANUARY YEAR ENDED MARCH 31, 31, 1995* 1994 1993 1992 1991 1990 1989 1988 1987 PER SHARE DATA Net asset value, beginning of period.............................. $18.29 $20.90 $18.82 $18.12 $18.26 $17.92 $17.11 $20.37 $19.72 Income (loss) from investment operations: Net investment income................. .87 1.08 1.11 1.08 1.02 1.07 1.12 1.06 1.14 Net realized and unrealized gain (loss) on investments............... (.55) (1.41) 2.51 .70 (.08) .36 .79 (2.64) 1.76 Total from investment operations.... .32 (.33) 3.62 1.78 .94 1.43 1.91 (1.58) 2.90 Less distributions to shareholders from: Net investment income................. (1.08) (1.08) (1.08) (1.08) (1.08) (1.09) (1.08) (.80) (1.14) Net realized gains.................... (.25) (1.20) (.46) -- -- -- (.02) (.88) (1.11) Total distributions................. (1.33) (2.28) (1.54) (1.08) (1.08) (1.09) (1.10) (1.68) (2.25) Net asset value, end of period........ $17.28 $18.29 $20.90 $18.82 $18.12 $18.26 $17.92 $17.11 $20.37 TOTAL RETURN+......................... 1.9% (2.1%) 20.2% 10.2% 5.8% 7.9% 1.3% (7.8%) 15.7% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)........................... $942 $1,065 $1,142 $1,032 $1,151 $1,292 $1,312 $1,346 $1,636 Ratios to average net assets: Expenses............................ 1.24%++ 1.18% 1.18% 1.21% 1.23% 1.18% 1.02%** 1.01%** 1.02%** Net investment income............... 5.70%++ 5.29% 5.65% 5.73% 5.90% 5.64% 6.36%** 5.80%** 5.68%** Portfolio turnover rate............... 151% 106% 164% 137% 137% 89% 86% 81% 44% 1986 PER SHARE DATA Net asset value, beginning of period.............................. $16.63 Income (loss) from investment operations: Net investment income................. 1.03 Net realized and unrealized gain (loss) on investments............... 4.26 Total from investment operations.... 5.29 Less distributions to shareholders from: Net investment income................. (1.22) Net realized gains.................... (.98) Total distributions................. (2.20) Net asset value, end of period........ $19.72 TOTAL RETURN+......................... 35.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)........................... $408 Ratios to average net assets: Expenses............................ 1.11%** Net investment income............... 6.06%** Portfolio turnover rate............... 65%
* On September 21, 1994, the Fund changed its fiscal year end to January 31. ** Net of expense limitation in fiscal years 1986, 1987, 1988 and 1989. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. 12 EVERGREEN TOTAL RETURN FUND -- CLASS A, B AND C SHARES
CLASS A CLASS B CLASS C SHARES SHARES SHARES JANUARY 3, 1995* THROUGH JANUARY 31, 1995 PER SHARE DATA Net asset value, beginning of period........................................................ $17.09 $17.09 $17.09 Income from investment operations: Net investment income....................................................................... .02 .02 .01 Net realized and unrealized gain on investments............................................. .17 .17 .17 Total from investment operations.......................................................... .19 .19 .18 Net asset value, end of period.............................................................. $17.28 $17.28 $17.27 TOTAL RETURN+............................................................................... 1.1% 1.1% 1.1% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................................... $119 $599 $24 Ratios to average net assets: Expenses.................................................................................. 1.45% ++ 2.23% ++ 2.22% ++ Net investment income..................................................................... 4.09% ++ 3.23% ++ 2.68% ++ Portfolio turnover rate**................................................................... 151% 151% 151%
* Commencement of class operations. ** Portfolio turnover rate is calculated for the ten month period ended January 31, 1995. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. 13 14 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Balanced Fund The investment objective of the Evergreen Balanced Fund (formerly First Union Balanced Portfolio) is to achieve a long-term total return through capital appreciation, dividends and interest income. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund invests in common and preferred stocks for growth and fixed income securities to provide a stable income flow. There can be no assurance that the Fund's investment objective will be achieved. The percentage of the Fund's assets invested in common and preferred stocks will vary from time to time in accordance with changing economic and market conditions. It is anticipated that over the long term the Fund's portfolio will average 60% in common and preferred stocks and 40% in bonds. However, normally the Fund's asset allocation will range between 40-75% in common and preferred stocks, 25-50% fixed income securities (including some convertible securities) and 0-25% cash equivalents. Moderate shifts between types of assets are made in an attempt to maximize returns or reduce risk. The Funds invest in common, preferred and convertible preferred stocks and bonds of U.S. companies with a minimum of $100 million in market capitalization and which are listed on major stock exchanges or traded over-the-counter. The criteria for such investment selection includes a company's financial strength (such as cash flow and low debt-to-equity ratio), earnings growth and price in relation to current earnings, dividends and book value to identify growth opportunities. The Fund may also invest in American Depositary Receipts ("ADRs") of foreign companies which are traded on the New York or American Stock Exchanges or the over-the-counter market. The fixed income portion of the Fund's portfolio may be invested in corporate bonds (including convertible bonds) which are rated A or higher by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or any other nationally recognized statistical rating organization ("SRO"), or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser. Bonds are selected based upon the outlook for interest rates and their yield in relation to other bonds of similar quality and maturity. The maturities of these bonds may be medium (i.e., from five to ten years) to long-term (i.e., over ten years), but in no event will they be longer than twenty years. The Fund also invests in securities which are either issued or guaranteed by the U.S. government, its agencies or instrumentalities. These securities include direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds and discount notes of U.S. government agencies or instrumentalities, such as the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, Tennessee Valley Authority, Export-Import Bank of the United State, Commodity Credit Corporation, Federal Financing Bank and National Credit Union Administration. Some of these securities are supported by the full faith and credit of the U.S. government, and others are supported only by the credit of the agency or instrumentality. The Fund may also invest short-term in cash equivalents for defensive purposes; securities issued and/or guaranteed by the U.S. government, its agencies or instrumentalities, and repurchase agreements collateralized by eligible investments. As of December 31, 1992, 1993 and 1994, approximately 59%, 63% and 55%, respectively, of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Growth and Income Fund The investment objective of Evergreen Growth and Income Fund (formerly known as the Evergreen Value Timing Fund) is to achieve a return composed of capital appreciation in the value of its shares and current income. (The Fund's investment objective is a fundamental policy.) There can be no assurance that the Fund's investment objective will be achieved. The Fund seeks to achieve its investment objective by investing in the securities of companies which are undervalued in the marketplace relative to those companies' assets, breakup value, earnings or potential earnings growth. These companies are often found among those which have had a record of financial success but are currently in disfavor in the marketplace for reasons the Fund's investment adviser perceives as temporary or erroneous. Such investments when successfully timed are expected to be the means for achieving the Fund's investment objective. This inherently contrarian approach may require greater reliance upon the analytical and research capabilities of the Fund's investment adviser than an investment in certain other equity funds. Consequently, an investment in the Fund may involve more risk than other equity funds. The Fund should not be considered suitable for investors who are unable or unwilling to assume the risks of loss inherent in such a program. Nor should the Fund be considered a balanced or complete investment program. The Fund will use the "value timing" approach as a process for purchasing securities when events indicate that fundamental investment values are being ignored in the marketplace. Fundamental investment value is based on one or more of the following: assets -- tangible and intangible (examples of the latter include brand names or licenses), capitalization of earnings, cash flow or potential earnings growth. A discrepancy between market valuation and fundamental value often arises due to the presence of unrecognized assets or business opportunities, or as a result of incorrectly perceived or short-term negative factors. Changes in regulations, basic economic or monetary shifts and legal action (including the initiation of bankruptcy proceedings) are some of the factors that create these capital appreciation opportunities. If the securities in which the Fund invests never reach their perceived potential or the valuation of such securities in the marketplace does not in fact reflect significant undervaluation, there may be little or no appreciation or a depreciation in the value of such securities. The Fund will invest primarily in common stocks and securities convertible into or exchangeable for common stock. It is anticipated that the Fund's investments in these securities will contribute to the Fund's return primarily through capital appreciation. In addition, the Fund will invest in nonconvertible preferred stocks and debt securities. It is anticipated that the Fund's investments in these securities will also produce capital appreciation but the current income component of return will be a more significant factor in their selection. However, the Fund will invest in nonconvertible preferred stock and debt securities only if the anticipated capital appreciation plus income from such investments is equivalent to that anticipated from investments in equity or equity-related securities. The Fund may invest up to 5% of its total assets in debt securities which are rated below investment grade, commonly known as "junk bonds". Investments of this type are subject to greater risk of loss of principal and interest. It is anticipated that the annual portfolio turnover rate for the Fund will not exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Value Fund The investment objective of the Evergreen Value Fund (formerly the First Union Value Portfolio) is long-term capital appreciation with current income as a secondary objective. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. Normally, at least 75% of the Fund's assets will be invested in equity securities of U.S. companies with prospects for earnings growth and dividends. There can be no assurance that the Fund's investment objective will be achieved. The Fund's investments, in order of priority, consist of: common and preferred stocks, bonds and convertible preferred stock of U.S. companies with a minimum market capitalization of $100 million which are listed on the New York or American Stock Exchanges or traded in over-the-counter markets. The primary consideration is for those industries and companies with the potential for capital appreciation; income is a secondary consideration; ADRs of foreign companies traded on the New York or American Stock Exchanges or the over-the-counter market; foreign securities (either foreign or U.S. securities traded in foreign markets). The Fund may also invest in obligations denominated in foreign currencies. In making these decisions, the Fund's investment adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation implications and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions Special Risk Considerations"); convertible bonds rated no lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be of comparable quality by the Fund's investment adviser; money market instruments; fixed rate notes and bonds and adjustable and variable rate notes of companies whose common stock the Fund may acquire rated no lower than BBB by S&P or Baa by Moody's or which, if not rated, determined to be of comparable quality by the Fund's investment adviser (up to 5% of total assets); zero coupon bonds issued or guaranteed by the U.S. government, its agencies or instrumentalities (up to 5% of total assets); obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits and insured by the Bank Insurance Fund or the Savings Association Insurance Fund, including U.S. branches of foreign banks and foreign branches of U.S. banks; and prime commercial paper, including master demand notes rated no lower than A-1 by S&P or Prime 1 by Moody's. Bonds rated BBB by S&P or Baa by Moody's may have speculative characteristics. Changes in economic conditions or other circumstances are more likely to weaken such bonds' prospects for principal and interests payments than higher rated bonds. However, like the higher rated bonds, these securities are considered investment grade. As of December 31, 1992, 1993 and 1994, approximately 92%, 95% and 97%, respectively, of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen American Retirement Fund The investment objectives of Evergreen American Retirement Fund in order of priority are conservation of capital, reasonable income and capital growth. The Fund offers a structured investment approach designed specifically for retirees and persons contemplating retirement which may also be appropriate for the qualified retirement plans of smaller companies. There can be no assurance that the Fund's investment objectives will be achieved. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. The Fund will invest in a diversified and balanced portfolio of equity and fixed income securities, with emphasis on income-producing securities which appear to have potential for capital enhancement. Ordinarily, the Fund anticipates that approximately 50% of its portfolio will consist of equity securities (including securities convertible into equity securities) and 50% of fixed income securities. The Fund's investment adviser may vary the amount invested in each type of security in response to changing market conditions to take advantage of relative undervaluation in either the stock or bond markets. The Fund will, however, not make an additional investment in equity securities if more than 75% of its total assets at the time the investment is made would include investments in equity securities. Generally, approximately half of the equity portion of the Fund's portfolio will be invested in common stocks which the Fund's investment adviser believes will yield current income and have potential for long-term capital growth and half in bonds and preferred stocks convertible into such common stock. With respect to the fixed income portion of the Fund's portfolio, emphasis will be placed on acquiring non-speculative issues expected to fluctuate little in value, except with changes in prevailing interest rates. The market value of the debt obligations in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short and medium to long-term maturities. Investment in medium (i.e., with maturities from five to ten years) to long-term (i.e., with maturities over ten years) debt securities may also be made with a view to realizing capital appreciation when the Fund's investment adviser believes that interest rates on such investments may decline, thereby increasing their market value. Normally, the Fund anticipates that approximately half of the fixed income portion of the Fund's portfolio will be invested in marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities which are supported by the full faith and credit of the United States or by the right of the issuer to borrow from the U.S. Treasury. These include issues of the Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Examples of agencies or instrumentalities whose securities are supported by the right of the issuer to borrow from the Treasury include, but are not limited to, the Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal National Mortgage Association and Tennessee Valley Authority. The balance will be invested in corporate obligations rated no lower than A by Moody's or S&P. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Foundation Fund The investment objectives of Evergreen Foundation Fund, in order of priority, are reasonable income, conservation of capital and capital appreciation. The Fund seeks to achieve these objectives by investing in a combination of common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, corporate and U.S. Government debt obligations, and short-term debt instruments, such as commercial paper. Additionally, income from time to time may be generated by the lending of securities. The Fund's common stock investments will include those which (at the time of purchase) pay dividends and in the view of the Fund's investment adviser have potential for capital enhancement. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objectives will be achieved. The Fund's objective is a fundamental policy and may not be changed without shareholder approval. The Fund's asset allocation will vary from time to time in accordance with changing economic and market conditions, including: inflation rates, business cycle trends, business regulations and tax law impacts on the investment markets. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Under normal circumstances, the Fund anticipates that at least 25% of its net assets will consist of fixed income securities. The balance will be invested in equity securities (including securities convertible into equity securities). In selecting fixed income securities for the Fund's portfolio, emphasis will be placed on issues expected to fluctuate little in value other than as a result of changes in prevailing interest rates. The market value of the debt obligations in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short, medium or long-term maturities. While fixed income investments will generally be made for the purpose of generating interest income, investments in medium to long-term debt securities (i.e., those with maturities from five to ten years and those with maturities over ten years, respectively) may be made with a view to realizing capital appreciation when the Fund's investment adviser believes changes in interest rates will lead to an increase in the value of such securities. The fixed income portion of the Fund's portfolio may include: 1. Marketable obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities, including issues of the U.S. Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Some of these securities are supported by the full faith and credit of the U.S. Government, and others are supported only by the credit of the agency or instrumentality. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Agencies or instrumentalities whose securities are supported only by the credit of the agency or instrumentality include the Interamerican Development Bank and the International Bank for Reconstruction and Development. These obligations are supported by appropriated but unpaid commitments of their member countries. There are no assurances that the commitments will be fulfilled in the future. 2. Corporate obligations rated no lower than A by Moody's or S&P. 3. Obligations of banks or banking institutions having total assets of more than $2 billion which are members of the Federal Deposit Insurance Corporation. 4. Commercial paper of high quality (rated no lower than A-2 by S&P or Prime-2 by Moody's or, if not rated, issued by companies which have an outstanding long-term debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's). Certain obligations may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Total Return Fund The investment objective of Evergreen Total Return Fund is to achieve a return consisting of current income and capital appreciation in the value of its shares. The emphasis on current income and capital appreciation will be relatively equal although, over time, changes in the outlook for market conditions and the level of interest rates will cause the Fund to vary its emphasis between these two elements in its search for the optimum return for its shareholders. The Fund seeks to achieve its investment objective through investments in common stocks, preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. The Fund may invest up to 20% of its total assets in the securities of foreign issuers either directly or in the form of ADRs, European Depository Receipts ("EDRs") or other securities convertible into securities of foreign issuers. The Fund may also write covered call options. The Fund's investment objective is a fundamental policy. There can be no assurance that the Fund's investment objective will be achieved. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities (other than options) regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields, as well as opportunities to realize net gains from a covered call options writing program, are expected to fluctuate over time because of varying general economic and market conditions. The Fund's portfolio will vary over time depending upon the economic outlook and market conditions. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Ordinarily, the Fund anticipates that approximately 75% of its portfolio will consist of equity securities and the other 25% of debt securities (including convertible debt securities). As of March 31, 1993 and 1994 and January 31, 1995, approximately 88%, 96% and 91%, respectively, of the Fund's portfolio consisted of equity securities. The balance of the Fund's portfolio consisted of debt securities (including convertible debt securities). If, in the judgment of the Fund's investment adviser, the appreciation potential for equity securities exceeds the return available from debt securities or government securities, investments in equity securities could exceed 75% of the Fund's portfolio. Most equity investments, however, will be income producing. The quality standards for debt securities include: Obligations of banks having total assets of at least one billion dollars which are members of the FDIC; commercial paper rated no lower than P-2 by Moody's or A-2 by S&P; and non-convertible debt securities rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated Baa or BBB may have speculative characteristics. See the discussion above with respect to Evergreen Value Fund. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of the Funds' investment advisers, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund must pay. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for the Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund on those exchanges. The portfolio turnover rate for each Fund is set forth in the tables contained in the section entitled "Financial Highlights". See the Statement of Additional Information for further information regarding the brokerage allocation practices of the Funds. Borrowing. As a matter of fundamental policy, the Funds, except Evergreen American Retirement Fund, may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. Evergreen American Retirement Fund may borrow for purposes of leverage. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the net assets of the Evergreen Total Return Fund, Evergreen Growth and Income Fund and Evergreen American Retirement Fund, 30% of the net assets of the Evergreen Foundation Fund, and 5% of the value of the total assets of Evergreen Balanced Fund and Evergreen Value Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Short Sales. The Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen Balanced Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund may, as a defensive strategy, make short sales of securities. A short sale occurs when a seller sells a security and makes delivery to the buyer by borrowing the security. Short sales of a security are generally made in cases where the seller expects the market value of the security to decline. To complete a short sale, the seller must replace the security borrowed by purchasing it at the market price at the time of replacement, or by delivering securities from the seller's own position to the lender. In the event the market value of a security sold short were to increase, the seller would realize a loss to the extent that the cost of purchasing the security for delivery to the lender were greater than the proceeds from the short sale. In the event a short sale is completed by delivery of securities to the lender from the seller's own position, the seller would forego any gain that would otherwise be realized on such securities. The Evergreen American Retirement Fund and Evergreen Foundation Fund may only make short sales "against the box" which means it must own the securities sold short, or other securities convertible into, or which carry rights to acquire, such securities. Illiquid or Restricted Securities. Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund may invest up to 15% of their net assets, and Evergreen Balanced Fund and Evergreen Value Fund may invest up to 10% of their net assets, in illiquid securities and other securities which are not readily marketable, including non-negotiable time deposits, certain restricted securities not deemed by the Trustees to be liquid and repurchase agreements with maturities longer than seven days. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% or 10 % limits. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the Funds' investment advisers on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15%, or with respect to Evergreen Value Fund 10%, of its assets invested in illiquid or not readily marketable securities. Repurchase Agreements and Reverse Repurchase Agreements. Evergreen Growth and Income Fund, Evergreen Balanced Fund, Evergreen Value Fund and Evergreen Total Return Fund may enter into repurchase agreements with member banks of the Federal Reserve System, including the Custodian or primary dealers in U.S. Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during the holding period. A Fund requires continued maintenance of collateral with its Custodian in an amount at least equal to the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. The Funds' investment advisers will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. Evergreen Balanced Fund and Evergreen Value Fund may borrow money by entering into a "reverse repurchase agreement" by which it agrees to sell portfolio securities to financial institutions such as banks and broker-dealers, and to repurchase them at a mutually agreed upon date and price, for temporary or emergency purposes. At the time the Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, U.S. government securities or liquid high grade debt obligations having a value at least equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. Each Fund will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets. When-Issued and Delayed Delivery Transactions. Evergreen Balanced Fund and Evergreen Value Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which a Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause a Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, a Fund may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the Funds investment adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Fixed Income Securities - Downgrades. If any security invested in by any of the Funds 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. Options and Futures. Each of Evergreen Total Return Fund, Evergreen Growth and Income Fund and Evergreen American Retirement Fund may write covered call options on certain portfolio securities in an attempt to earn income and realize a higher return on its portfolio. A call option may not be written by the Funds if, afterwards, securities comprising more than 25% of the market value of the equity securities of Evergreen Growth and Income Fund and Evergreen Total Return Fund, or 15% of the market value of the equity securities of Evergreen American Retirement Fund would be subject to call options. A Fund realizes income from the premium paid to it in exchange for writing the call option. Once it has written a call option on a portfolio security and until the expiration of such option, a Fund forgoes the opportunity to profit from increases in the market price of such security in excess of the exercise price of the call option. Should the price of the security on which a call has been written decline, a Fund retains the risk of loss, which would be offset to the extent the Fund has received premium income. A Fund will only write "covered" call options traded on U.S. national securities exchanges. An option will be deemed covered when a Fund either (i) owns the security (or securities convertible into such security) on which the option has been written in an amount sufficient to satisfy the obligations arising under the option; or (ii) a Fund's Custodian maintains cash or high-grade liquid debt securities belonging to the Fund in an amount not less that the amount needed to satisfy the Fund's obligations with respect to options written on securities it does not own. A "closing purchase transaction" may be entered into with respect to a call option written by a Fund for the purpose of closing its position. Evergreen Balanced Fund and Evergreen Value Fund may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market, interest rate or exchange rate risk, and the Funds do not use these transactions for speculation or leverage. Evergreen Balanced Fund and Evergreen Value Fund may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights and segregated cash subject to puts and calls until the options are exercised, closed or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds may also write straddles (combinations of covered puts and calls on the same underlying security). Evergreen Balanced Fund and Evergreen Value Fund may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. Evergreen Balanced Fund and Evergreen Value Fund may also, as stated previously, purchase futures contracts and options thereon. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specific agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into currency and other financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities, currencies or index-based futures contracts in order to hedge against changes in interest or exchange rates or securities prices. A futures contract on securities or currencies is an agreement to buy or sell securities or currencies during a designated month at whatever price exists at that time. A futures contact on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase currency and other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities or currencies declines and to fall when the value of such securities or currencies increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities or currencies. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities or currencies increases and to fall when the value of such securities or currencies declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case the Funds would continue to bear market risk on the transaction. Risk Characteristics of Options and Futures. Although options and futures transactions are intended to enable the Funds to manage market, exchange or interest rate risks, these investment devices can be highly volatile, and the Funds use of them can result in poorer performance (i.e., the Funds return may be reduced). The Funds attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contract and options on financial futures contract as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the Funds investment adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements and other economic factors. Even if the Funds investment adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the Funds investment adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. Special Risk Considerations Investment in Foreign Securities. Evergreen Total Return Fund, Evergreen Balanced Fund and Evergreen Value Fund may invest in foreign securities. Investments in foreign securities require consideration of certain factors not normally associated with investments in securities of U.S. issuers. For example, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of securities denominated in that currency. Accordingly, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of the assets of the Fund denominated or traded in that currency. If the value of a particular foreign currency falls relative to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in such currency will also fall. The performance of a Fund will be measured in U.S. dollars. Securities markets of foreign countries generally are not subject to the same degree of regulation as the U.S. markets and may be more volatile and less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell large blocks of securities and thus obtain the best price. The lack of uniform accounting standards and practices among countries impairs the validity of direct comparisons of valuation measures (such as price/earnings ratios) for securities in different countries. In addition, a Fund may incur costs associated with currency hedging and the conversion of foreign currency into U.S. dollars and may be adversely affected by restrictions on the conversion or transfer of foreign currency. Other considerations include political and social instability, expropriation, the lack of available information, higher transaction costs (including brokerage charges), increased custodian charges associated with holding foreign securities and different securities settlement practices. Settlement periods for foreign securities, which are sometimes longer than those for securities of U.S. issuers, may affect portfolio liquidity. These different settlement practices may cause missed purchasing opportunities and/or the loss of interest on money market and debt investments pending further equity or long-term debt investments. In addition, foreign securities held by a Fund may be traded on days that the Fund does not value its portfolio securities, such as Saturdays and customary business holidays, and, accordingly, a Fund's net asset value may be significantly affected on days when shareholders do not have access to the Fund. Additionally, accounting procedures and government supervision may be less stringent than those applicable to U.S. companies. It may also be more difficult to enforce contractual obligations abroad than would be the case in the United States because of differences in the legal systems. Foreign securities may be subject to foreign taxes, which may reduce yield, and may be less marketable than comparable U.S. securities. All these factors are considered by each Fund's investment adviser before making any of these types of investments. ADRs and EDRs and other securities convertible into securities of foreign issuers may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. Unless otherwise noted, the restrictions and policies set forth above are not fundamental and may be changed without shareholder approval. Shareholders will be notified of any changes in policies that are not fundamental. - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). Evergreen Asset Management Corp. ("Evergreen Asset") has been retained by Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Balanced Fund and Evergreen Value Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds) . First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive a from each of Evergreen Total Return Fund and Evergreen Growth and Income Fund fee equal to 1% of average daily net assets on an annual basis on the first $750 million in assets, .9 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .8 of 1% of average daily net assets on an annual basis on assets over $1 billion. Evergreen Asset is entitled to receive from Evergreen Foundation Fund a fee equal to .875 of 1% of average daily net assets on an annual basis on the first $750 million in assets, .75 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion, and from Evergreen American Retirement Fund a fee equal to .75 of 1% of average daily net assets on an annual basis on the first $1 billion in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion. The fee paid by Evergreen Total Return Fund and Evergreen Growth and Income Fund is higher than the rate paid by most other investment companies. The total expenses of each Fund for the fiscal year ended December 31, 1994, expressed as a percentage of average daily net assets on an annual basis are set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen Balanced Fund and Evergreen Value Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund. The total annualized operating expenses of Evergreen Balanced Fund and Evergreen Value Fund for their most recent fiscal year ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Balanced Fund and Evergreen Value Fund and is entitled to receive a fee based on the average daily net assets of these Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Balanced Fund and Evergreen Value Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Total Return Fund is Nola Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of Evergreen Asset. Ms. Falcone has served as the principal manager of Evergreen Total Return Fund since 1985. The portfolio manager for Evergreen Foundation Fund is Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of the Evergreen Asset. Mr. Lieber has served as such Fund's principal manager since its inception. The portfolio manager for Evergreen Growth and Income Fund is Edmund H. Nicklin, Jr. C.F.A. Mr. Nicklin has served as the Fund's principal manager since its inception. The portfolio manager for Evergreen American Retirement Fund is Irene D. O'Neill, C.F.A. Ms. O'Neill has served as the Fund's principal manager since its inception. Each of the aforementioned individuals has been associated with the Evergreen Asset and its predecessor since prior to 1989. The portfolio manager for Evergreen Balanced Fund since its inception in January 1991 is R. Dean Hawes, who is a Vice President of FUNB and is the Director of Employee Benefit Portfolio Management. Mr. Hawes joined FUNB in 1981 after spending five years with Merrill Lynch, Pierce, Fenner, & Smith and Townsend Investments. William T. Davis, Jr., the portfolio manager of Evergreen Value Fund since March, 1991, is a Vice President of FUNB and has been with First Union since 1986. Prior to that, Mr. Davis served as a securities analyst for Seibels Bruce (Insurance) Group. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Total Return Fund, Evergreen Growth and Income Fund, Evergreen American Retirement Fund and Evergreen Foundation Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible Investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as a Fund's Trustees believe would accurately reflect fair market value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. The Share Purchase Application may not be used to invest in any of the prototype retirement plans for which the Funds are an available investment. For information about the requirements to make such investments, including copies of the necessary application forms, please call the telephone number set forth on the cover page of this Prospectus. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. Shares of each Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the enclosed Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Internal Revenue Code of 1986, as amended (the "Code"). Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen Balanced Fund and Evergreen Value Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. Evergreen Growth and Income Fund The total return of the Class Y no-load shares of the Evergreen Growth and Income Fund was +1.69% for the year ended December 31, 1994. This return compared favorably with the +1.31% return of the Standard and Poor's 500 Reinvested Index (the "S&P 500 Index") and the -0.94% return from the Lipper Growth and Income Fund Average. This performance was achieved through the implementation of the "value timing" strategy which focuses on undervalued securities. At year-end 1994, the majority of the portfolio was comprised of out-of-favor growth companies, restructured companies and other companies which the Fund's investment adviser believes are substantially undervalued. [CHART] While the domestic economy's rate of growth accelerated dramatically in 1994, the Federal Reserve's more stringent monetary policy resulted in a less hospitable environment for financial assets. The Fund performed well relative to its competition and the S&P 500 Index in 1994, but the Fed's tightening of monetary policy kept the absolute return low, in keeping with the depressing influence on financial assets generally. The principal contributors to the Fund's positive performance during 1994 were the following industries: (1) business equipment and services which facilitated the productivity enhancing efforts of their customers; (2) chemical issues which benefited from the robust economic growth and previous restructuring efforts that lowered cost structures; and (3) shares of healthcare companies which continued their rebound from the market's adverse reaction to the perceived impact of the healthcare program proposed by the Clinton Administration in 1993. The industry groups which had the largest negative impact on the Fund's performance were the following: (i) banks and thrifts, insurance and utilities, all of which suffered from the Federal Reserve's more stringent monetary policy; (ii) retail which suffered from lack of pricing flexibility and excess capacity; and (iii) energy which was negatively impacted by lower prices for natural gas and declining refining margins. Evergreen American Retirement Fund The total return of the Class Y no-load shares of the Evergreen American Retirement Fund for the fiscal year ended December 31, 1994, was - -2.86%. This performance lagged the Wilshire 5000 Index which returned -.06% and exceeded the Lehman General Bond Mutual Fund Index which returned -3.51% for the year. The Fund concentrated the equity portion of its portfolio in high dividend-paying common stocks, convertible bonds and convertible preferreds. Fixed-income issues were represented by investments in U.S. Treasury and agency obligations and high quality corporate bonds and notes. Interest rates rose through much of 1994 as the Federal Reserve moved to slow the rapid and potentially inflationary pace of U.S. economic growth. Over the course of the year, the Federal Fund's rate was increased from 3.0% to 5.5%, and market forces lifted interest rates on 30 year U.S. Treasury bonds from 6.35% to 7.88%. This rising interest rate environment was negative for the bond market and produced mixed results for the stock market. Because of the Fund's income-oriented style of investing, this period of rising interest rates negatively affected performance. The industry groups which had the largest positive impact on the Fund's performance included the chemicals and metals industries which benefited from rising demand and product prices, and bank stocks which rose in response to stronger loan growth and reduced loan loss provisions. The Fund was negatively impacted by its holdings in the automotive industry and related suppliers, and utility stocks which declined in response to higher interest rates. The Fund's exposure to utilities was reduced in early 1994 to a group of special situation companies. But even the improving fundamentals of these companies could not overcome the impact of rising rates. Despite strong earnings for the auto industry and suppliers, these stocks declined as the market anticipated slower consumer spending in response to higher rates. [CHART] The Fund's practice has been to provide a stable quarterly income dividend. During the past fiscal year, the Fund distributed a dividend of $0.15 per quarter. These distributions were funded entirely from net investment income. None represented a return of capital. To maintain the dividend rate the Fund purchased issues which had dividend increases, and frequently repositioned the portfolio in order to assure participation in large dividends (particularly from utility stocks or special dividends announced by other types of companies). The repositioning of the portfolio resulted in higher brokerage commissions. As noted above, the Fund's investment objectives in order of priority are conservation of capital, reasonable income and capital growth. To the extent that the Fund sought to maintain a stable dividend during the past fiscal year and therefore emphasized current income over capital growth, the Fund's overall return may have been reduced. Beginning in the first quarter of 1995, the Fund changed its dividend strategy. The Fund's income dividend distribution will move toward a fluctuating dividend and away from the stable dividend pattern of the past. Evergreen Foundation Fund. The total return of the Class Y no-load shares of the Evergreen Foundation Fund for the almost five years since inception on January 2, 1990 to December 31, 1994 was +99.57%, which calculated to an average annual compounded return of +14.83%. This compared favorably with the return of the Standard & Poor's 500 Reinvested Index (+51.45%) and the Lipper Balanced Fund Average (+44.03%) for the same time period. For the fiscal year ended 1994, the Fund produced a total return of -1.12% versus returns of +1.31% for the Standard & Poor's 500 Reinvested Index and -2.52% for the Lipper Balanced Fund Average. Asset allocation was a primary determinant of performance. Consistent with the Fund's investment objectives of reasonable income, conservation of capital and capital appreciation, Evergreen Asset sought to strategically position the Fund to maximize opportunities in each asset class. The average allocation during 1994 was 62% equities, 28% fixed-income and 10% short-term cash equivalents. The equity portion of the portfolio had a return of +4.91% for 1994. The fixed-income segment of the portfolio, whose primary focus is income and preservation of capital, was comprised on average of three-quarters long-term U.S. government obligations and one-quarter short-term cash equivalents. It generated a return of -11.06%, which was in line with its benchmarks, when assessed in terms of credit quality, liquidity and overall weighted maturity. The equity segment of the portfolio was largely responsible for the capital appreciation during 1994. Stock selection focused on issues believed to be conservatively valued and financially strong. Concentration on health care issues provided relative outperformance as these issues benefited from renewed confidence in the growth of pharmaceutical and medical services industries. A secondary focus on technological issues (semi-conductors and electronic components) also provided excellent relative performance, as these sectors benefited from a resurgence in the U.S. economy. The portfolio was negatively impacted by its investments in real estate companies, utilities and banks. Evergreen Total Return Fund. Steady income flow has been an important goal since the inception of the Fund. The Fund continued its annual $1.08 per share income dividend. The dividend was maintained for the seventh successive year. The portfolio of the Evergreen Total Return Fund, although primarily equities and convertibles, has a high level of interest rate sensitivity. Since the Fund seeks to pay a substantial dividend, Evergreen Asset looked toward the utility sector, financial issues, real estate investment trusts, convertible preferreds and convertible debentures to provide high yields. The sharp downward swing in the 1994 bond market had a deleterious effect on the interest sensitive sectors of the equity and convertible markets, particularly impacting utilities, financial and convertible issues. During the period from March 31, 1994 through January 31, 1995, the Dow Jones Utility Average was down -6.23%, the New York Stock Exchange Financial Index was down -3.00%, the Merrill Lynch Convertible Index was down -4.85%, and the Wilshire Real Estate Securities Index was down -3.80%. The performance of the Class Y no-load shares of the Fund for the same period was up +1.86%. This compares also with the performance of the Wilshire 5000 of +6.04% and +3.01% for the Lipper Equity Income Average. One of the best groups in the portfolio was the health sector which rebounded when the Clinton Health Care Plan ran into trouble. Restructured companies as well as selected cyclicals, such as banks and thrift issues and chemicals and energy issues, also helped the portfolio. Five bank and thrift mergers produced gains. During the year, the portfolio was restructured to reduce the utility sector especially electric utilities. Evergreen Asset decided to reduce dependence on this sector as it faces deregulation and resulting competitive pressures. Currently, the Fund's focus is on special situations resulting from such events as rate relief or corporate changes. Evergreen Asset also switched into international issues in order to diversify risk across country lines and to reduce the portfolio's sensitivity to changes in U.S. interest rates. Toward the end of the year, Evergreen Asset added to the portfolio's holdings in the retail sector as it saw a number of these companies at attractive valuation levels. Many of these issues were in the process of restructuring, thereby providing the possibility of improved margins in the near future. The Fund's dividend was funded entirely from net investment income. It did not represent a return of capital. To maintain the dividend rate the Fund purchased issues which had dividend increases, and frequently repositioned the portfolio in order to assure participation in large dividends, particularly from utility stocks or special dividends announced by other types of companies. The repositioning of the portfolio resulted in higher brokerage commissions. As noted above, the Fund's investment objective is to achieve a return consisting of current income and capital appreciation. To the extent that the Fund sought to maintain a stable dividend during the past fiscal year and therefore emphasized current income over capital appreciation, the Fund's overall return may have been reduced. On January 3, 1995, the Fund introduced a multiple class distribution structure. The Fund's total return for the period 1/3/95 to 1/31/95 for the A, B, C and Y Class of Shares was -3.45% (reflects maximum front end sales charge of 4.75%), -3.53% (reflects maximum contingent deferred sales charge of 5%), - -0.41% (reflects 1% contingent deferred sales charge within first year of purchase), and 1.47% (no-load), respectively. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Total Return Fund is a Massachusetts business trust organized in 1986, and was originally organized as Maryland corporation in 1978. Evergreen Growth and Income Fund is a Massachusetts business trust organized in 1986. The Evergreen American Retirement Fund is a separate series of The Evergreen American Retirement Trust, a Massachusetts business trust organized in 1987. Evergreen Foundation Fund is a separate series of the Evergreen Foundation Trust, a Massachusetts business trust organized in 1989. Evergreen Balanced Fund and Evergreen Value Fund are separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Balanced Fund and Evergreen Value Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Growth and Income Fund, Evergreen American Retirement Fund, Evergreen Foundation Fund and Evergreen Total Return Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission ("SEC"), the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND, EVERGREEN FOUNDATION FUND, EVERGREEN TOTAL RETURN FUND Capital Management Group of First Union National Bank, 210 South College Street, Charlotte, North Carolina, 28228 EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN FOUNDATION FUND Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072 EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN AMERICAN RETIREMENT FUND KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536123 PROSPECTUS July 7, 1995 EVERGREEN(SM) SPECIALTY GROWTH AND INCOME FUNDS (Evergreen Logo appears here) EVERGREEN UTILITY FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND EVERGREEN SMALL CAP EQUITY INCOME FUND CLASS A SHARES CLASS B SHARES CLASS C SHARES The Evergreen Specialty Growth and Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide current income, capital appreciation or after-tax "total return". This Prospectus provides information regarding the Class A, Class B and Class C shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 8 Investment Practices and Restrictions 10 MANAGEMENT OF THE FUNDS Investment Advisers 15 Sub-Adviser 16 Distribution Plans and Agreements 17 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 18 How to Redeem Shares 20 Exchange Privilege 21 Shareholder Services 22 Effect of Banking Laws 23 OTHER INFORMATION Dividends, Distributions and Taxes 23 Management's Discussion of Fund Performance 24 General Information 25
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN TAX STRATEGIC FOUNDATION FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN UTILITY FUND. EVERGREEN UTILITY FUND (formerly First Union Utility Portfolio) seeks high current income and moderate capital appreciation. EVERGREEN TAX STRATEGIC FOUNDATION FUND attempts to maximize the after-tax "total return" on its portfolio of investments. The Fund invests in common and preferred stocks and securities convertible into or exchangeable for common stocks and municipal securities. Under normal circumstances, the Fund anticipates that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets will be invested in municipal securities. EVERGREEN SMALL CAP EQUITY INCOME FUND attempts to maximize the "total return" on its portfolio of investments. The Fund invests in common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. In attempting to achieve its objective, the Fund invests primarily in companies with total market capitalization of less than $500 million. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in each Class A, Class B and Class C Shares of the Fund. For further information see "Purchase and Redemption of Fund Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares Maximum Sales Charge Imposed on Purchases 4.75% None None (as a % of offering price) Sales Charge on Dividend Reinvestments None None None Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the 1% during the original purchase price or redemption second year, 3% during the third and fourth first year and proceeds, whichever is lower) years, 2% during the fifth year, 1% during 0% thereafter the sixth and seventh years and 0% after the seventh year Redemption Fee None None None Exchange Fee None None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return, and (ii) redemption at the end of each period and, additionally for Class B and C, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares and Class C Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflects the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN UTILITY FUND (A)
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class A Class B Class C Class B Class A Class B Class C Advisory Fees .50% .50% .50% After 1 Year $ 57 $ 68 $ 28 $ 18 Administrative Fees .06% .06% .06% After 3 Years $ 78 $ 85 $ 55 $ 55 12b-1 Fees* .25% .75% .75% After 5 Years $ 100 $ 114 $ 94 $ 94 Shareholder Service Fees -- .25% .25% After 10 Years $ 163 $ 176 $ 205 $ 176 Other Expenses .18% .18% .18% Total .99% 1.74% 1.74% Class C After 1 Year $ 18 Administrative Fees After 3 Years $ 55 12b-1 Fees* After 5 Years $ 94 Shareholder Service Fees After 10 Years $ 205 Other Expenses Total Advisory Fees
EVERGREEN TAX STRATEGIC FOUNDATION FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class A Class B Class C Class B Class A Class B Class C Advisory Fees .875% .875% .875% After 1 Year $ 64 $ 75 $ 35 $ 25 12b-1 Fees* .250% 1.000% 1.000% After 3 Years $ 100 $ 108 $ 78 $ 78 Other Expenses .625% .625% .625% After 5 Years $ 138 $ 153 $ 133 $ 133 (after reimbursement)** After 10 Years $ 244 $ 257 $ 284 $ 257 Total 1.750% 2.500% 2.500% Class C After 1 Year $ 25 12b-1 Fees* After 3 Years $ 78 Other Expenses After 5 Years $ 133 (after reimbursement)** After 10 Years $ 284 Total Advisory Fees
EVERGREEN SMALL CAP EQUITY INCOME FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES Period Redemption Class A Class B Class C Class B Class A Class B Class C Advisory Fees 1.00% 1.00% 1.00% After 1 Year $ 64 $ 75 $ 35 $ 25 12b-1 Fees* .25% 1.00% 1.00% After 3 Years $ 100 $ 108 $ 78 $ 78 Other Expenses After 5 Years $ 138 $ 153 $ 133 $ 133 (after reimbursement)** .50% .50% .50% After 10 Years $ 244 $ 257 $ 284 $ 257 Total 1.75% 2.50% 2.50% Class C After 1 Year $ 25 12b-1 Fees* After 3 Years $ 78 Other Expenses After 5 Years $ 133 (after reimbursement)** After 10 Years $ 284 Total Advisory Fees
3 *Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1 Fee. For the forseeable future, the Class A Shares 12b-1 Fees will be limited to .25 of 1% of average net assets. For Class B and Class C Shares of Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund, a portion of the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1% of average net assets as permitted under the rules of the National Association of Securities Dealers, Inc. **Reflects agreements by Evergreen Asset to limit aggregate operating expenses (including the Advisory Fees, but excluding interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses) of Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund to 1.50% of average net assets until net assets reach $15 million. Absent such agreements, the estimated annual operating expenses for each Fund would be 2.75% for Class A and 3.50% for Class B and C Shares. (a) Estimated annual operating expenses reflect the combination of First Union Utility Portfolio and ABT Utility Income Fund. From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the year ended December 31, 1994. Such amounts have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN UTILITY FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN TAX STRATEGIC FOUNDATION FUND has been audited by Price Waterhouse LLP, the Fund's independent auditors and for EVERGREEN SMALL CAP EQUITY INCOME FUND has been audited by Ernst & Young LLP, the Fund's independent auditors. A report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No financial highlights are shown for Class A, B or C Shares of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund since these classes did not have any operations prior to December 31, 1994. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN UTILITY FUND
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES JANUARY 4, JANUARY 4, SEPTEMBER 2, FEBRUARY 28, 1994* 1994* 1994* 1994* THROUGH THROUGH THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 1994 PER SHARE DATA Net asset value, beginning of period.......................... $10.00 $10.00 $9.33 $9.51 Income (loss) from investment operations: Net investment income......................................... .45 .39 .12 .37 Net realized and unrealized loss on investments............... (1.01) (1.01) (.33) (.50) Total from investment operations............................ (.56) (.62) (.21) (.13) Less distributions to shareholders from: Net investment income......................................... (.44) (.38) (.11) (.37) In excess of net investment income............................ -- -- -- (.01)(b) Total distributions......................................... (.44) (.38) (.11) (.38) Net asset value, end of period................................ $9.00 $9.00 $9.01 $9.00 TOTAL RETURN+................................................. (5.6%) (6.2%) (2.2%) (1.6%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................... $4,190 $28,792 $128 $5,201 Ratios to average net assets: Expenses (a)................................................ .53%++ 1.27%++ 1.94%++ .40%++ Net investment income (a)................................... 5.07%++ 4.19%++ 3.96%++ 4.93%++ Portfolio turnover rate....................................... 23% 23% 23% 23%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES JANUARY 4, JANUARY 4, SEPTEMBER 2, FEBRUARY 28, 1994 1994 1994 1994 THROUGH THROUGH THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 1994 Expenses............................ 1.43% 2.11% 2.78% 1.24% Net investment income............... 4.17% 3.35% 3.12% 4.09%
(b) Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. 5 EVERGREEN TAX STRATEGIC FOUNDATION FUND -- CLASS Y SHARES
NOVEMBER 2, 1993* YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 PER SHARE DATA Net asset value, beginning of period................................................ $ 10.31 $ 10.00 Income from investment operations: Net investment income............................................................... .27 .05 Net realized and unrealized gain on investments..................................... .08 .31 Total from investment operations.................................................. .35 .36 Less distributions to shareholders from: Net investment income............................................................... (.27) (.05) Net realized gains.................................................................. (.12) -- Total distributions............................................................... (.39) (.05) Net asset value, end of period...................................................... $ 10.27 $ 10.31 TOTAL RETURN+....................................................................... 3.4% 3.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................................... $10,575 $5,424 Ratios to average net assets: Expenses (a)...................................................................... 1.49% 0%++ Net investment income (a)......................................................... 2.87% 3.65%++ Portfolio turnover rate............................................................. 245% 25%
* Commencement of operations. + Total return is calculated on net asset value per share and for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
NOVEMBER 2, 1993 YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 Expenses.................................................. 2.41% 3.10% Net investment income..................................... 1.95% .54%
6 EVERGREEN SMALL CAP EQUITY INCOME FUND -- CLASS Y SHARES
OCTOBER 1, 1993* YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 PER SHARE DATA Net asset value, beginning of period................................................ $ 10.15 $ 10.00 Income (loss) from investment operations: Net investment income............................................................... .34 .10 Net realized and unrealized gain (loss) on investments.............................. (.41) .15 Total from investment operations.................................................. (.07) .25 Less distributions to shareholders from: Net investment income............................................................... (.33) (.10) Net realized gains.................................................................. (.05) -- Total distributions............................................................. (.38) (.10) Net asset value, end of period...................................................... $ 9.70 $ 10.15 TOTAL RETURN+....................................................................... (.7%) 2.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................................... $3,613 $2,236 Ratios to average net assets: Expenses (a)...................................................................... 1.48% 0%++ Net investment income (a)......................................................... 3.72% 4.07%++ Portfolio turnover rate............................................................. 9% 15%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
OCTOBER 1, 1993 YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 Expenses.................................................. 4.68% 4.39% Net investment income (loss).............................. .53% (.33%)
7 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Small Cap Equity Income Fund The investment objective of Evergreen Small Cap Equity Income Fund is to achieve a return consisting of current income and capital appreciation in the value of its shares. The emphasis on current income and capital appreciation will be relatively equal although, over time, changes in market conditions and the level of interest rates may cause the Fund to vary its emphasis between these two elements in its search for the optimum return for its shareholders. The Fund seeks to achieve its investment objective through investments in common stocks, preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. Under normal conditions, the Fund will invest at least 65% of its total assets in equity securities (including convertible debt securities) of companies that, at the time of purchase, have "total market capitalization" -- present market value per share multiplied by the total number of shares outstanding -- of less than $500 million. The Fund's investment objective is a fundamental policy. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objective will be achieved. The Fund may invest up to 35% of its total assets in equity securities of companies that at the time of purchase have a total market capitalization of $500 million or more, and in excess of that percentage during temporary defensive periods. The Fund's portfolio will vary over time depending upon the economic outlook and market conditions. The composition of its portfolio will be subject to the discretion of the Fund's investment adviser. Ordinarily, the Fund anticipates that most of its portfolio will consist of equity securities and convertible debt securities. A significant portion of the equity investments, however, will be income producing. If in the judgment of the Fund's investment adviser a defensive position is appropriate, the Fund may take a defensive position and invest without limit in debt securities or government securities or hold its assets in cash or cash equivalents. The quality standards for debt securities include: Obligations of banks and commercial paper rated no lower than P-2 by Moody's Investor's Service ("Moody's"), A-2 by Standard and Poor's Ratings Group ("S&P") or having a comparable rating from another nationally recognized statistical rating organization ("SRO"); and non-convertible debt securities rated no lower than Baa by Moody's or BBB by S&P. Securities rated Baa or BBB may have speculative characteristics. The Fund may invest in real estate investment trusts ("Reits"). Equity Reits invest directly in real property while mortgage Reits invest in mortgages on real property. The Fund does not intend to invest in Reits that are primarily mortgage Reits. Equity Reits usually provide a high current yield plus the opportunity of long-term price appreciation of real estate values. Reits may be subject to certain risks associated with the direct ownership of real estate. See "Investment Practices and Restrictions - Special Risk Considerations", below. It is anticipated that the annual portfolio turnover rate for the Fund will not generally exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", and "Special Risk Considerations", below. Evergreen Tax Strategic Foundation Fund The investment objective of Evergreen Tax Strategic Foundation Fund is to maximize the after-tax "total return" on its portfolio of investments. Total return consists of current income and capital appreciation in the value of its shares. The Fund seeks to achieve this objective by investing in common stocks, preferred stocks and securities convertible into or exchangeable for common stocks. It will also invest in debt obligations issued by states and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax. Such securities are generally known as Municipal Securities. The Fund may also invest in taxable debt securities. (See ""Investment Practices and Restrictions - "Municipal Securities and Taxable Investments). There can be no assurance that the Funds investment objective will be achieved. The objective is fundamental and may not be changed without shareholder approval. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objective will be achieved. The Fund's asset allocation will vary from time to time in accordance with changing economic and market conditions, including: inflation rates, business cycle trends, business regulations and tax law impacts on the investment markets. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Under normal circumstances, the Fund anticipates that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets will be invested in Municipal Securities. The balance will be invested in equity securities (including securities convertible into equity securities). With respect to the fixed income portion of the Fund's portfolio, emphasis will be placed on acquiring issues expected to fluctuate little in value, except with changes in prevailing interest rates. The market value of the Municipal Securities in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short, medium or long-term maturities. Investment in medium (i.e., with maturities from five to ten years) to long-term (i.e., with maturities over ten years) debt securities may also be made with a view to realizing capital appreciation when the Fund's investment adviser believes that interest rates on such investments may decline, thereby increasing their market value. In general, the Fund will invest in Municipal Securities only if they are determined to be of high or upper medium quality. These include bonds rated BBB or higher by S&P or Baa by Moody's or another SRO. For a description of such ratings see the Statement of Additional Information. The Fund may purchase Municipal Securities which are unrated at the time of purchase, if such securities are determined by the Fund's investment adviser to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. Medium grade bonds are more susceptible to adverse economic conditions or changing circumstances than higher grade bonds. Interest income on certain types of bonds issued after August 7, 1986 to finance nongovernmental activities is an item of "tax-preference" subject to the Federal alternative minimum tax for individuals and corporations. To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to the alternative minimum tax on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, 80% of the Fund's investments in Municipal Securities will be invested in Municipal Securities the interest from which is not subject to the Federal alternative minimum tax. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Utility Fund The investment objective of Evergreen Utility Fund is to achieve a return consisting of high current income and moderate capital appreciation. The Fund invests primarily in a diversified portfolio of equity and debt securities of utility companies that produce, transmit or distribute gas or electrical energy, as well as those companies which provide communications facilities, such as telephone and telegraph companies. As a matter of investment policy, the Fund will invest at least 65% of the value of its total assets in utility companies that derive 50% of their revenues from utilities or assets relating to utility industries. In addition, the Fund may invest up to 35% of its assets in common stock of non-utility companies. There can be no assurance that the Fund's investment objective will be achieved. The Fund may invest in: common and preferred stocks, bonds and convertible preferred stocks of utility companies selected by the Fund's investment adviser on the basis of traditional research techniques, including assessment of earnings and dividend growth prospects and of the risk and volatility of the individual company's industry. However, other factors, such as product position, market share or profitability may also be considered by the Fund's investment adviser. The Fund will only invest its assets in debt securities rated Baa or higher by Moody's or BBB or higher by S&P or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser; securities which are either issued or guaranteed by the U.S. government, its agencies or instrumentalities. These securities include direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds and discount notes of U.S. government agencies or instrumentaltiies such as the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, Tennessee Valley Authority, Export-Import Bank of the United State, Commodity Credit Corporation, Federal Financing Bank and National Credit Union Administration. Some of these securities are supported by the full faith and credit of the U.S. government, and others are supported only by the full faith and credit of the agency or instrumentality; commercial paper, including master demand notes; American Depositary Receipts ("ADRs") of foreign companies traded on the New York or American Stock Exchanges or the over-the-counter market; foreign securities (either foreign or U.S. securities traded in foreign markets). The Fund may also invest in other obligations denominated in foreign currencies. In making these decisions, the Fund's investment adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation considerations and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions" - "Other Investment Policies" and "Foreign Investments".) The Fund will not invest more than 10% of its assets in foreign securities; obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits and insured by the Bank Insurance Fund or the Savings Association Mortagage Fund, including U.S. branches of foreign banks and foreign branches of U.S. banks; and securities of other investment companies. Bonds rated Baa by Moody's or BBB by S&P may have speculative characteristics. Changes in economic conditions or other circumstances are more likely to weaken such bonds' prospects for principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered investment grade. As of December 31, 1994 approximately 88% of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of the Funds' investment advisers, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund must pay. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for the Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund on those exchanges. See the Statement of Additional Information for further information regarding the brokerage allocation practices of these Funds. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except from banks as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the total assets of the Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund, and 15% of the value of the total assets of Evergreen Utility Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities files for bankruptcy or becomes insolvent, dispostion of the securities may be delayed pending court action. Illiquid or Restricted Securities. Each Fund may invest up to 15% of its net assets in illiquid securities and other securities which are not readily marketable, except that Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund may only invest up to 10% of their assets in repurchase agreements with maturities longer than seven days. Illiquid securities include certain restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits and repurchase agreements providing for settlement in more than seven days after notice. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Repurchase Agreements and Reverse Repurchase Agreements. The Funds may enter into repurchase agreements may be entered into with member banks of the Federal Reserve System, including the Custodian or primary dealers in U.S. Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during the holding period. A Fund requires continued maintenance of collateral with its Custodian in an amount at least equal to the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. The Funds' investment advisers will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. The Funds may borrow money by entering into a "reverse repurchase agreement" by which a Fund may agree to sell portfolio securities to financial institutions such as banks and broker-dealers, and to repurchase them at a mutually agreed upon date and price, for temporary or emergency purposes. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, U.S. government securities or liquid high grade debt obligations having a value at least equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. A Fund will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets. Futures and Related Options. Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund may, to a limited extent, enter into financial futures contracts, including futures contracts based on securities indices, purchase and sell options on such futures contracts, and engage in related closing transactions to the extent available to hedge all or a portion of its portfolio, or as an efficient means of regulating its exposure to the equity markets. The Funds will only use futures instruments for hedging, not speculative, purposes. The Funds may not enter into futures contracts or related options if, immediately thereafter, more than 30% of a Fund's total assets would be hedged thereby or the amounts committed to margin and premiums paid for unexpired options would exceed 5% of a Fund's total assets. These transactions include brokerage costs and require each Fund to segregate liquid high grade debt or cash to cover contracts which would require them to purchase securities. The Funds may lose the expected benefit of the transactions if securities prices or interest rates move in an unanticipated manner. In addition, if a Fund purchases futures contract on indices of securities, their value may not fluctuate in proportion to the value of the Fund's securities, limiting its ability to hedge effectively. While the Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund will enter into futures contracts only if there appears to be a liquid secondary market for such contracts, there can be no assurance that the Funds will be able to close out positions in a specific contract at a specific time. Each Fund will not enter into a particular index-based futures contract unless the Fund's investment adviser determines that a correlation exists between price movements in the index-based futures contract and in securities in a Fund's portfolio. Such correlation is not likely to be perfect, since each Fund's portfolio is not likely to contain the same securities used in the index. Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund may attempt to earn income from selling (writing) call options on futures contracts in instances where each Fund's investment adviser believes that the long-term investments held by the Fund which are the subjects of such contracts will remain stable or experience a decline with respect to the U.S. dollar during the term of the option. By selling such an option, a Fund forgoes all or part of the appreciation potential involved in holding investments that are the subject of the futures contract on which an option was written and may be forced to make untimely liquidations of its investments to meet its obligations under the option contract. Options And Futures. Evergreen Utility Fund may deal in put and call options. A call option gives the purchaser the right to buy, and the writer the obligation to sell, the underlying asset at the exercise price during the option period. A put option gives the purchaser the right to sell, and the writer the obligation to buy, the underlying asset at the exercise price during the option period. The writer of a covered call owns assets that are acceptable for escrow and the writer of a secured put invests an amount not less than the exercise price in eligible assets to the extent that it is obligated as a writer. If a call written by a Fund is exercised, the Fund forgoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. In writing puts, there is a risk that a Fund may be required to take delivery of the underlying asset at a disadvantageous price. Municipal Securities. As noted above, Evergreen Tax Strategic Foundation Fund may invest in Municipal Securities, which include municipal bonds, short-term municipal notes and tax exempt commercial paper. "Municipal bonds" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "municipal bonds" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in municipal bonds, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Floating Rate and Variable Rate Obligations. The Municipal Securities in which Evergreen Tax Strategic Foundation Fund may invest also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Certain of these obligations may carry a demand feature that gives the Evergreen Tax Strategic Foundation Fund the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. The Evergreen Tax Strategic Foundation Fund will limit the value of its investments in any floating or variable rate securities which are not readily marketable and in all other not readily marketable securities to 5% or less of its total assets. When-Issued Securities. Evergreen Utility Fund and Evergreen Tax Strategic Foundation Fund may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). The Funds generally would not pay for such securities or start earning interest on them until they are received. However, when the Funds purchase securities on a when-issued basis, they assume the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Commitments to purchase when-issued securities will not exceed 25% of the total assets of Evergreen Tax Strategic Foundation Fund and 20% of the total assets of Evergreen Utility Fund. The Evergreen Tax Strategic Foundation Fund will maintain cash or high quality short-term securities in a segregated account with its custodian in an amount equal to such commitments. The Fund does not intend to purchase when-issued securities for speculative purposes but only in furtherance of its investment objective. Stand-by Commitments. Evergreen Tax Strategic Foundation Fund may also acquire "stand-by commitments" with respect to Municipal Securities held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase, at the Fund's option, specified Municipal Securities at a specified price. Failure of the dealer to purchase such Municipal Securities may result in a Fund incurring a loss or missing an opportunity to make an alternative investment. The Evergreen Tax Strategic Foundation Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Evergreen Tax Strategic Foundation Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will maintain cash or high quality short-term securities in a segregated account with its Custodian in an amount equal to such commitments. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Fixed Income Investments. Evergreen Tax Strategic Foundation Fund may, however, temporarily invest up to 20% of its total assets in taxable securities under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, the Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. The Fund may invest for defensive purposes during periods when the Fund's assets available for investment exceed the available Municipal Securities that meet the Fund's quality and other investment criteria. Taxable securities in which the Fund may invest on a short-term basis include obligations of the U.S. government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by any major rating service; commercial paper rated in the highest grade by Moody's, S&P or any SRO; and certificates of deposit issued by United States branches of U.S. banks with assets of $1 billion or more. Fixed-Income Securities -- Downgrades. If any security invested in by any of the Funds 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. Special Risk Considerations Investments in the Utility Industry. In view of the Evergreen Utility Fund's investment concentration, investors should be aware of certain risks associated with the utility industry in general. These include difficulties in earning adequate returns on investments despite frequent rate increases, restrictions on operations and increased costs and delays due to governmental regulations, building or construction delays, environmental regulations, difficulty of the capital markets in absorbing utility debt and equity securities, and difficulties in obtaining fuel at reasonable prices. The Fund's investment adviser believes that the risks of investing in utility securities can be reduced. The professional portfolio management techniques used by the Fund's investment adviser to attempt to reduce these risks include credit research. The Fund's investment adviser will perform its own credit analysis, in addition to using recognized rating agencies and other sources, including discussions with an issuer's management, the judgment of other investment analysts, and its own informed judgment. The credit analysis of the Fund's investment adviser will consider an issuer's financial soundness, its responsiveness to changes in interest rates and business conditions, its anticipated cash flow, interest or dividend coverage, and earnings. In evaluating an issuer, the Fund's investment adviser places special emphasis on the estimated current value of the issuer's assets rather than historical costs. Bond prices move inversely to interest rates, i.e., as interest rates decline the value of the bonds increase and vice versa. The longer the maturity of a bond, the greater the exposure to market price fluctuations. The same market factors are reflected in the share price or net asset value of bond funds which will vary with interest rates. There is no limit on the maturity of the fixed income securities purchased by the Fund. Investment in Foreign Securities. Investments by Evergreen Utility Fund in foreign securities require consideration of certain factors not normally associated with investments in securities of U.S. issuers. For example, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of securities denominated in that currency. Accordingly, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of the assets of the Fund denominated or traded in that currency. If the value of a particular foreign currency falls relative to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in such currency will also fall. The performance of a Fund will be measured in U.S. dollars. Securities markets of foreign countries generally are not subject to the same degree of regulation as the U.S. markets and may be more volatile and less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell large blocks of securities and thus obtain the best price. The lack of uniform accounting standards and practices among countries impairs the validity of direct comparisons of valuation measures (such as price/earnings ratios) for securities in different countries. In addition, a Fund may incur costs associated with currency hedging and the conversion of foreign currency into U.S. dollars and may be adversely affected by restrictions on the conversion or transfer of foreign currency. Other considerations include political and social instability, expropriation, the lack of available information, higher transaction costs (including brokerage charges), increased custodian charges associated with holding foreign securities and different securities settlement practices. Settlement periods for foreign securities, which are sometimes longer than those for securities of U.S. issuers, may affect portfolio liquidity. These different settlement practices may cause missed purchasing opportunities and/or the loss of interest on money market and debt investments pending further equity or long-term debt investments. In addition, foreign securities held by a Fund may be traded on days that the Fund does not value its portfolio securities, such as Saturdays and customary business holidays, and, accordingly, a Fund's net asset value may be significantly affected on days when shareholders do not have access to the Fund. ADRs and European Depositary Receipts ("EDRs") and other securities convertible into securities of foreign issuers may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. Investments in Small Companies. Investment in the securities of small or newly formed companies involves greater risk than investments in larger, more established issuers. The Evergreen Small Cap Equity Income Fund may invest to a large extent in small or newly formed companies which have limited product lines, markets or financial resources and may lack management depth. The securities of such companies may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of larger, more established companies, or equity securities in general. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. Unless otherwise noted, the restrictions and policies set forth above are not fundamental and may be changed without shareholder approval. Shareholders will be notified of any changes in policies that are not fundamental. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which it has been established ("Trustees"). Evergreen Asset Management Corp. ( "Evergreen Asset") has been retained by Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Utility Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive from Evergreen Small Cap Equity Income Fund a fee equal to 1% of average daily net assets on an annual basis on the first $750 million in assets, .9 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .8 of 1% of average daily net assets on an annual basis on assets over $1 billion. With respect to Evergreen Tax Strategic Foundation Fund, Evergreen Asset is entitled to receive a fee equal to .875 of 1% of average daily net assets on an annual basis on the first $750 million in assets, .75 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion. The fee paid by Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund is higher than the rate paid by most other investment companies. Until Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund reach $15 million in net assets, Evergreen Asset has agreed to reimburse such Funds to the extent that their aggregate operating expenses exceed 1.50% of its average daily net assets for any fiscal year. Any reimbursement pursuant to the foregoing will be exclusive of interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". The above-mentioned expense ratios for Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Retirement Fund are net of voluntary advisory fee waivers and expense reimbursements by Evergreen Asset which may, at its discretion, revise or cease this voluntary waiver at any time. CMG manages investments and supervises the daily business affairs of Evergreen Utility Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of the Fund. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Utility Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Utility Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Utility Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Small Cap Equity Income Fund is Nola Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of Evergreen Asset. Ms. Falcone has served as the principal manager of the Fund since 1993. Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of Evergreen Asset, together with James T. Colby, III, serve as the portfolio managers for Evergreen Tax Strategic Foundation Fund. Mr. Lieber makes all allocation decisions and investment decisions for the equity portion of the portfolio and Mr. Colby manages the fixed-income portion. Mr. Colby has served as a fixed-income portfolio manager with Evergreen Asset since 1992. Prior to that, Mr. Colby served as Vice President-Investments at American Express Company from 1987 to 1992. Both have served as the Fund's principal managers since inception. The portfolio manager of Evergreen Utility Fund since its inception is H. Bradley Donovan, who is an Assistant Vice President of FUNB, and has been with First Union since 1992. Prior to that, Mr. Donovan had served as a portfolio manager and equity analyst at The Bank of Boston. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A, Class B and Class C shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, 1.00% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund, and .75 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen Utility Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Evergreen Utility Fund has, in addition to the Plans adopted with respect to its Class B and Class C shares, adopted shareholder service plans ("Service Plans") relating to the Class B and Class C shares which permit the Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plan, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares, .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class C shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans ( and in the case of Evergreen Utility Fund, the Service Plan), in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B and Class C shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment program. Share certificates are not issued for Class A, Class B and Class C shares. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A, Class B and Class C shares are offered through this Prospectus (See "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee on transaction in shares of the Funds. Class A shares may also be purchased at net asset value by qualified and non-qualified employee benefit and savings plans which make shares of the Funds and the other Evergreen mutual funds available to their participants, and which: (a) are employee benefit plans having at least $1,000,000 in investable assets, or 250 or more eligible participants; or (b) are non-qualified benefit or profit sharing plans which are sponsored by an organization which also makes the Evergreen mutual funds available through a qualified plan meeting the criteria specified under (a). In connection with sales made to plans of the type described in the preceeding sentence that are clients of broker-dealers, and which do not qualify for sales at net asset value under the conditions set forth in the paragraph above, payments may be made in an amount equal to .50 of 1% of the net asset value of shares purchased. These payments are subject to reclaim in the event shares are redeemed within 12 months after purchase. When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .25 of 1% of the average daily value on an annual basis of Class A shares held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which it is expected that they will convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. Class C Shares--Level-Load Alternative. You can purchase Class C shares without any initial sales charge and, therefore, the full amount of your investment will be used to purchase Fund shares. However, you will pay a 1.0% CDSC if you redeem shares during the first year after purchase. Class C shares incur higher distribution and/or shareholder service fees than Class A shares but, unlike Class B shares, do not convert to any other class of shares of the Fund. The higher fees mean a higher expense ratio, so Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. No contingent deferred sales charge will be imposed on Class C shares purchased by institutional investors, and through employee benefit and savings plans eligible for the exemption from front-end sales charges described under "Class A Shares-Front End Sales Charge Alternative", above. Broker-dealers and other financial intermediaries whose clients have purchased Class C shares may receive a trailing commission equal to .75 of 1% of the average daily value of such shares on an annual basis held by their clients more than one year from the date of purchase. The payment of trailing commissions will commence immediately with respect to shares eligible for exemption from the contingent deferred sales charge normally applicable to Class C shares. With respect to Class B Shares and Class C Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years (in the case of Class B Shares) or one year (in the case of Class C Shares) after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution and/or shareholder service fees, after seven years. If you are unsure of the time period of your investment, you might consider Class C shares since there are no initial sales charges and, although there is no conversion feature, the CDSC only applies to redemptions made during the first year. Consult your financial intermediary for further information. The compensation received by dealers and agents may differ depending on whether they sell Class A, Class B or Class C shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or its investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B or Class C shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 10 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B or C shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The redemption of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive sixty days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Act pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the Fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B or Class C shares are exchanged for Class B or Class C shares, respectively, of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B or Class C shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Funds and the other Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from front-end sales charges if they meet the criteria set forth under "Class A Shares-Front End Sales Charge Alternative". Each Fund's investment adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Code. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen Utility Fund is contained in the annual report of the Fund for the fiscal year ended December 31, 1994. Evergreen Small Cap Equity Income Fund. The Fund's one year performance through December 31, 1994, of -.65% on the Class Y no-load shares compared favorably with the performance of the NASDAQ OTC Composite Index (unreinvested) of -3.20% and the Russell 2000 Index of - -1.82%. The Fund invests in the shares of higher yielding entrepreneurial companies of smaller size which the Adviser believes will provide faster growth than the U.S. economy as a whole. The average market capitalization of the Fund's portfolio holdings on December 31, 1994, was $160 million. [CHART] The Fund's portfolio at year-end was composed of 64.5% common stocks, 4.2% convertible preferreds, 19.5% convertible debentures, and 11.8% in cash equivalents. Sharp downward swings in the 1994 bond market had a deleterious effect on the interest sensitive sectors of the equity and convertible market. The largest sector in the portfolio was in banking where Evergreen Asset believes there are opportunities for gains from mergers and acquisitions. However, the short-term performance of banks, finance and other interest sensitive issues was a drag on the performance during the year. Convertible bonds and preferred stocks which averaged between a 20-30% weighting in the portfolio were especially hard hit in this rising interest rate environment. Evergreen Asset maintained the Fund's holdings because it believed the equities underlying the convertibles represented strong potential growth values. The positive results in the portfolio were from gains from takeovers and in health related issues and restructured companies. The Fund also benefited from gains in companies that provide productivity enhancing services in computerization. Evergreen Tax Strategic Foundation Fund The Fund's total return of its Class Y no-load shares for the fiscal year ended December 31, 1994, was +3.44%, which compared favorably with the S&P 500 Reinvested Index at +1.31% for the same period. Since inception, the Fund's return has been +7.12% versus the S & P 500 Reinvested Index at +1.14%. As described in the Fund's objective, the equity portion of the Fund focused on specific undervalued sectors (including the health care sector), producing a return of 12.60% during 1994. And since the Fund's investment policy seeks to minimize taxable gains, the fixed income portion (which is invested in municipal bonds) initiated year end swaps during the bond market's decline to offset gains realized from equity sales. This strategy is central to the concept of the Fund which is to produce significant after-tax returns to shareholders. Even had Evergreen Asset not done the swaps, the objective of producing tax advantaged returns would have been realized since the municipal bond portion of the Fund yielded high current tax-free income. The fixed income portion of the portfolio returned -7.20% during the fiscal year, reflecting the dramatic decline in the fixed income markets. The Federal Reserve tightened short-term rates several times in 1994 which set off a ripple effect in worldwide bond markets. In addition, tax loss selling drove prices dramatically lower at year end. The Lehman Municipal Bond Index was -5.14% for 1994. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. and Organization. The Evergreen Small Cap Equity Income Fund is a separate series of The Evergreen American Retirement Trust, a Massachusetts business trust organized in 1987. Evergreen Tax Strategic Foundation Fund is a separate series of the Evergreen Foundation Trust, a Massachusetts business trust organized in 1989. Evergreen Utility Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Utility Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing-related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN TAX STRATEGIC FOUNDATION FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN UTILITY FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Plaza, Pittsburgh, Pennsylvania 15219 EVERGREEN UTILITY FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN TAX STRATEGIC FOUNDATION FUND Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072 EVERGREEN SMALL CAP INCOME EQUITY FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536116 PROSPECTUS July 7, 1995 EVERGREEN(SM) SPECIALTY GROWTH AND INCOME FUNDS (Evergreen logo appears here) EVERGREEN UTILITY FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND EVERGREEN SMALL CAP EQUITY INCOME FUND CLASS Y SHARES The Evergreen Specialty Growth and Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide current income, capital appreciation or after-tax "total return". This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Advisers Sub-Adviser Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN TAX STRATEGIC FOUNDATION FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN UTILITY FUND. EVERGREEN UTILITY FUND (formerly First Union Utility Portfolio) seeks high current income and moderate capital appreciation. EVERGREEN TAX STRATEGIC FOUNDATION FUND attempts to maximize the after-tax "total return" on its portfolio of investments. The Fund invests in common and preferred stocks and securities convertible into or exchangeable for common stocks and municipal securities. Under normal circumstances, the Fund anticipates that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets will be invested in municipal securities. EVERGREEN SMALL CAP EQUITY INCOME FUND attempts to maximize the "total return" on its portfolio of investments. The Fund invests in common and preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. In attempting to achieve its objective, the Fund invests primarily in companies with total market capitalization of less than $500 million. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $ 5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN UTILITY FUND (A)
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .50% After 1 Year $ 8 Administrative Fees .06% After 3 Years $ 24 12b-1 Fees -- After 5 Years $ 41 Other Expenses .18% After 10 Years $ 92 Total .74%
EVERGREEN TAX STRATEGIC FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees .875% After 1 Year $ 15 12b-1 Fees -- After 3 Years $ 47 Other Expenses (after reimbursement)* .625% After 5 Years $ 82 After 10 Years $ 179 Total 1.500%
EVERGREEN SMALL CAP EQUITY INCOME FUND
ANNUAL OPERATING EXPENSES EXAMPLE Advisory Fees 1.00% After 1 Year $ 15 12b-1 Fees -- After 3 Years $ 47 Other Expenses (after reimbursement)* .50% After 5 Years $ 82 After 10 Years $ 179 Total 1.50%
3 (a) Estimated annual operating expenses reflect the combination of First Union Utility Portfolio and ABT Utility Income Fund. *Reflects agreements by Evergreen Asset to limit aggregate operating expenses (including the Advisory Fees, but excluding interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses) of EVERGREEN SMALL CAP EQUITY INCOME FUND and EVERGREEN TAX STRATEGIC FOUNDATION FUND to 1.50% of average net assets until net assets reach $15 million. Absent such agreements, the estimated annual operating expenses for each Fund would be 2.50% of average net assets. From time to time each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these voluntary waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the year ended December 31, 1994. Such amounts have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN UTILITY FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN TAX STRATEGIC FOUNDATION FUND has been audited by Price Waterhouse LLP, the Fund's independent auditors and for EVERGREEN SMALL CAP EQUITY INCOME FUND has been audited by Ernst & Young LLP, the Fund's independent auditors. A report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No financial highlights are shown for Class A, B or C Shares of EVERGREEN TAX STRATEGIC FOUNDATION FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND since these classes did not have any operations prior to December 31, 1994. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN UTILITY FUND
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES JANUARY 4, JANUARY 4, SEPTEMBER 2, FEBRUARY 28, 1994* 1994* 1994* 1994* THROUGH THROUGH THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 1994 PER SHARE DATA Net asset value, beginning of period.......................... $10.00 $10.00 $9.33 $9.51 Income (loss) from investment operations: Net investment income......................................... .45 .39 .12 .37 Net realized and unrealized loss on investments............... (1.01) (1.01) (.33) (.50) Total from investment operations............................ (.56) (.62) (.21) (.13) Less distributions to shareholders from: Net investment income......................................... (.44) (.38) (.11) (.37) In excess of net investment income............................ -- -- -- (.01)(b) Total distributions......................................... (.44) (.38) (.11) (.38) Net asset value, end of period................................ $9.00 $9.00 $9.01 $9.00 TOTAL RETURN+................................................. (5.6%) (6.2%) (2.2%) (1.6%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................... $4,190 $28,792 $128 $5,201 Ratios to average net assets: Expenses(a)................................................. .53%++ 1.27%++ 1.94%++ .40%++ Net investment income(a).................................... 5.07%++ 4.19%++ 3.96%++ 4.93%++ Portfolio turnover rate....................................... 23% 23% 23% 23%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES JANUARY 4, JANUARY 4, SEPTEMBER 2, FEBRUARY 28, 1994 1994 1994 1994 THROUGH THROUGH THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 1994 Expenses............................ 1.43% 2.11% 2.78% 1.24% Net investment income............... 4.17% 3.35% 3.12% 4.09%
(b) Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes. 5 EVERGREEN TAX STRATEGIC FOUNDATION FUND -- CLASS Y SHARES
NOVEMBER 2, 1993* YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 PER SHARE DATA Net asset value, beginning of period................................................ $10.31 $ 10.00 Income from investment operations: Net investment income............................................................... .27 .05 Net realized and unrealized gain on investments..................................... .08 .31 Total from investment operations.................................................. .35 .36 Less distributions to shareholders from: Net investment income............................................................... (.27) (.05) Net realized gains.................................................................. (.12) -- Total distributions............................................................... (.39) (.05) Net asset value, end of period...................................................... $10.27 $ 10.31 TOTAL RETURN+....................................................................... 3.4% 3.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................................... $10,575 $5,424 Ratios to average net assets: Expenses(a)....................................................................... 1.49% 0%++ Net investment income(a).......................................................... 2.87% 3.65%++ Portfolio turnover rate............................................................. 245% 25%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED NOVEMBER 2, 1993 DECEMBER 31, THROUGH 1994 DECEMBER 31, 1993 Expenses.................................................. 2.41% 3.10% Net investment income..................................... 1.95% .54%
6 EVERGREEN SMALL CAP EQUITY INCOME FUND -- CLASS Y SHARES
OCTOBER 1, 1993* YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 PER SHARE DATA Net asset value, beginning of period................................................ $ 10.15 $ 10.00 Income (loss) from investment operations: Net investment income............................................................... .34 .10 Net realized and unrealized gain (loss) on investments.............................. (.41) .15 Total from investment operations.................................................. (.07) .25 Less distributions to shareholders from: Net investment income............................................................... (.33) (.10) Net realized gains.................................................................. (.05) -- Total distributions............................................................. (.38) (.10) Net asset value, end of period...................................................... $ 9.70 $ 10.15 TOTAL RETURN+....................................................................... (.7%) 2.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................................... $3,613 $2,236 Ratios to average net assets: Expenses(a)....................................................................... 1.48% 0%++ Net investment income(a).......................................................... 3.72% 4.07%++ Portfolio turnover rate............................................................. 9% 15%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
OCTOBER 1, 1993 YEAR ENDED THROUGH DECEMBER 31, 1994 DECEMBER 31, 1993 Expenses.................................................. 4.68% 4.39% Net investment income (loss).............................. .53% (.33%)
7 8 23 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Small Cap Equity Income Fund The investment objective of Evergreen Small Cap Equity Income Fund is to achieve a return consisting of current income and capital appreciation in the value of its shares. The emphasis on current income and capital appreciation will be relatively equal although, over time, changes in market conditions and the level of interest rates may cause the Fund to vary its emphasis between these two elements in its search for the optimum return for its shareholders. The Fund seeks to achieve its investment objective through investments in common stocks, preferred stocks, securities convertible into or exchangeable for common stocks and fixed income securities. Under normal conditions, the Fund will invest at least 65% of its total assets in equity securities (including convertible debt securities) of companies that, at the time of purchase, have "total market capitalization" -- present market value per share multiplied by the total number of shares outstanding -- of less than $500 million. The Fund's investment objective is a fundamental policy. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objective will be achieved. The Fund may invest up to 35% of its total assets in equity securities of companies that at the time of purchase have a total market capitalization of $500 million or more, and in excess of that percentage during temporary defensive periods. The Fund's portfolio will vary over time depending upon the economic outlook and market conditions. The composition of its portfolio will be subject to the discretion of the Fund's investment adviser. Ordinarily, the Fund anticipates that most of its portfolio will consist of equity securities and convertible debt securities. A significant portion of the equity investments, however, will be income producing. If in the judgment of the Fund's investment adviser a defensive position is appropriate, the Fund may take a defensive position and invest without limit in debt securities or government securities or hold its assets in cash or cash equivalents. The quality standards for debt securities include: Obligations of banks and commercial paper rated no lower than P-2 by Moody's Investor's Service ("Moody's"), A-2 by Standard and Poor's Ratings Group ("S&P") or having a comparable rating from another nationally recognized statistical rating organization ("SRO"); and non-convertible debt securities rated no lower than Baa by Moody's or BBB by S&P. Securities rated Baa or BBB may have speculative characteristics. The Fund may invest in real estate investment trusts ("Reits"). Equity Reits invest directly in real property while mortgage Reits invest in mortgages on real property. The Fund does not intend to invest in Reits that are primarily mortgage Reits. Equity Reits usually provide a high current yield plus the opportunity of long-term price appreciation of real estate values. Reits may be subject to certain risks associated with the direct ownership of real estate. See "Investment Practices and Restrictions - Special Risk Considerations", below. It is anticipated that the annual portfolio turnover rate for the Fund will not generally exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", and "Special Risk Considerations", below. Evergreen Tax Strategic Foundation Fund The investment objective of Evergreen Tax Strategic Foundation Fund is to maximize the after-tax "total return" on its portfolio of investments. Total return consists of current income and capital appreciation in the value of its shares. The Fund seeks to achieve this objective by investing in common stocks, preferred stocks and securities convertible into or exchangeable for common stocks. It will also invest in debt obligations issued by states and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax. Such securities are generally known as Municipal Securities. The Fund may also invest in taxable debt securities. (See ""Investment Practices and Restrictions - "Municipal Securities" and "Taxable Investments"). There can be no assurance that the Fund's investment objective will be achieved. The objective is fundamental and may not be changed without shareholder approval. To the extent that the Fund seeks capital appreciation, it expects that its investments will provide growth over the long-term. Investments, however, may be made on occasion for the purpose of short-term capital appreciation if the Fund believes that such investments will benefit its shareholders. The Fund may make investments in securities regardless of whether or not such securities are traded on a national securities exchange. The value of portfolio securities and their yields are expected to fluctuate over time because of varying general economic and market conditions. Accordingly, there can be no assurance that the Fund's investment objective will be achieved. The Fund's asset allocation will vary from time to time in accordance with changing economic and market conditions, including: inflation rates, business cycle trends, business regulations and tax law impacts on the investment markets. The composition of its portfolio will be largely unrestricted and subject to the discretion of the Fund's investment adviser. Under normal circumstances, the Fund anticipates that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets will be invested in Municipal Securities. The balance will be invested in equity securities (including securities convertible into equity securities). With respect to the fixed income portion of the Fund's portfolio, emphasis will be placed on acquiring issues expected to fluctuate little in value, except with changes in prevailing interest rates. The market value of the Municipal Securities in the Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. The Fund may at times emphasize the generation of interest income by investing in high-yielding debt securities, with short, medium or long-term maturities. Investment in medium (i.e., with maturities from five to ten years) to long-term (i.e., with maturities over ten years) debt securities may also be made with a view to realizing capital appreciation when the Fund's investment adviser believes that interest rates on such investments may decline, thereby increasing their market value. In general, the Fund will invest in Municipal Securities only if they are determined to be of high or upper medium quality. These include bonds rated BBB or higher by S&P or Baa by Moody's or another SRO. For a description of such ratings see the Statement of Additional Information. The Fund may purchase Municipal Securities which are unrated at the time of purchase, if such securities are determined by the Fund's investment adviser to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. Medium grade bonds are more susceptible to adverse economic conditions or changing circumstances than higher grade bonds. Interest income on certain types of bonds issued after August 7, 1986 to finance nongovernmental activities is an item of "tax-preference" subject to the Federal alternative minimum tax for individuals and corporations. To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to the alternative minimum tax on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, 80% of the Fund's investments in Municipal Securities will be invested in Municipal Securities the interest from which is not subject to the Federal alternative minimum tax. It is anticipated that the annual portfolio turnover rate for the Fund will generally not exceed 100% for the equity portion of its portfolio and 200% for the fixed income portion. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Utility Fund The investment objective of Evergreen Utility Fund is to achieve a return consisting of high current income and moderate capital appreciation. The Fund invests primarily in a diversified portfolio of equity and debt securities of utility companies that produce, transmit or distribute gas or electrical energy, as well as those companies which provide communications facilities, such as telephone and telegraph companies. As a matter of investment policy, the Fund will invest at least 65% of the value of its total assets in utility companies that derive 50% of their revenues from utilities or assets relating to utility industries. In addition, the Fund may invest up to 35% of its assets in common stock of non-utility companies. There can be no assurance that the Fund's investment objective will be achieved. The Fund may invest in: common and preferred stocks, bonds and convertible preferred stocks of utility companies selected by the Fund's investment adviser on the basis of traditional research techniques, including assessment of earnings and dividend growth prospects and of the risk and volatility of the individual company's industry. However, other factors, such as product position, market share or profitability may also be considered by the Fund's investment adviser. The Fund will only invest its assets in debt securities rated Baa or higher by Moody's or BBB or higher by S&P or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser; securities which are either issued or guaranteed by the U.S. government, its agencies or instrumentalities. These securities include direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds and discount notes of U.S. government agencies or instrumentaltiies such as the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Government National Mortgage Association, Student Loan Marketing Association, Tennessee Valley Authority, Export-Import Bank of the United State, Commodity Credit Corporation, Federal Financing Bank and National Credit Union Administration. Some of these securities are supported by the full faith and credit of the U.S. government, and others are supported only by the full faith and credit of the agency or instrumentality; commercial paper, including master demand notes; American Depositary Receipts ("ADRs") of foreign companies traded on the New York or American Stock Exchanges or the over-the-counter market; foreign securities (either foreign or U.S. securities traded in foreign markets). The Fund may also invest in other obligations denominated in foreign currencies. In making these decisions, the Fund's investment adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation considerations and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions" - "Other Investment Policies" and "Foreign Investments".) The Fund will not invest more than 10% of its assets in foreign securities; obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits and insured by the Bank Insurance Fund or the Savings Association Mortagage Fund, including U.S. branches of foreign banks and foreign branches of U.S. banks; and securities of other investment companies. Bonds rated Baa by Moody's or BBB by S&P may have speculative characteristics. Changes in economic conditions or other circumstances are more likely to weaken such bonds' prospects for principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered investment grade. As of December 31, 1994 approximately 88% of the Fund's portfolio consisted of equity securities. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of the Funds' investment advisers, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund must pay. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for the Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund on those exchanges. See the Statement of Additional Information for further information regarding the brokerage allocation practices of these Funds. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except from banks as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the total assets of the Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund, and 15% of the value of the total assets of Evergreen Utility Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities files for bankruptcy or becomes insolvent, dispostion of the securities may be delayed pending court action. Illiquid or Restricted Securities. Each Fund may invest up to 15% of its net assets in illiquid securities and other securities which are not readily marketable, except that Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund may only invest up to 10% of their assets in repurchase agreements with maturities longer than seven days. Illiquid securities include certain restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits and repurchase agreements providing for settlement in more than seven days after notice. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Repurchase Agreements and Reverse Repurchase Agreements. The Funds may enter into repurchase agreements may be entered into with member banks of the Federal Reserve System, including the Custodian or primary dealers in U.S. Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during the holding period. A Fund requires continued maintenance of collateral with its Custodian in an amount at least equal to the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. The Funds' investment advisers will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. The Funds may borrow money by entering into a "reverse repurchase agreement" by which a Fund may agree to sell portfolio securities to financial institutions such as banks and broker-dealers, and to repurchase them at a mutually agreed upon date and price, for temporary or emergency purposes. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, U.S. government securities or liquid high grade debt obligations having a value at least equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. A Fund will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets. Futures and Related Options. Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund may, to a limited extent, enter into financial futures contracts, including futures contracts based on securities indices, purchase and sell options on such futures contracts, and engage in related closing transactions to the extent available to hedge all or a portion of its portfolio, or as an efficient means of regulating its exposure to the equity markets. The Funds will only use futures instruments for hedging, not speculative, purposes. The Funds may not enter into futures contracts or related options if, immediately thereafter, more than 30% of a Fund's total assets would be hedged thereby or the amounts committed to margin and premiums paid for unexpired options would exceed 5% of a Fund's total assets. These transactions include brokerage costs and require each Fund to segregate liquid high grade debt or cash to cover contracts which would require them to purchase securities. The Funds may lose the expected benefit of the transactions if securities prices or interest rates move in an unanticipated manner. In addition, if a Fund purchases futures contract on indices of securities, their value may not fluctuate in proportion to the value of the Fund's securities, limiting its ability to hedge effectively. While the Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund will enter into futures contracts only if there appears to be a liquid secondary market for such contracts, there can be no assurance that the Funds will be able to close out positions in a specific contract at a specific time. Each Fund will not enter into a particular index-based futures contract unless the Fund's investment adviser determines that a correlation exists between price movements in the index-based futures contract and in securities in a Fund's portfolio. Such correlation is not likely to be perfect, since each Fund's portfolio is not likely to contain the same securities used in the index. Evergreen Small Cap Equity Income Fund and Evergreen Utility Fund may attempt to earn income from selling (writing) call options on futures contracts in instances where each Fund's investment adviser believes that the long-term investments held by the Fund which are the subjects of such contracts will remain stable or experience a decline with respect to the U.S. dollar during the term of the option. By selling such an option, a Fund forgoes all or part of the appreciation potential involved in holding investments that are the subject of the futures contract on which an option was written and may be forced to make untimely liquidations of its investments to meet its obligations under the option contract. Options And Futures. Evergreen Utility Fund may deal in put and call options. A call option gives the purchaser the right to buy, and the writer the obligation to sell, the underlying asset at the exercise price during the option period. A put option gives the purchaser the right to sell, and the writer the obligation to buy, the underlying asset at the exercise price during the option period. The writer of a covered call owns assets that are acceptable for escrow and the writer of a secured put invests an amount not less than the exercise price in eligible assets to the extent that it is obligated as a writer. If a call written by a Fund is exercised, the Fund forgoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. In writing puts, there is a risk that a Fund may be required to take delivery of the underlying asset at a disadvantageous price. Municipal Securities. As noted above, Evergreen Tax Strategic Foundation Fund may invest in Municipal Securities, which include municipal bonds, short-term municipal notes and tax exempt commercial paper. "Municipal bonds" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "municipal bonds" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in municipal bonds, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Floating Rate and Variable Rate Obligations. The Municipal Securities in which Evergreen Tax Strategic Foundation Fund may invest also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Certain of these obligations may carry a demand feature that gives the Evergreen Tax Strategic Foundation Fund the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. The Evergreen Tax Strategic Foundation Fund will limit the value of its investments in any floating or variable rate securities which are not readily marketable and in all other not readily marketable securities to 5% or less of its total assets. When-Issued Securities. Evergreen Utility Fund and Evergreen Tax Strategic Foundation Fund may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). The Funds generally would not pay for such securities or start earning interest on them until they are received. However, when the Funds purchase securities on a when-issued basis, they assume the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Commitments to purchase when-issued securities will not exceed 25% of the total assets of Evergreen Tax Strategic Foundation Fund and 20% of the total assets of Evergreen Utility Fund. The Evergreen Tax Strategic Foundation Fund will maintain cash or high quality short-term securities in a segregated account with its custodian in an amount equal to such commitments. The Fund does not intend to purchase when-issued securities for speculative purposes but only in furtherance of its investment objective. Stand-by Commitments. Evergreen Tax Strategic Foundation Fund may also acquire "stand-by commitments" with respect to Municipal Securities held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase, at the Fund's option, specified Municipal Securities at a specified price. Failure of the dealer to purchase such Municipal Securities may result in a Fund incurring a loss or missing an opportunity to make an alternative investment. The Evergreen Tax Strategic Foundation Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Evergreen Tax Strategic Foundation Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will maintain cash or high quality short-term securities in a segregated account with its Custodian in an amount equal to such commitments. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Fixed Income Investments. Evergreen Tax Strategic Foundation Fund may, however, temporarily invest up to 20% of its total assets in taxable securities under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, the Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. The Fund may invest for defensive purposes during periods when the Fund's assets available for investment exceed the available Municipal Securities that meet the Fund's quality and other investment criteria. Taxable securities in which the Fund may invest on a short-term basis include obligations of the U.S. government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by any major rating service; commercial paper rated in the highest grade by Moody's, S&P or any SRO; and certificates of deposit issued by United States branches of U.S. banks with assets of $1 billion or more. Fixed-Income Securities -- Downgrades. If any security invested in by any of the Funds 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. Special Risk Considerations Investments in the Utility Industry. In view of the Evergreen Utility Fund's investment concentration, investors should be aware of certain risks associated with the utility industry in general. These include difficulties in earning adequate returns on investments despite frequent rate increases, restrictions on operations and increased costs and delays due to governmental regulations, building or construction delays, environmental regulations, difficulty of the capital markets in absorbing utility debt and equity securities, and difficulties in obtaining fuel at reasonable prices. The Fund's investment adviser believes that the risks of investing in utility securities can be reduced. The professional portfolio management techniques used by the Fund's investment adviser to attempt to reduce these risks include credit research. The Fund's investment adviser will perform its own credit analysis, in addition to using recognized rating agencies and other sources, including discussions with an issuer's management, the judgment of other investment analysts, and its own informed judgment. The credit analysis of the Fund's investment adviser will consider an issuer's financial soundness, its responsiveness to changes in interest rates and business conditions, its anticipated cash flow, interest or dividend coverage, and earnings. In evaluating an issuer, the Fund's investment adviser places special emphasis on the estimated current value of the issuer's assets rather than historical costs. Bond prices move inversely to interest rates, i.e., as interest rates decline the value of the bonds increase and vice versa. The longer the maturity of a bond, the greater the exposure to market price fluctuations. The same market factors are reflected in the share price or net asset value of bond funds which will vary with interest rates. There is no limit on the maturity of the fixed income securities purchased by the Fund. Investment in Foreign Securities. Investments by Evergreen Utility Fund in foreign securities require consideration of certain factors not normally associated with investments in securities of U.S. issuers. For example, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of securities denominated in that currency. Accordingly, a change in the value of any foreign currency relative to the U.S. dollar will result in a corresponding change in the U.S. dollar value of the assets of the Fund denominated or traded in that currency. If the value of a particular foreign currency falls relative to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in such currency will also fall. The performance of a Fund will be measured in U.S. dollars. Securities markets of foreign countries generally are not subject to the same degree of regulation as the U.S. markets and may be more volatile and less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell large blocks of securities and thus obtain the best price. The lack of uniform accounting standards and practices among countries impairs the validity of direct comparisons of valuation measures (such as price/earnings ratios) for securities in different countries. In addition, a Fund may incur costs associated with currency hedging and the conversion of foreign currency into U.S. dollars and may be adversely affected by restrictions on the conversion or transfer of foreign currency. Other considerations include political and social instability, expropriation, the lack of available information, higher transaction costs (including brokerage charges), increased custodian charges associated with holding foreign securities and different securities settlement practices. Settlement periods for foreign securities, which are sometimes longer than those for securities of U.S. issuers, may affect portfolio liquidity. These different settlement practices may cause missed purchasing opportunities and/or the loss of interest on money market and debt investments pending further equity or long-term debt investments. In addition, foreign securities held by a Fund may be traded on days that the Fund does not value its portfolio securities, such as Saturdays and customary business holidays, and, accordingly, a Fund's net asset value may be significantly affected on days when shareholders do not have access to the Fund. ADRs and European Depositary Receipts ("EDRs") and other securities convertible into securities of foreign issuers may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. Investments in Small Companies. Investment in the securities of small or newly formed companies involves greater risk than investments in larger, more established issuers. The Evergreen Small Cap Equity Income Fund may invest to a large extent in small or newly formed companies which have limited product lines, markets or financial resources and may lack management depth. The securities of such companies may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of larger, more established companies, or equity securities in general. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. Unless otherwise noted, the restrictions and policies set forth above are not fundamental and may be changed without shareholder approval. Shareholders will be notified of any changes in policies that are not fundamental. - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which it has been established ("Trustees"). Evergreen Asset Management Corp. ( "Evergreen Asset") has been retained by Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Utility Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive from Evergreen Small Cap Equity Income Fund a fee equal to 1% of average daily net assets on an annual basis on the first $750 million in assets, .9 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .8 of 1% of average daily net assets on an annual basis on assets over $1 billion. With respect to Evergreen Tax Strategic Foundation Fund, Evergreen Asset is entitled to receive a fee equal to .875 of 1% of average daily net assets on an annual basis on the first $750 million in assets, .75 of 1% of average daily net assets on an annual basis on the next $250 million in assets, and .7 of 1% of average daily net assets on an annual basis on assets over $1 billion. The fee paid by Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund is higher than the rate paid by most other investment companies. Until Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund reach $15 million in net assets, Evergreen Asset has agreed to reimburse such Funds to the extent that their aggregate operating expenses exceed 1.50% of its average daily net assets for any fiscal year. Any reimbursement pursuant to the foregoing will be exclusive of interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". The above-mentioned expense ratios for Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Retirement Fund are net of voluntary advisory fee waivers and expense reimbursements by Evergreen Asset which may, at its discretion, revise or cease this voluntary waiver at any time. CMG manages investments and supervises the daily business affairs of Evergreen Utility Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of the Fund. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Utility Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Utility Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Utility Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Small Cap Equity Income Fund is Nola Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of Evergreen Asset. Ms. Falcone has served as the principal manager of the Fund since 1993. Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of Evergreen Asset, together with James T. Colby, III, serve as the portfolio managers for Evergreen Tax Strategic Foundation Fund. Mr. Lieber makes all allocation decisions and investment decisions for the equity portion of the portfolio and Mr. Colby manages the fixed-income portion. Mr. Colby has served as a fixed-income portfolio manager with Evergreen Asset since 1992. Prior to that, Mr. Colby served as Vice President-Investments at American Express Company from 1987 to 1992. Both have served as the Fund's principal managers since inception. The portfolio manager of Evergreen Utility Fund since its inception is H. Bradley Donovan, who is an Assistant Vice President of FUNB, and has been with First Union since 1992. Prior to that, Mr. Donovan had served as a portfolio manager and equity analyst at The Bank of Boston. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as a Fund's Trustees believe would accurately reflect fair market value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. The Share Purchase Application may not be used to invest in any of the prototype retirement plans for which the Funds are an available investment. For information about the requirements to make such investments, including copies of the necessary application forms, please call the telephone number set forth on the cover page of this Prospectus. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. Shares of each Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the enclosed Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Retirement Plans. Eligible investors may invest in each Fund under the following prototype retirement plans: (i) Individual Retirement Account (IRA); (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Code. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus,and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Tax Strategic Foundation Fund and Evergreen Small Cap Equity Income Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen Utility Fund is contained in the annual report of the Fund for the fiscal year ended December 31, 1994. Evergreen Small Cap Equity Income Fund. The Fund's one year performance through December 31, 1994, of -.65% on the Class Y no-load shares compared favorably with the performance of the NASDAQ OTC Composite Index (unreinvested) of -3.20% and the Russell 2000 Index of - -1.82%. The Fund invests in the shares of higher yielding entrepreneurial companies of smaller size which the Adviser believes will provide faster growth than the U.S. economy as a whole. The average market capitalization of the Fund's portfolio holdings on December 31, 1994, was $160 million. The Fund's portfolio at year-end was composed of 64.5% common stocks, 4.2% convertible preferreds, 19.5% convertible debentures, and 11.8% in cash equivalents. Sharp downward swings in the 1994 bond market had a deleterious effect on the interest sensitive sectors of the equity and convertible market. The largest sector in the portfolio was in banking where Evergreen Asset believes there are opportunities for gains from mergers and acquisitions. However, the short-term performance of banks, finance and other interest sensitive issues was a drag on the performance during the year. Convertible bonds and preferred stocks which averaged between a 20-30% weighting in the portfolio were especially hard hit in this rising interest rate environment. Evergreen Assetr maintained the Fund's holdings because it believed the equities underlying the convertibles represented strong potential growth values. The positive results in the portfolio were from gains from takeovers and in health related issues and restructured companies. The Fund also benefitted from gains in companies that provide productivity enhancing services in computerization. [CHART] Evergreen Tax Strategic Foundation Fund The Fund's total return of its Class Y no-load shares for the fiscal year ended December 31, 1994, was +3.44%, which compared favorably with the S&P 500 Reinvested Index at +1.31% for the same period. Since inception, the Fund's return has been +7.12% versus the S & P 500 Reinvested Index at +1.14%. As described in the Fund's objective, the equity portion of the Fund focused on specific undervalued sectors (including the health care sector), producing a return of 12.60% during 1994. And since the Fund's investment policy seeks to minimize taxable gains, the fixed income portion (which is invested in municipal bonds) initiated year end swaps during the bond market's decline to offset gains realized from equity sales. This strategy is central to the concept of the Fund which is to produce significant after-tax returns to shareholders. Even had Evergreen Asset not done the swaps, the objective of producing tax advantaged returns would have been realized since the municipal bond portion of the Fund yielded high current tax-free income. The fixed income portion of the portfolio returned -7.20% during the fiscal year, reflecting the dramatic decline in the fixed income markets. The Federal Reserve tightened short-term rates several times in 1994 which set off a ripple effect in worldwide bond markets. In addition, tax loss selling drove prices dramatically lower at year end. The Lehman Municipal Bond Index was -5.14% for 1994. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. and Organization. The Evergreen Small Cap Equity Income Fund is a separate series of The Evergreen American Retirement Trust, a Massachusetts business trust organized in 1987. Evergreen Tax Strategic Foundation Fund is a separate series of the Evergreen Foundation Trust, a Massachusetts business trust organized in 1989. Evergreen Utility Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Utility Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Small Cap Equity Income Fund and Evergreen Tax Strategic Foundation Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing-related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN TAX STRATEGIC FOUNDATION FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN UTILITY FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Plaza, Pittsburgh, Pennsylvania 15219 EVERGREEN UTILITY FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN TAX STRATEGIC FOUNDATION FUND Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072 EVERGREEN SMALL CAP INCOME EQUITY FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536124 STATEMENT OF ADDITIONAL INFORMATION July 7, 1995 THE EVERGREEN GROWTH AND INCOME FUNDS 2500 Westchester Avenue, Purchase, New York 10577 800-807-2940 Evergreen Balanced Fund (formerly First Union Balanced Portfolio) ("Balanced") Evergreen Growth and Income Fund ("Growth and Income") The Evergreen Total Return Fund ("Total Return") The Evergreen American Retirement Fund ("American Retirement") Evergreen Small Cap Equity Income Fund ("Small Cap") Evergreen Foundation Fund ("Foundation") Evergreen Tax Strategic Foundation Fund ("Tax Strategic") Evergreen Utility Fund (formerly First Union Utility Portfolio) ("Utility") Evergreen Value Fund (formerly First Union Value Portfolio) ("Value") This Statement of Additional Information pertains to all classes of shares of the Funds listed below. It is not a prospectus and should be read in conjunction with the Prospectus dated July 7, 1995 for the Fund in which you are making or contemplating an investment. The Evergreen Growth and Income Funds are offered through four separate prospectuses: one offering Class A, Class B and Class C shares, and a separate prospectus offering Class Y shares of Balanced, Growth and Income, Total Return, American Retirement, Foundation and Value; and one offering Class A, Class B and Class C shares and a separate prospectus offering Class Y shares of Small Cap, Tax Strategic and Utility. Copies of each Prospectus may be obtained without charge by calling the number listed above. TABLE OF CONTENTS Page Investment Objectives and Policies................................ Investment Restrictions........................................... Non-Fundamental Operating Policies................................ Certain Risk Considerations....................................... Management........................................................ Investment Adviser................................................ Distribution Plans................................................ Allocation of Brokerage........................................... Additional Tax Information........................................ Net Asset Value................................................... Purchase of Shares................................................ Performance Information........................................... Financial Statements.............................................. Appendix A - Note, Bond And Commercial Paper Ratings INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the Funds - Investment Objective and Policies" in each Fund's Prospectus) The investment objective of each Fund and a description of the securities in which each Fund may invest is set forth under "Description of the Funds - "Investment Objective and Policies" in the relevant Prospectus. The investment objectives of Balanced, Utility and Value are fundamental and cannot be changed without the approval of shareholders. The following expands upon the discussion in the Prospectus regarding certain investments of each Fund. U.S. Government Securities The types of U.S. government securities in which the Funds may invest generally include direct obligations of the U.S. Treasury such as U. S. Treasury bills, notes and bonds and obligations issued or guaranteed by U.S. government agencies or instrumentalities. These securities are backed by: (i) the full faith and credit of the U.S. Treasury; (ii) the issuer's right to borrow from the U.S. Treasury; (iii) the discretionary authority of the U.S. government to purchase certain obligations of agencies or instrumentalities; or (iv) the credit of the agency or instrumentality issuing the obligations. Examples of agencies and instrumentalities that may not always receive financial support from the U.S. government are: (i) Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives; (ii) Farmers Home Administration; (iii) Federal Home Loan Banks; (iv) Federal Home Loan Mortgage Corporation; (v) Federal National Mortgage Association; (vi) Government National Mortgage Association; and (vii) Student Loan Marketing Association Restricted and Illiquid Securities Each Fund may invest in restricted and illiquid securities. The ability of the Board of Trustees ("Trustees") to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for sale under the Rule. The Funds which invest in Rule 144A Securities believe that the Staff of the SEC has left the question of determining the liquidity of all restricted securities (eligible for resale under the Rule) for determination by the Trustees. The Trustees consider the following criteria in determining the liquidity of certain restricted securities: (i) the frequency of trades and quotes for the security; (ii) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (iii) dealer undertakings to make a market in the security; and (iv) the nature of the security and the nature of the marketplace trades. Restricted securities would generally be acquired either from institutional investors who originally acquired the securities in private placements or directly from the issuers of the securities in private placements. Restricted securities and securities that are not readily marketable may sell at a discount from the price they would bring if freely marketable. When-Issued and Delayed Delivery Securities Balanced, Tax Strategic, Utility and Value may purchase securities on a when-issued or delayed delivery basis. These transactions are made to secure what is considered to be an advantageous price or yield for a Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of a Fund sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. Balanced, Utility and Value do not intend to engage in when- issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of their assets and Tax Strategic's commitment to purchase when-issued securities will not exceed 25% of the Fund's total assets. Lending of Portfolio Securities Each Fund may lend its portfolio securities to generate income and to offset expenses. The collateral received when a Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. A Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Fund does not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Reverse Repurchase Agreements The Funds other than American Retirement, Foundation, Total Return and Growth and Income may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of a Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. Options and Futures Transactions Options which Balanced, Utility and Value trade must be listed on national securities exchanges. .........Purchasing Put and Call Options on Financial Futures Contracts Balanced, Utility and Value may purchase put and call options on financial futures contracts (in the case of Utility and Value limited to options on financial futures contracts for U.S. government securities). Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at an 3 undetermined price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. The Fund may purchase put and call options on futures to protect portfolio securities against decreases in value resulting from an anticipated increase in market interest rates. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the put option will increase in value. In such an event, a Fund will normally close out its option by selling an identical put option. If the hedge is successful, the proceeds received by the Fund upon the sale of the put option plus the realized decrease in value of the hedged securities. Alternately, a Fund may exercise its put option to close out the position. To do so, it would enter into a futures contract of the type underlying the option. If the Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and only the premium paid for the contract will be lost. .........Purchasing Options Balanced, Utility and Value may purchase both put and call options on their portfolio securities. These options will be used as a hedge to attempt to protect securities which a Fund holds or will be purchasing against decreases or increases in value. A Fund may purchase call and put options for the purpose of offsetting previously written call and put options of the same series. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying securities or dispose of assets held in a segregated account until the options expire or are exercised. Balanced, Utility and Value intend to purchase put and call options on currency and other financial futures contracts for hedging purposes. A put option purchased by a Fund would give it the right to assume a position as the seller of a futures contract. A call option purchased by the Fund would give it the right to assume a position as the purchaser of a futures contract. The purchase of an option on a futures contract requires the Fund to pay a premium. In exchange for the premium, the Fund becomes entitled to exercise the benefits, if any, provided by the futures contract, but is not required to take any action under the contract. If the option cannot be exercised profitably before it expires, the Fund's loss will be limited to the amount of the premium and any transaction costs. Utility and Value currently do not intend to invest more than 5% of their net assets in options transactions. Balanced, Utility, Value and Small Cap, may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. When the Fund purchases futures contracts, an amount of cash and cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Fund's custodian (or the broker, if legally permitted) to collateralize the position and thereby insure that the sue of such futures contracts is unleveraged. ........."Margin" in Futures Transactions Unlike the purchase or sale of a security, a Fund does not pay or receive money upon the purchase or sale of a futures contract. Rather, a Fund is required to deposit an amount of "initial margin" in cash or U.S. Treasury bills with its custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contract initial margin does not involve the borrowing of funds by a Fund to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value 4 of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, a Fund will mark-to-market its open futures positions. The Fund is also required to deposit and maintain margin when it writes call options on futures contracts. Balanced will not maintain open positions in futures contracts it has sold or call options it has written on futures contracts if, in the aggregate, the value of the open positions (marked to market) exceeds the current market value of its securities portfolio plus or minus the unrealized gain or loss on those open positions, adjusted for the correlation of volatility between the hedged securities and the futures contracts. If this limitation is exceeded at any time, the Fund will take prompt action to close out a sufficient number of open contracts to bring its open futures and options positions within this limitation. .........Total Return and Growth and Income may write covered call options to a limited extent on their portfolio securities ("covered options") in an attempt to earn additional income. The Fund will write only covered call option contracts and will receive premium income from the writing of such contracts. Total Return and Growth and Income may purchase call options to close out a previously written call option. In order to do so, the Fund will make a "closing purchase transaction" -- the purchase of a call option on the same security with the same exercise price and expiration date as the call option which it has previously written. A Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. If an option is exercised, a Fund realizes a long-term or short-term gain or loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Junk Bonds .........Consistent with its strategy of investing in "undervalued" securities, Growth and Income may invest in lower medium and low-quality bonds also known as "junk bonds" and may also purchase bonds in default if, in the opinion of the Adviser, there is significant potential for capital appreciation. Growth and Income, however, will not invest more than 5% of its total assets in debt securities which are rated below investment grade. These bonds are regarded as speculative with respect to the issuer's continuing ability to meet principal and interest payments. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade bonds. A projection of an economic downturn, or higher interest rates, for example, could cause a decline in high yield bond prices because such events could lessen the ability of highly leveraged companies to make principal and interest payments on their debt securities. In addition, the secondary trading market for high yield bonds may be less liquid than the market for higher grade bonds, which can adversely affect the ability to dispose of such securities. Variable and Floating Rate Securities .........Foundation may invest no more than 5% of its total assets, at the time of the investment in question, in variable and floating rate securities. The terms of variable and floating rate instruments provide for the interest rate to be adjusted according to a formula on certain predetermined dates. Variable and floating rate instruments that are repayable on demand at a future date are deemed to have a maturity equal to the time remaining until the principal will be received on the assumption that the demand feature is exercised on the earliest possible date. For the purposes of evaluating the interest-rate sensitivity of the Fund, variable and floating rate instruments are deemed to have a maturity equal to the period remaining until the next interest-rate readjustment. For the purposes of evaluating the credit risks of variable and floating rate instruments, these instruments are deemed to have a maturity equal to the time remaining until the earliest date the Fund is entitled to demand repayment of principal. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS .........Except as noted, the investment restrictions set forth below are fundamental and may not be changed with respect to each Fund without the 5 affirmative vote of a majority of the outstanding voting securities of the Fund. Where an asterisk (*) appears after a Fund's name, the relevant policy is non-fundamental with respect to that Fund and may be changed by the Fund's investment adviser without shareholder approval, subject to review and approval by the Trustees. As used in this Statement of Additional Information and in the Prospectus, "a majority of the outstanding voting securities of the Fund" means the lesser of (1) the holders of more than 50% of the outstanding shares of beneficial interest of the Fund or (2) 67% of the shares present if more than 50% of the shares are present at a meeting in person or by proxy. 1........Concentration of Assets in Any One Issuer .........Neither Growth and Income nor Total Return may invest more than 5% of its net assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities. .........American Retirement may not invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities. ........None of Balanced, Foundation, Small Cap, Utility or Value may invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities, except that up to 25% of the value of a Fund's total assets may be invested without regard to such 5% limitation. .........Tax Strategic may not invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities, except that up to 25% of the value of each Fund's total assets may be invested without regard to such 5% limitation. For this purpose each political subdivision, agency, or instrumentality and each multi-state agency of which a state is a member, and each public authority which issues industrial development bonds on behalf of a private entity, will be regarded as a separate issuer for determining the diversification of each Fund's portfolio. 2........Ten Percent Limitation on Securities of Any One Issuer .........None of American Retirement, Foundation, Small Cap, Growth and Income or Total Return may purchase more than 10% of any class of securities of any one issuer other than the U.S. government and its agencies or instrumentalities. .........Neither Value nor Utility may purchase more than 10% of the outstanding voting securities of any one issuer. .........Tax Strategic* may not purchase more than 10% of the voting securities of any one issuer other than the U.S. government and its agencies or instrumentalities. 3........Investment for Purposes of Control or Management .........None of American Retirement, Foundation, Growth and Income, Small Cap*, Tax Strategic*, Total Return, Utility* or Value may invest in companies for the purpose of exercising control or management. 4........Purchase of Securities on Margin .........None of American Retirement, Balanced, Foundation, Growth and Income, Small Cap*, Tax Strategic*, Total Return, Utility or Value may purchase securities on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of transactions. A deposit or payment by a Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 6 5........Unseasoned Issuers .........Neither American Retirement nor Foundation may invest in the securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors. .........None of Total Return, Value* or Utility* may invest more than 5% of its total assets in securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors. .........None of Growth and Income, Small Cap* and Tax Strategic* may invest more than 15% of its total assets (10% of total net assets in the case of Growth and Income) in securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors. 6........Underwriting .........American Retirement, Foundation, Growth and Income, Small Cap,* Tax Strategic*, Total Return, Balanced, Utility and Value will not underwrite any issue of securities except as they may be deemed an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with their investment objectives, policies and limitations. 7........Interests in Oil, Gas or Other Mineral Exploration or Development Programs ......... None of American Retirement, Foundation, Growth and Income, Small Cap, Tax Strategic or Total Return may purchase, sell or invest in interests in oil, gas or other mineral exploration or development programs. .........Neither Balanced* nor Utility* will purchase interests in oil, gas or other mineral exploration or development programs or leases, although each Fund may purchase the securities of other issuers which invest in or sponsor such programs. .........Value will not purchase interests in oil, gas or other mineral exploration or development programs or leases, although it may purchase the publicly traded securities of companies engaged in such activities. 8........Concentration in Any One Industry .........Neither Growth and Income nor Total Return may concentrate its investments in any one industry, except that each Fund may invest up to 25% of its total net assets in any one industry. .........None of American Retirement, Foundation, Small Cap and Tax Strategic may invest 25% or more of its total assets in the securities of issuers conducting their principal business activities in any one industry; provided, that this limitation shall not apply (i) with respect to each Fund, to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, or (ii) with respect to Tax Strategic, to municipal securities. For purposes of this restriction, utility companies, gas, electric, water and telephone companies will be considered separate industries. .........Balanced and Value will not invest 25% or more of the value of their total assets in any one industry except Balanced may invest more than 25% and Value may invest 25% or more of its total assets in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. .........Utility will not invest more than 25% of its total assets (valued at the time of investment) in securities of companies engaged principally in any one industry other than the utilities industry, except that this restriction does not apply to cash or cash items and securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. 9........Warrants .........None of American Retirement, Growth and Income, Small Cap,* or Total Return may invest more than 5% of its net assets in warrants, and, of this 7 amount, no more than 2% of each Fund's net assets may be invested in warrants that are listed on neither the New York nor the American Stock Exchange. .........Neither Foundation nor Tax Strategic* may invest more than 5% of its net assets in warrants, and of this amount, no more than 2% of each Fund's net assets may be invested in warrants that are listed on neither the New York nor the American Stock Exchanges. .........Utility* and Value* will not invest more than 5% of their net assets in warrants, including those acquired in units or attached to other securities. To comply with certain state restrictions, Utility and Value will limit their investment in such warrants not listed on the New York Stock Exchange or the American Stock Exchange to 2% of their net assets. (If state restrictions change, this latter restriction may be changed without notice to shareholders). For purposes of this restriction, warrants acquired by the Funds' in units or attached to securities may be deemed to be without value. 10.......Ownership by Trustees/Officers .........None of American Retirement, Balanced*, Foundation, Growth and Income, Small Cap*, Tax Strategic*, Total Return, Utility* or Value* may purchase or retain the securities of any issuer if (i) one or more officers or Trustees of a Fund or its investment adviser individually owns or would own, directly or beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such persons own or would own, directly or beneficially, more than 5% of such securities. 11.......Short Sales .........Neither American Retirement nor Foundation may make short sales of securities unless, at the time of each such sale and thereafter while a short position exists, each Fund owns the securities sold or securities convertible into or carrying rights to acquire such securities. .........None of Growth and Income, Tax Strategic* and Total Return may make short sales of securities unless, at the time of each such sale and thereafter while a short position exists, each Fund owns an equal amount of securities of the same issue or owns securities which, without payment by the Fund of any consideration, are convertible into, or are exchangeable for, an equal amount of securities of the same issue. .........Small Cap,* may not make short sales of securities unless, at the time of each such sale and thereafter while a short position exists, each Fund owns an equal amount of securities of the same issue or owns securities which, without payment by the Fund of any consideration, are convertible into, or are exchangeable for, an equal amount of securities of the same issue (and provided that transactions in futures contracts and options are not deemed to constitute selling securities short). .........Balanced will 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 use of short sales will allow the Fund to retain certain bonds in its portfolio longer than it would without such sales. To the extent that the Fund receives the current income produced by such bonds for a longer period than it might otherwise, the Fund's investment objective is furthered. .........Utility and Value will not sell any securities short. 12.......Lending of Funds and Securities .........Neither Small Cap nor Tax Strategic may lend its funds to other persons, except through the purchase of a portion of an issue of debt securities publicly distributed or the entering into of repurchase agreements. .........None of American Retirement, Foundation, Growth and Income and Total Return may lend its funds to other persons, except through the purchase of a portion of an issue of debt securities publicly distributed. 8 .........None of Foundation, Small Cap or Tax Strategic, may lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the current market value of the loaned securities, including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's total assets. .........Neither American Retirement or Growth and Income may lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the value of the loaned securities (100% of the current market value for American Retirement), provided that the aggregate amount of such loans shall not exceed 30% of the Fund's net assets. .........Total Return may not lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash, letters of credit or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the current market value of the loaned securities (100% of the value of the loaned securities for Total Return), including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's net assets. .........Balanced will not lend any of its assets except portfolio securities in accordance with its investment objective, policies and limitations. .........Utility will not lend any of its assets, except portfolio securities up to 15% of the value of its total assets. This does not prevent the Fund from purchasing or holding corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements, or other transactions which are permitted by the Fund's investment objectives and policies or the Declaration of Trust governing the Fund. .........Value will not lend any of its assets except that it may purchase or hold corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements or other transactions which are permitted by the Fund's investment objectives and policies or the Declaration of Trust by which the Fund is governed or lend portfolio securities valued at not more than 5% of its total assets to broker-dealers. 13.......Commodities .........Tax Strategic may not purchase, sell or invest in commodities, commodity contracts or financial futures contracts. .........Small Cap may not purchase, sell or invest in physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities). .........None of American Retirement, Foundation, Growth and Income, Total Return may purchase, sell or invest in commodities or commodity contracts. .........None of Balanced, Utility or Value will purchase or sell commodities or commodity contracts; however, each Fund may enter into futures contracts on financial instruments or currency and sell or buy options on such contracts. 14.......Real Estate .........Small Cap may not purchase or invest in real estate or interests in real estate (but this shall not prevent either Fund from investing in marketable securities issued by companies such as real estate investment trusts which deal in real estate or interests therein). 9 .............None of American Retirement, Foundation, Growth and Income, Tax Strategic or Total Return may purchase, sell or invest in real estate or interests in real estate, except that (i) each Fund may purchase, sell or invest in marketable securities of companies holding real estate or interests in real estate, including real estate investment trusts, and (ii) Tax Strategic may purchase, sell or invest in municipal securities or other debt securities secured by real estate or interests therein. .........None of Balanced, Utility or Value will buy or sell real estate although each Fund may invest in securities of companies whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. Neither Utility nor Value will invest in limited partnership interests in real estate. 15.......Borrowing, Senior Securities, Repurchase Agreements and Reverse Repurchase Agreements .........None of American Retirement, Foundation or Total Return may borrow money except from banks as a temporary measure to facilitate redemption requests which might otherwise require the untimely disposition of portfolio investments and for extraordinary or emergency purposes (and, with respect to American Retirement only, for leverage), provided that the aggregate amount of such borrowings shall not exceed 5% of the value of the Fund's total net assets (5% of total assets for American Retirement and Foundation) at the time of any such borrowing, or mortgage, pledge or hypothecate its assets, except in an amount sufficient to secure any such borrowing. Neither American Retirement nor Foundation may issue senior securities, except as permitted by the Investment Company Act of 1940. Neither Foundation nor American Retirement may enter into repurchase agreements or reverse repurchase agreements. .........Neither Small Cap nor Tax Strategic, may borrow money, issue senior securities or enter into reverse repurchase agreements, except for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 10% of the value of each Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of each Fund's total assets at the time of such borrowing, provided that each of Small Cap, Tax Strategic, will not purchase any securities at any time when borrowings, including reverse repurchase agreements, exceed 5% of the value of its total assets. No Fund will enter into reverse repurchase agreements exceeding 5% of the value of its total assets. ........Growth and Income may not borrow money except from banks as a temporary measure for extraordinary or emergency purposes, provided that the aggregate amount of such borrowings shall not exceed 5% of the value of the Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of its assets taken at cost to secure such borrowing. Growth and Income may not issue senior securities, as defined in the Investment Company Act of 1940, except that this restriction shall not be deemed to prohibit the Fund from (i) making any permitted borrowings, mortgages or pledges, (ii) lending its portfolio securities, or (iii) entering into permitted repurchase transactions. .........Balanced and Utility will not issue senior securities except that each Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed and except to the extent a Fund may enter into futures contracts. The Funds will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary or emergency measure to facilitate management of their portfolios by enabling them to, for example, meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. A Fund will not purchase any securities while any borrowings are outstanding. Utility will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. Neither Balanced, nor Utility will mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In these cases, Balanced and Utility may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of borrowing. Margin deposits for the purchase and sale of financial futures contracts and related options and segregation or collateral arrangements made in connection with options activities are not deemed to be a pledge. 10 .........Value will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 10% of the value of its total assets; provided that while borrowings exceed 5% of the Fund's total assets, any such borrowings will be repaid before additional investments are made. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage purposes. Value will not mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In these cases, Value may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 10% of the value of total assets at the time of borrowing. Margin deposits for the purchase and sale of financial futures contracts and related options and segregation or collateral arrangements made in connection with options activities are not deemed to be a pledge. 16.......Joint Trading .........None of American Retirement, Foundation, Growth and Income, Small Cap,* Tax Strategic,* or Total Return may participate on a joint or joint and several basis in any trading account in any securities. (The "bunching of orders for the purchase or sale of portfolio securities with its investment adviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction). 17.......Options .........Foundation and Tax Strategic* may not write, purchase or sell put or call options, or combinations thereof. .........Neither Growth and Income nor Total Return may write, purchase or sell put or call options, or combinations thereof, except that each Fund is authorized to write covered call options on portfolio securities and to purchase call options in closing purchase transactions, provided that (i) such options are listed on a national securities exchange, (ii) the aggregate market value of the underlying securities does not exceed 25% of the Fund's net assets, taken at current market value on the date of any such writing, and (iii) the Fund retains the underlying securities for so long as call options written against them make the shares subject to transfer upon the exercise of any options. .........American Retirement may not write, purchase or sell put or call options, or combinations thereof, except that the Fund is authorized (i) to write call options traded on a national securities exchange against no more than 15% of the value of the equity securities (including securities convertible into equity securities) held in its portfolio, provided that the Fund owns the optioned securities or securities convertible into or carrying rights to acquire the optioned securities and (ii) to purchase call options in closing purchase transactions. .........Utility* will not purchase put options on securities unless the securities are held in the Fund's portfolio and not more than 5% of the Fund's total assets would be invested in premiums on open put options. Utility* will not write call options on securities unless securities are held in the Fund's portfolio or unless the Fund is entitled to them in deliverable form without further payment or after segregating cash in the amount of any further payment. 18.......Investment in Equity Securities .........American Retirement may not invest more than 75% of the value of its total assets in equity securities (including securities convertible into equity securities). 19.......Investing in Securities of Other Investment Companies .........Balanced*, Utility and Value will purchase securities of investment companies only in open-market transactions involving customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation or acquisition of assets. It should be noted that investment companies incur certain expenses 11 such as management fees and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. .........Each other Fund may purchase the securities of other investment companies, except to the extent such purchases are not permitted by applicable law. 20.......Restricted Securities .........Balanced and Value will not invest more than 10% of their net assets in securities subject to restrictions on resale under the Securities Act of 1933 (except for, in the case of Balanced, certain restricted securities which meet criteria for liquidity established by the Trustees). .........Utility* will not invest more than 10% of the value of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain other restricted securities which meet the criteria for liquidity as established by the Trustees. To comply with certain state restrictions, the Fund will limit these transactions to 5% of its total assets. (If state restrictions change this latter restriction may be revised without shareholder approval or notification). NON FUNDAMENTAL OPERATING POLICIES .........Certain Funds have adopted additional non-fundamental operating policies. Operating policies may be changed by the Board of Trustees without a shareholder vote. 1........Futures and Options Transactions .........Small Cap* will not: (i) sell futures contracts, purchase put options or write call options if, as a result, more than 30% of the Fund's total assets would be hedged with futures and options under normal conditions; (ii) purchase futures contracts or write put options if, as a result, the Fund's total obligations upon settlement or exercise of purchased futures contracts and written put options would exceed 30% of its total assets; or (iii) purchase call options if, as a result, the current value of option premiums for options purchased by the Fund would exceed 5% of the Fund's total assets. These limitations do not apply to options attached to, or acquired or traded together with their underlying securities, and do not apply to securities that incorporate features similar to options. 2........Illiquid Securities. .........None of American Retirement, Foundation, Growth and Income, Small Cap, Tax Strategic or Total Return may invest more than 15% of its net assets in illiquid securities and other securities which are not readily marketable, including repurchase agreements which have a maturity of longer than seven days, but excluding securities eligible for resale under Rule 144A of the Securities Act of 1933, as amended, which the Trustees have determined to be liquid. .........Balanced* and Utility* will not invest more than 10% (in the case of Balanced) or 15% (in the case of Utility) of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice and certain securities determined by the Trustees not to be liquid and, in the case of Utility, in non-negotiable time deposits. 3........Other. In order to comply with certain state blue sky limitations: ----- ...........Each of American Retirement, Foundation, Growth and Income, Small Cap, Tax Strategic and Total Return interprets fundamental investment restriction 7 to prohibit investments in oil, gas and mineral leases. ...........Each of American Retirement, Foundation, Growth and Income, Small Cap, Tax Strategic and Total Return interprets fundamental investment restriction 14 to prohibit investment in real estate limited partnerships which are not readily marketable. 12 ...........Foundation interprets fundamental investment restriction 11 to permit short sales only where the Fund owns the securities sold or securities convertible into or carrying rights to acquire such securities without payment of any additional consideration therefor. ...........Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. CERTAIN RISK CONSIDERATIONS ...........There can be no assurance that a Fund will achieve its investment objective and an investment in the Fund involves certain risks which are described under "Description of the Funds - Investment Objective and Policies" in the Prospectus. ......... In addition, the ability of Tax Strategic to achieve its investment objective is dependent on the continuing ability of the issuers of Municipal Bonds in which the Fund invests -- and of banks issuing letters of credit backing such securities -- to meet their obligations with respect to the payment of interest and principal when due. The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings Group and other nationally recognized rating organizations represent their opinions as to the quality of Municipal Bonds which they undertake to rate. Ratings are not absolute standards of quality; consequently, Municipal Bonds with the same maturity, coupon, and rating may have different yields. There are variations in Municipal Bonds, both within a particular classification and between classifications, resulting from numerous factors. ......... Unlike other types of investments, Municipal Bonds have traditionally not been subject to regulation by, or registration with, the Securities and Exchange Commission, although there have been proposals which would provide for regulation in the future. ......... The federal bankruptcy statutes relating to the debts of political subdivisions and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings could result in material and adverse changes in the rights of holders of their obligations. In addition, there have been lawsuits challenging the issuance of pollution control revenue bonds or the validity of their issuance under state or Federal law which could ultimately affect the validity of those Municipal Bonds or the tax-free nature of the interest thereon. MANAGEMENT The Trustees and executive officers of the Trusts, their ages, addresses and principal occupations during the past five years are set forth below: Laurence B. Ashkin (67), 180 East Pearson Street, Chicago, IL-Trustee. Real estate developer and construction consultant since 1980; President of Centrum Equities since 1987 and Centrum Properties, Inc. since 1980. Foster Bam*(68), Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law firm of Cummings and Lockwood since 1968. James S. Howell (70), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee. Retired Vice President of Lance Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the Carolinas from 1989 to 1993. Robert J. Jeffries (72), 2118 New Bedford Drive, Sun City Center, FL-Trustee. Corporate consultant since 1967. Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC-Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since 1988. 13 Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham Corporation from 1979 to 1990. William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since 1990; Attorney, Clontz and Clontz from 1980 to 1990. Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990. Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee. Attorney, Law Offices of Michael S. Scofield since prior to 1989. John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY-President and Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992, Managing Director from 1984 to 1992. Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney, Securities and Exchange Commission from 1986 to 1991. Except for Messrs. Ashkin, Bam and Jeffries, who are not Trustees of Evergreen Investment Trust, the Trustees and officers listed above hold the same positions with a total of ten registered investment companies offering a total of thirty-one investment funds within the Evergreen mutual fund complex. - -------- * Mr. Bam and Mr. Pettit may each be deemed to be an "interested person" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). The officers of the Trusts are all officers and/or employees of Furman Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds Distributor, Inc., the distributor of each Class of shares of each Fund. The Funds do not pay any direct remuneration to any officer or Trustee who is an "affiliated person" of either First Union National Bank of North Carolina or Evergreen Asset Management Corp. or their affiliates. See "Investment Adviser." Currently, none of the Trustees is an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee who is not an "affiliated person" an annual retainer and a fee per meeting attended, plus expenses (and $50 for each telephone conference meeting) as follows: Name of Trust/Fund Annual Retainer Meeting Fee Total Return 5,500 300 Growth and Income 500 100 The Evergreen American Retirement Trust 1,000 American Retirement 100 Small Cap 100 Evergreen Foundation Trust 500 Foundation 100 Tax Strategic 100 Evergreen Investment Trust 9,000** 1,500** Balanced Utility Value - -------------------- ** Evergreen Investment Trust pays an annual retainer to each trustee and a per-meeting fee that are allocated among its fifteen series. Additionally, each member of the Audit Committee receives $200 for attendance at each meeting of the of the Audit Committee and an additional fee is paid to the Chairman of the Board of $2,000. 14 Set forth below for each of the Trustees is the aggregate compensation paid to such Trustees by each Trust for the fiscal year ended December 31, 1994 (fiscal year ended January 31, 1995 for Total Return) Total Compensation Aggregate Compensation From Trust From Trusts & Fund Complex Name of Total Growth Retirement Foundation Investment Paid Person Return* & Income Trust Trust Trust** to Trustees - ------ ------ -------- ---------- ---------- ---------- ----------- Laurence Ashkin 7,150 1,050 1,569 1,137 29,800 Foster Bam 7,150 1,050 1,569 1,137 29,850 James S. Howell 3,150 400 660 444 14,900 26,900 Robert J. Jeffries 7,150 1,050 1,569 1,137 29,800 Gerald M. McDonnell 3,450 500 760 544 11,900 26,100 Thomas L. McVerry 3,450 500 760 544 11,900 26,150 William Walt Pettit 3,450 500 760 544 11,900 26,100 Russell A. Salton, III, M.D. 3,450 500 760 544 11,900 26,100 Michael S. Scofield 3,400 500 710 494 11,700 25,650 * Total Return changed its fiscal year end during the period covered by the foregoing table from March 31 to January 31. Accordingly, the Trustees fees reported in the foregoing table reflect, for Total Return, the period from April 1, 1994 to January 31, 1995. ** Formerly known as First Union Funds. No officer or Trustee of the Trusts owned B or C shares of any Fund as of the date hereof. The number and percent of outstanding shares of each Fund owned by officers and Trustees as a group on June 15, 1995, is as follows: No. of Shares Owned By Officers and Ownership by Officers and Trustees Trustees as a % of Class Y Name of Fund as a Group Shares Outstanding Balanced -0- -0- Total Return 31,953 .06% Growth and Income 116,111 2.08% American Retirement 63,016 1.93% Small Cap -0- -0- Foundation 213,803 .74% Tax Strategic -0- -0- Utility -0- -0- Value -0- -0- Set forth below is information with respect to each person, who, to each Fund's knowledge, owned beneficially or of record more than 5% of a class 15 of each Fund's total outstanding shares and their aggregate ownership of the Fund's total outstanding shares as of June 15, 1995. Name of % of Name and Address Fund/Class No. of Shares Class/Fund - ---------------- ---------- ------------- --------------- Fubs & Co. Febo Balanced/C 9,013 45.90%/.01% Naomi Hamuy Benjamin Hamyu Poa C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Balanced/C 1,847 9.41%/0% Leroy Selby, Jr. Leroy Selby, III C/O First Union National Bank 301 S. Tron Street Charlotte, NC 28288-0001 Fubs & Co. Febo Balanced/C 1,330 6.77%/0% Mary Martha McBee Summerour C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Balanced/Y 67,402,700 98.22%/42.98% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/A 6,946 9.36%/.01% Addice Denham and Lucretia Young C/O First Union National Bank 301 S. Tryon Street Charlotee, NC 28288-0001 Fubs & Co. Febo Total Return/A 4,167 5.62%/.01% Janet P. Lipov and Larry A. Lipov C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 693 13.53%/0% Emmett L. Howell C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 691 13.53%/0% Emmett L. Howell 1221 W. Broad Street Griffin, GA 30223-2154 Fubs & Co. Febo Total Return/C 579 11.35%/0% Grace L. Nielsen Trust Grace L. Nielsen TTEE C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 1,153 22.57%/0% F. C. Tyler and Lisette W. Tyler C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 284 5.57%/0% Richard D. Dresdner C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 532 10.43%/0% John P. Kolb C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 16 Fubs & Co. Febo Total Return/C 545 10.88%/0% Wanda L. Cardin C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Total Return/C 538 10.53%/0% Betty C. Starrett Willis M. Callaway, Jr. C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank-NC Total Return/C 537 10.53%/0% C/F, Inc. Marsha Marie Berls IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 John Hancock Clearing Corp. Growth & Income/C 3,079 5.34%/.04% 1 World Financial Center 200 Liberty Street New York, NY 10281-1003 Fubs & Co. Febo Growth & Income/C 29,868 51.78%/.42% Clara Caudill C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Charles Schwab & Co. Inc. Growth & Income/Y 792,727 14.17%/11.11% Reinvest Account Attn. Mutual Funds Dept. 101 Mongomery Street San Francisco, CA 94104-4122 First Union National Bank/EB/INT Growth & Income/Y 485,404 8.67%/6.80% Reinvest Account Attn. Trust Operations Fund Group 401 S. Tryon Street, 3rd Floor CMG 1151 Charlotte, NC 28202-1911 Stephen A. Lieber Growth & Income/Y 498,119 8.90%/6.98% C/O Lieber & Co. Purchase, NY 10577 Fubs & Co. Febo American Retirement/A 1,704 13.14%/.05% Theodora H. Wendler C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo American Retirement/A 2,248 17.33%/.07% Walter E. Gilbert Alice J. Gilbert C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- American Retirement/A 1,796 13.84%/.05% VA C/F Ruth L. Harris IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- American Retirement/A 1,696 13.07%/.05% VA C/F William P. Clements IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- American Retirement/A 1,926 14.84%/.06% FL C/F Audrey F. Newell IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 17 First Union National Bank- American Retirement/A 1,571 12.11%/.05% GA C/F William Lee Barker IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo American Retirement/B 3,801 5.65%/.11% Walter E. Vermilya 506 Pleasant Hill Drive Richmond, VA 23236 First Union National Bank Cust American Retirement/B 5,414 8.04%/.16% Fredric C. Porton C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo American Retirement/B 4,645 6.90%/.14% Edyth E. Brigham Rev. Liv. Trust Edyth E. Brigham TTEE U/A/D 04/03/76 C/O First Union National Bank 301 S Tryon Street Charlotte, NC 28288-0001 First Union National Bank- American Retirement/C 751 97.45%/.02% VA C/F James L. Wilkinson Rollover IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Charles Schwab & Co. Inc. American Retirement/Y 183,524 5.63%/5.48% Cash Account Attn: Mutual Funds Dept. 101 Montgomery Street San Francisco, CA 94104-4122 Charles Schwab & Co. Inc. Reinvest Account Attn: Mutual Funds Dept. 101 Montgomery Street San Francisco, CA 94104-4122 American Retirement/Y 689,073 21.12%/20.58% Stephen A. Lieber American Retirement/Y 166,600 5.11%/4.98% C/O Lieber & Co. Purchase, NY 10577 Fubs & Co. Febo Small Cap/A 8,158 48.96%/1.44% Elizabeth M. Screven C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/A 1,038 8.26%/.24% FL C/F Aura Dominguez C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Small Cap/A 2,484 19.75%/.58% Dorothy Friedland C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/B 824 6.59%/.19% NC C/F Harold T. Brooks IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Small Cap/B 727 5.82%/.17% Manuel A. Barrios DDS C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 18 Fubs & Co. Febo Small Cap/B 632 5.05%/.15% Silvia M. Tamayo C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/B 681 5.45%/.16% VA C/F Wayne H. Sherman IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/B 1,253 10.02%/.29% NC C/F J. Kevin Moore IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/B 1,439 11.51%/.34% FL C/F Robert H. Carr IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/B 1,317 10.53%/.31% NC C/F Eric W. Johnson IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/C 104 5.38%/.02% FL C/F, Inc. Michael A. Sorg IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/C 104 5.38%/.02% FL C/F, Inc. Matthew R. Sorg IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/C 1,289 66.75%/.30% VA C/F, Inc. Bruce S. Barker SEP C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Small Cap/C 412 21.36%/.10% VA C/F Brenton S. Farmer SEP C/O First Union National Bank 301 S Tryon Street Charlotte, NC 28288-0001 Nola Maddox Falcone Small Cap/Y 53,272 13.31%/12.46% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Stephen A. Lieber Small Cap/Y 106,548 26.62%/24.95% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Charles Schwab & Co. Inc. Small Cap/Y 26,816 6.70%/6.27% Reinvest Account 101 Montgomery Street Mutual Fund Dept. San Francisco, CA 94104-4122 First Union National Bank/EB Small Cap/Y 87,728 18.92%/20.53% Cash Account Attn: Trust Operations Fund 401 S. Tryon Street 3rd Floor CMG 11 Charlotte, NC 28202-1911 19 North Carolina Trust Co. Foundation/A 178,455 7.25%/.46% FBO Miller Clinic C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Foundation/C 18,070 5.45%/.05% Holmes Drug Co. Inc. Employees Pension Plan U/A/D 01/02/69 F/B/O William J. Miller C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Foundation/C 28,715 8.86%/.07% Clara Caudill C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Charles Schwab & Co. Inc. Foundation/Y 4,943 17.13%/12.69% 101 Montgomery Street San Francisco, CA 94104-4122 Mac & Co. Foundation/Y 3,862,477 13.38%/9.92% A/C 195-643 C/O Mellon Bank NA Mutual Funds P.O. Box 320 Pittsburgh, PA 15230-0320 Eleanor C. McCallum TR Tax Strategic /A 5,577 10.47%/.42% Eleanor C. McCallum Living Trust U/A 1/14/93 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Eleanor C. McCallum TTEE Tax Strategic /A 3,601 7.14%/.27% McCallum Family Trust U/A/D 2/9/94 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /A 4,576 8.59%/.35% Curtis J. Morris C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /A 3,542 6.65%/.27% Judy A. Smith C/O First Union National Bank 301 S Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /A 4,269 8.02%/.32% Dr. Thomas E. Baily, Sr. C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /A 4,441 8.34%/.34% Norman N. Dorosin Harriette H. Dorosin C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. FBO Tax Strategic /A 4,226 7.94%/.32% Lie Lin C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /B 11,791 5.26%/.89% Dr. Charles Wm. Kepner C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 20 Fubs & Co. Febo Tax Strategic /B 12,378 5.52%/.94% Susan Hooper C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /C 4,758 37.31%/.36% Harry A. Edwards Jr. Linda R. Edwards C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /C 675 5.30%/.07% Evie Kontos C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /C 782 6.14%/.06% Pearl L. Holland Trustee Pearl L. Holland Rev. Trust U/A/D 12/04/89 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Strategic /C 6,516 51.09%/.49% Wade H. Moser, Jr. M.D. C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Nola Maddox Falcone Tax Strategic /Y 95,494 9.24%/7.22% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Constance E. Lieber Tax Strategic /Y 55,928 5.41%/4.23% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Stephen A. Lieber Tax Strategic/Y 484,652 46.89%/36.65% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Fubs & Co. Febo Utility/C 5,556 35.50%/.13% Elsie B. Strom Lewis F. Strom C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Utility/C 3,020 19.30%/.07% Laura Alyce Hulbert Ronald F. Hulbert C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Utility/C 1,107 7.07%/.03% Evelyn L. Smith Greg Smith C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Utility/C 1,086 6.94%/.03% Max Ray Jeralyne Ray C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Utility/Y 567,133 83.92%/13.18% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 21 First Union National Bank Utility/Y 108,640 18.08%/12.52% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Value/C 6,055 18.68%/.14% Benjamin Hamuy Naomi Hamuy POA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Value/C 4,307 13.29%/.10 C. Wilson Construction Company Profit Sharing Plan U/A/D 7-1-87 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Value/C 1,826 5.63%/.04% William H. Smith C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Value/C 1,716 5.30%/.04% FL C/F St. Elmo Dowling IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Value/Y 31,721,695 90.20%/60.43% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Value/Y 3,442,203 9.79%/6.56% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 - --------------------------------- *As a result of his ownership of 36.65%, of the shares of Tax Strategic, respectively, on June 15, 1995, Mr. Lieber may be deemed to "control" the Fund, as that term is defined in the 1940 Act. As a result of its beneficial ownership of 26.63% of the shares of American Retirement on June 15, 1995, Charles Schwab & Co., Inc. may be deemed to "control" the Fund, as that term is defined in the 1940 Act. **First Union National Bank of North Carolina and its affiliates act in various capacities for numerous accounts. As a result of its ownership of 42.98%, 66.99% and 25.7% of Balanced, Value and Utility, respectively, on June 15, 1995, First Union National Bank of North Carolina may be deemed to "control" each Fund as that term is defined in the 1940 Act. INVESTMENT ADVISER (See also "Management of the Fund" in each Fund's Prospectus) The investment adviser of Total Return, Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic is Evergreen Asset Management Corp., a New York corporation, with offices at 2500 Westchester Avenue, Purchase, New York or ("Evergreen Asset" or the "Adviser."). Evergreen Asset is owned by First Union National Bank of North Carolina ("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union Corporation ("First Union"), a bank holding company headquartered in Charlotte, North Carolina. The investment adviser of Balanced, Utility and Value is FUNB which provides investment advisory services through its Capital Management Group. The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief Executive Officer, Theodore J. Israel, Jr., Executive Vice President, Joseph J. McBrien, Senior Vice President and General Counsel, and George R. Gaspari, Senior Vice President and Chief Financial Officer. On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were acquired by First Union through certain of its subsidiaries. Evergreen Asset was acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with the succession of EAMC to the business of Evergreen Asset and its assumption of the name "Evergreen Asset Management Corp.", Total Return, Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic entered into a new investment advisory agreement with EAMC and into a distribution agreement with Evergreen Funds Distributor, Inc. (the "Distributor"), a subsidiary of Furman Selz Incorporated. At that time, EAMC also entered into a new sub-advisory agreement with Lieber pursuant to which Lieber provides certain services to Evergreen Asset in connection with its duties as investment adviser. The partnership interests in Lieber, a New York general partnership, were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned subsidiaries of FUNB. The 23 business of Lieber is being continued. The new advisory and sub-advisory agreements were approved by the shareholders of Total Return, Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic at their meeting held on June 23, 1994, and became effective on June 30, 1994. Under its Investment Advisory Agreement with each Fund, each Adviser has agreed to furnish reports, statistical and research services and recommendations with respect to each Fund's portfolio of investments. In addition, each Adviser provides office facilities to the Funds and performs a variety of administrative services. Each Fund pays the cost of all of its other expenses and liabilities, including expenses and liabilities incurred in connection with maintaining their registration under the Securities Act of 1933, as amended, and the 1940 Act, printing prospectuses (for existing shareholders) as they are updated, state qualifications, share certificates, mailings, brokerage, custodian and stock transfer charges, printing, legal and auditing expenses, expenses of shareholder meetings and reports to shareholders. Notwithstanding the foregoing, each Adviser will pay the costs of printing and distributing prospectuses used for prospective shareholders. The method of computing the investment advisory fee for each Fund is described in such Fund's Prospectus. The advisory fees paid by each Fund for the three most recent fiscal periods reflected in its registration statement are set forth below: BALANCED Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $4,621,512 $3,425,786 $2,319,251 ========== ========== ========== TOTAL RETURN Year Ended Year Ended Year Ended 1/31/95 3/31/94 3/31/93 Advisory Fee $8,542,289 $11,613,964 $10,671,425 ========== =========== =========== Expense FOUNDATION Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $2,551,768 $1,290,748 $257,141 ========== ========== ======== Expense Reimbursement $ 7,926 -------- SMALL CAP Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $ 29,075 $ 4,929 -------- -------- Waiver ($29,075) ($ 4,929) Net Advisory Fee $ 0 $ 0 ========= ========= Expense Reimbursement $63,704 $16,800 ------- ------- UTILITY Year Ended 12/31/94 Advisory Fee $153,458 --------- Waiver ($152,038) Net Advisory Fee $1,420 ========= GROWTH AND INCOME Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $684,891 $722,166 $528,190 ======== ======== ======== AMERICAN Year Ended Year Ended Year Ended RETIREMENT 12/31/94 12/31/93 12/31/92 Advisory Fee $292,628 $226,080 $152,055 ======== ======== ======== Reimbursement $ 16,093 -------- TAX STRATEGIC Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $ 65,915 $ 4,989 -------- ------- Waiver ($65,915) ($4,989) Net Advisory Fee $ 0 $ 0 ========== ========= Expense Reimbursement $ 3,777 $ 12,700 --------- --------- VALUE Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $3,850,673 $3,016,457 $2,208,618 Total Return changed its fiscal year end from March 31 to January 31 during the periods covered by the foregoing table. Accordingly, the investment advisory fees reported in the foregoing table reflect for Total Return, the period from April 1, 1994 to January 31, 1995. In addition, Small Cap, Tax Strategic and Utility commenced operations on October 1, 1993, November 2, 1993 and January 4, 1994, respectively, and, therefore, the first year's figures set forth in the table above reflect for Small Cap and Tax Strategic investment advisory fees paid for the period from commencement of operations through December 31, 1993 and, with respect to Utility, December 31, 1994. Expense Limitations Each Adviser's fee will be reduced by, or the Adviser will reimburse the Funds for any amount necessary to prevent such expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses, but inclusive of the Adviser's fee) from exceeding the most restrictive of the expense limitations imposed by state securities commissions 24 of the states in which the Funds' shares are then registered or qualified for sale. Reimbursement, when necessary, will be made monthly in the same manner in which the advisory fee is paid. Currently the most restrictive state expense limitation is 2.5% of the first $30,000,000 of the Fund's average daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in excess of $100,000,000. In addition, each Adviser has in some instances voluntarily limited (and may in the future limit) expenses of certain of the Funds. For the four month period January 1, 1992 to April 30, 1992, Evergreen Asset voluntarily limited the expenses of American Retirement to 1.50% of average net assets. Evergreen Asset has voluntarily agreed to reimburse Small Cap and Tax Strategic to the extent that any of these Funds' aggregate operating expenses (including the Adviser's fee but excluding interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses) exceed 1.50% of their average net assets until such time as said Funds' net assets reach $15 million. During the fiscal year ended December 31, 1992, Evergreen Asset voluntarily absorbed a portion of Foundation's expenses and reimbursed the Fund for expenses in excess of the voluntary expense limitation in an amount equal to .03% of its average daily net assets. The voluntary expense limitation and the absorption of Fund expenses ceased on May 1, 1992. The Investment Advisory Agreements are terminable, without the payment of any penalty, on sixty days' written notice, by a vote of the holders of a majority of each Fund's outstanding shares, or by a vote of a majority of each Trust's Trustees or by the respective Adviser. The Investment Advisory Agreements will automatically terminate in the event of their assignment. Each Investment Advisory Agreement provides in substance that the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser or of reckless disregard of its obligations thereunder. The Investment Advisory Agreements with respect to Total Return, Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic were approved by each Fund's shareholders on June 23, 1994, became effective on June 30, 1994, and will continue in effect until June 30, 1996, and thereafter from year to year provided that their continuance is approved annually by a vote of a majority of the Trustees of each Trust including a majority of those Trustees who are not parties thereto or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting duly called for the purpose of voting on such approval or a majority of the outstanding voting shares of each Fund. With respect to Balanced, Utility and Value, the Investment Advisory Agreement dated February 28, 1985 and amended from time to time thereafter was last approved by the Trustees of Evergreen Investment Trust (formerly, First Union Funds) on April 20, 1995 and it will continue from year to year with respect to each Fund provided that such continuance is approved annually by a vote of a majority of the Trustees of Evergreen Investment Trust including a majority of those Trustees who are not parties thereto or "interested persons" of any such party cast in person at a meeting duly called for the purpose of voting on such approval or by a vote of a majority of the outstanding voting securities of each Fund. Certain other clients of each Adviser may have investment objectives and policies similar to those of the Funds. Each Adviser (including the sub-adviser) may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of each Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the Funds. When two or more of the clients of the Adviser (including one or more of the Funds) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. Although the investment objectives of the Funds are not the same, and their investment decisions are made independently of each other, they rely upon the same resources for investment advice and recommendations. Therefore, on occasion, when a particular security meets the different investment objectives of the various Funds, they may simultaneously purchase or sell the same security. This could have a detrimental effect on the price and quantity of the security available to each Fund. If simultaneous transactions 25 occur, the Adviser attempts to allocate the securities, both as to price and quantity, in accordance with a method deemed equitable to each Fund and consistent with their different investment objectives. In some cases, simultaneous purchases or sales could have a beneficial effect, in that the ability of one Fund to participate in volume transactions may produce better executions for that Fund. Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between each Fund and the other registered investment companies for which either Evergreen Asset or FUNB acts as investment adviser or between the Fund and any advisory clients of Evergreen Asset, FUNB or Lieber & Company. Each Fund may from time to time engage in such transactions but only in accordance with these procedures and if they are equitable to each participant and consistent with each participant's investment objectives. Prior to July 1, 1995, Federated Administrative Services, a subsidiary of Federated Investors, provided legal, accounting and other administrative personnel and support services to each of the portfolios of Evergreen Investment Trust. The Trust paid a fee for such services at the following annual rate: .15% on the first $250 million average daily net assets of the Trust; .125% on the next $250 million; .10% on the next $250 million and .075% on assets in excess of $250 million. For the fiscal years ended December 31, 1994, 1993 and 1992, Balanced incurred $779,584, $597,752 and $427,255, respectively, in administrative service costs. For the period from January 4, 1994 (commencement of operations) to December 31, 1994, Utility incurred $104,384 in administrative service costs, all of which was voluntarily waived. For the fiscal years ended December 31, 1994, 1993 and 1992, Value incurred $649,487, $526,836 and $407,134 in administrative service costs, of which $17,263 were voluntarily waived in 1992. Commencing July 1, 1995, Evergreen Asset will provide administrative services to each of the portfolios of Evergreen Investment Trust for a fee based on the average daily net assets of each fund administered by Evergreen Asset for which Evergreen Asset or FUNB also serves as investment adviser, calculated daily and payable monthly at the following annual rates: .050% on the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of the Distributor, serves as sub-administrator to Balanced, Utility and Value and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of mutual funds administered by Evergreen Asset for which Evergreen Asset or FUNB serves as investment adviser as of March 31, 1995 were approximately $7.95 billion. DISTRIBUTION PLANS Reference is made to "Management of the Fund - Distribution Plans and Agreements" in the Prospectus of each Fund for additional disclosure regarding the Funds' distribution arrangements. Distribution fees are accrued daily and paid monthly on the Class A, B and C shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class B shares and Class C shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, and, in the case of Class C shares, without the assessment of a contingent deferred sales charge after the first year following purchase, while at the same time permitting the Distributor to compensate broker-dealers in connection with the sale of such shares. In this regard the purpose and function of the combined contingent deferred sales charge and distribution services fee on the Class B shares and the Class C shares, are the same as those of the front-end sales charge and distribution fee with respect to the Class A shares in that in each case the sales charge and/or distribution fee provide for the financing of the distribution of the Fund's shares. Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with respect to each of its Class A, Class B and Class C shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the amounts expended under the Plan and the purposes for which such expenditures were made to the Trustees of each Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of 26 Trustees who are not "interested persons" of each Trust (as defined in the 1940 Act) are committed to the discretion of such disinterested Trustees then in office. Each Adviser may from time to time and from its own funds or such other resources as may be permitted by rules of the Securities and Exchange Commission make payments for distribution services to the Distributor; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Growth and Income, Total Return, American Retirement, Small Cap, Foundation and Tax Strategic commenced offering Class A, B or C shares on January 3, 1995. Each Plan with respect to such Funds became effective on December 30, 1994 and was initially approved by the sole shareholder of each Class of shares of each Fund with respect to which a Plan was adopted on that date and by the unanimous vote of the Trustees of each Trust, including the disinterested Trustees voting separately, at a meeting called for that purpose and held on December 13, 1994. The Distribution Agreements between each Fund and the Distributor pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A, Class B and Class C shares were also approved at the December 13, 1994 meeting by the unanimous vote of the Trustees, including the disinterested Trustees voting separately. Each Plan and Distribution Agreement will continue in effect for successive twelve-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of each Trust or by vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Class, and, in either case, by a majority of the Trustees of the Trust who are not parties to the Agreement or interested persons, as defined in the 1940 Act, of any such party (other than as Trustees of the Trust) and who have no direct or indirect financial interest in the operation of the Plan or any agreement related thereto. Prior to July 8, 1995, Federated Securities Corp., a subsidiary of Federated Investors, served as the distributor for Balanced, Utility and Value as well as other portfolios of Evergreen Investment Trust. The Distribution Agreements between each Fund and the Distributor pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A, Class B and Class C shares were approved on June 15, 1995 by the unanimous vote of the Trustees including the disinterested Trustees voting separately. 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 A, Class B and Class C shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to each Fund and holders of Class A, Class B and Class C shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class A, Class B and Class C shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class A, Class B and Class C shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class A, Class B and Class C shares. In addition to the Plans, Balanced, Utility and Value have each adopted a Shareholder Services Plan whereby shareholder servicing agents may receive fees from the Fund for providing services which include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance, and communicating or facilitating purchases and redemptions of Class B and Class C shares of the Fund. In the event that a Plan or Distribution Agreement is terminated or not continued with respect to one or more Classes of a Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund would not be obligated to pay the Distributor for any amounts expended under the Distribution Agreement not previously recovered by the Distributor from distribution services fees in respect of shares of such Class or Classes through deferred sales charges. All material amendments to any Plan or Distribution Agreement must be approved by a vote of the Trustees of a Trust or the holders of the Fund's outstanding voting securities, 27 voting separately by Class, and in either case, by a majority of the disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular Class of shares of a Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the Class affected. With respect to Balanced, Utility, and Value, amendments to the Shareholder Services Plan require a majority vote of the disinterested Trustees but do not require a shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement may be terminated (a) by a Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by Class or by a majority vote of the Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by the Distributor. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to the Distributor. Any Distribution Agreement will terminate automatically in the event of its assignment. For the fiscal year ended December 31, 1994, Balanced incurred $102,621 and Value incurred $473,347 in distribution services fees on behalf of Class A shares. For the period from January 4, 1994 (commencement of operations) to December 31, 1994, Utility incurred $9,658 in distribution services fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, Balanced incurred $670,202 and Value incurred $621,330 in distribution services fees of Class B shares. For the period from January 4, 1994 (commencement of operations) to December 31, 1994, Utility incurred $169,007 in distribution services fees on behalf of Class B shares. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, Balanced incurred $310, Value incurred $716 and Utility incurred $232 in distribution services fees on behalf of Class C shares. Shareholder Services Plans - Balanced, Utility and Value For the period ended December 31, 1994, Balanced incurred shareholder services fees of $83,641 and $103 on behalf of Class B shares and Class C shares, respectively; Utility incurred shareholder services fees of $24,141 and $77 on behalf of Class B shares and Class C shares, respectively; and Value incurred shareholder services fees of $83,225 and $239 on behalf of Class B shares and Class C shares, respectively. ALLOCATION OF BROKERAGE Decisions regarding each Fund's portfolio are made by its Adviser, subject to the supervision and control of the Trustees. Orders for the purchase and sale of securities and other investments are placed by employees of the Adviser, all of whom, in the case of Evergreen Asset, are associated with Lieber. In general, the same individuals perform the same functions for the other funds managed by the Adviser. A Fund will not effect any brokerage transactions with any broker or dealer affiliated directly or indirectly with the Adviser unless such transactions are fair and reasonable, under the circumstances, to the Fund's shareholders. Circumstances that may indicate that such transactions are fair or reasonable include the frequency of such transactions, the selection process and the commissions payable in connection with such transactions. A substantial portion of the transactions in equity securities for each Fund will occur on domestic stock exchanges. Transactions on stock exchanges involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated, whereas on many foreign stock exchanges these commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Over-the-counter transactions will generally be placed directly with a principal market maker, although the Fund may place an over-the-counter order with a broker-dealer if a better price (including commission) and execution are available. It is anticipated that most purchase and sale transactions involving fixed income securities will be with the issuer or an underwriter or with major dealers in such securities acting as principals. Such transactions are normally on a net basis and generally do not involve payment of brokerage commissions. However, the cost of securities purchased 28 from an underwriter usually includes a commission paid by the issuer to the underwriter. Purchases or sales from dealers will normally reflect the spread between bid and ask prices. In selecting firms to effect securities transactions, the primary consideration of each Fund shall be prompt execution at the most favorable price. A Fund will also consider such factors as the price of the securities and the size and difficulty of execution of the order. If these objectives may be met with more than one firm, the Fund will also consider the availability of statistical and investment data and economic facts and opinions helpful to the Fund. To the extent that receipt of these services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. Under Section 11(a) of the Securities Exchange Act of 1934, as amended, and the rules adopted thereunder by the Securities and Exchange Commission, Lieber may be compensated for effecting transactions in portfolio securities for a Fund on a national securities exchange provided the conditions of the rules are met. Each Fund advised by Evergreen Asset has entered into an agreement with Lieber authorizing Lieber to retain compensation for brokerage services. In accordance with such agreement, it is contemplated that Lieber, a member of the New York and American Stock Exchanges, will, to the extent practicable, provide brokerage services to the Fund with respect to substantially all securities transactions effected on the New York and American Stock Exchanges. In such transactions, a Fund will seek the best execution at the most favorable price while paying a commission rate no higher than that offered to other clients of Lieber or that which can be reasonably expected to be offered by an unaffiliated broker-dealer having comparable execution capability in a similar transaction. However, no Fund will engage in transactions in which Lieber would be a principal. While no Fund advised by Evergreen Asset contemplates any ongoing arrangements with other brokerage firms, brokerage business may be given from time to time to other firms. In addition, the Trustees have adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all brokerage transactions with Lieber, as an affiliated broker-dealer, are fair and reasonable. Any profits from brokerage commissions accruing to Lieber as a result of portfolio transactions for the Fund will accrue to FUNB and to its ultimate parent, First Union. The Investment Advisory Agreements does not provide for a reduction of the Adviser's fee with respect to any fund by the amount of any profits earned by Lieber from brokerage commissions generated by portfolio transactions of the Fund. The following chart shows: (1) the brokerage commissions paid by each Fund advised by Evergreen Asset during their last three fiscal years; (2) the amount and percentage thereof paid to Lieber; and (3) the percentage of the total dollar amount of all portfolio transactions with respect to which commissions have been paid which were effected by Lieber: TOTAL RETURN Period Ended Year Ended Year Ended 1/31/95 3/31/94 3/31/93 Total Brokerage $3,755,606 $3,234,684 $4,873,169 Commissions Dollar Amount and % $3,465,900 $3,199,114 $4,842,437 paid to Lieber 92% 99% 99% % of Transactions Effected by Lieber 97% 99% 99% FOUNDATION Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Total Brokerage $282,250 $291,295 $128,811 Commissions Dollar Amount and % $276,985 $284,864 $124,801 paid to Lieber 98% 98% 97% % of Transactions Effected by Lieber 98% 98% 96% SMALL CAP Year Ended Period Ended 12/31/94 12/31/93 Total Brokerage $3,998 $2,091 Commissions Dollar Amount and % $3,618 $1,729 paid to Lieber 90% 83% % of Transactions 29 Effected by Lieber 90% 73% GROWTH AND INCOME Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Total Brokerage $80,871 $76,427 $66,266 Commissions Dollar Amount and % $71,721 $66,670 $57,686 paid to Lieber 89% 87% 87% % of Transactions Effected by Lieber 88% 84% 86% AMERICAN RETIREMENT Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Total Brokerage $203,922 $99,435 $99,293 Commissions Dollar Amount and % $202,838 $96,950 $98,793 paid to Lieber 99% 98% 99% % of Transactions Effected by Lieber 99% 98% 99% TAX STRATEGIC Year Ended Period Ended 12/31/94 12/31/93 Total Brokerage $24,872 $3,260 Commissions Dollar Amount and % $24,072 $3,210 paid to Lieber 97% 98% % of Transactions Effected by Lieber 98% 98% Total Return changed its fiscal year end from March 31 to January 31 during the periods covered by the foregoing table. Accordingly, the commissions reported in the foregoing table reflect for Total Return the period from April 1, 1994 to January 31, 1995. In addition, Small Cap and Tax Strategic commenced operations on October 1, 1993 and November 2, 1993, respectively, and, therefore, the first year's figures set forth in the table above reflect commissions paid for the period from commencement of operations through December 31, 1993. Balanced, Value and Utility did not pay any commissions to Lieber. For the fiscal years ended December 31, 1994, 1993 and 1992, Balanced paid $450,569, $389,044 and $152,802, respectively, in commissions on brokerage transactions. For the period from January 4, 1994 (commencement of operations) to December 31, 1994, Utility paid $66,294 in commissions on brokerage transactions. For the fiscal years ended December 31, 1994, 1993 and 1992, Value paid $1,437,338, $894,400 and $642,338, respectively, in commissions on brokerage transactions. ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus) Each Fund has qualified and intends to continue to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to proceeds from securities loans, gains from the sale or other disposition of securities and other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in such securities; (b) derive less than 30% of its gross income from the sale or other disposition of securities, options, futures or forward contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the RIC's principal business of investing in securities (or options and futures with respect thereto) held for less than three months; and (c) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies). By so qualifying, a Fund is not subject to Federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Dividends paid by a Fund from investment company taxable income generally will be taxed to the shareholders as ordinary income. Investment company taxable income includes net investment income and net realized short-term gains (if any). Any dividends received by a Fund from domestic corporations will constitute a portion of the Fund's gross investment income. It is anticipated that this portion of the dividends paid by a Fund (other than distributions of securities profits) will qualify for the 70% dividends-received deduction for corporations. Shareholders will be informed of the amounts of dividends which so qualify. Distributions of the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders (who are not exempt from tax) as long-term capital gain, regardless of the length of time the shares of a Fund have been held by such shareholders. Short-term capital gains distributions are taxable to shareholders who are not exempt from tax as ordinary income. Such distributions are not eligible for the dividends-received deduction. Any loss recognized upon the sale of shares of a Fund held by a shareholder for six months or less will be treated as a long-term capital loss to the extent that the shareholder received a long-term capital gain distribution with respect to such shares. 30 Distributions of investment company taxable income and any net short-term capital gains will be taxable as ordinary income as described above to shareholders (who are not exempt from tax), whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the net asset value of a share of a Fund on the reinvestment date. Distributions by each Fund result in a reduction in the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable as ordinary income or capital gain as described above to shareholders (who are not exempt from tax), even though, from an investment standpoint, it may constitute a return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive what is in effect a return of capital upon the distribution which will nevertheless be taxable to shareholders subject to taxes. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gains or loss will be treated as a capital gain or loss if the shares are capital assets in the investor's hands and will be a long-term capital gain or loss if the shares have been held for more than one year. Generally, any loss realized on a sale or exchange will be disallowed to the extent shares disposed of are replaced within a period of sixty-one days beginning thirty days before and ending thirty days after the shares are disposed of. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares, and will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her Federal income tax return. Each shareholder should consult his or her own tax adviser to determine the state and local tax implications of Fund distributions. Shareholders who fail to furnish their taxpayer identification numbers to a Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% Federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisers regarding specific questions relating to Federal, state and local tax consequences of investing in shares of a Fund. Each shareholder who is not a U.S. person should consult his or her tax adviser regarding the U.S. and foreign tax consequences of ownership of shares of a Fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. Special Tax Considerations for Tax Strategic With respect to Tax Strategic, to the extent that the Fund distributes exempt interest dividends to a shareholder, interest on indebtedness incurred or continued by such shareholder to purchase or carry shares of the Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or related persons) of facilities financed by "private activity" bonds (some of which were formerly referred to as "industrial development" bonds) should consult their tax advisers before purchasing shares of the Fund. "Substantial user" is defined generally as including a "non-exempt 31 person" who regularly uses in its trade or business a part of a facility financed from the proceeds of industrial development bonds. The percentage of the total dividends paid by a Fund with respect to any taxable year that qualifies as exempt interest dividends will be the same for all shareholders of the Fund receiving dividends with respect to such year. If a shareholder receives an exempt interest dividend with respect to any share and such share has been held for six months or less, any loss on the sale or exchange of such share will be disallowed to the extent of the exempt interest dividend amount. NET ASSET VALUE The following information supplements that set forth in each Prospectus under the subheading "How to Buy Shares - How the Funds Value Their Shares" in the Section entitled "Purchase and Redemption of Shares". The public offering price of shares of a Fund is its net asset value, plus, in the case of Class A shares, a sales charge which will vary depending on the purchase alternative chosen by the investor, as more fully described in the Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge Alternative. " On each Fund business day on which a purchase or redemption order is received by a Fund and trading in the types of securities in which a Fund invests might materially affect the value of Fund shares, the per share net asset value of each such Fund is computed in accordance with the Declaration of Trust and By-Laws governing each Fund as of the next close of regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's total assets, less its liabilities, by the total number of its shares then outstanding. A Fund business day is any weekday, exclusive of national holidays on which the Exchange is closed and Good Friday. For each Fund, securities for which the primary market is on a domestic or foreign exchange and over-the-counter securities admitted to trading on the NASDAQ National List are valued at the last quoted sale or, if no sale, at the mean of closing bid and asked prices and portfolio bonds are presently valued by a recognized pricing service when such prices are believed to reflect the fair value of the security. Over-the-counter securities not included in the NASDAQ National List for which market quotations are readily available are valued at a price quoted by one or more brokers. If accurate quotations are not available, securities will be valued at fair value determined in good faith by the Board of Trustees. The respective per share net asset values of the Class A, Class B, Class C and Class Y shares are expected to be substantially the same. Under certain circumstances, however, the per share net asset values of the Class B and Class C shares may be lower than the per share net asset value of the Class A shares (and, in turn, that of Class A shares may be lower than Class Y shares) as a result of the greater daily expense accruals, relative to Class A and Class Y shares, of Class B and Class C shares relating to distribution services fees (and, with respect to Balanced, Utility and Value, shareholder service fee) and, to the extent applicable, transfer agency fees and the fact that Class Y shares bear no additional distribution, shareholder service or transfer agency related fees. While it is expected that, in the event each Class of shares of a Fund realizes net investment income or does not realize a net operating loss for a period, the per share net asset values of the four classes will tend to converge immediately after the payment of dividends, which dividends will differ by approximately the amount of the expense accrual differential among the Classes, there is no assurance that this will be the case. In the event one or more Classes of a Fund experiences a net operating loss for any fiscal period, the net asset value per share of such Class or Classes will remain lower than that of Classes that incurred lower expenses for the period. To the extent that any Fund invests in non-U.S. dollar denominated securities, the value of all assets and liabilities will be translated into United States dollars at the mean between the buying and selling rates of the currency in which such a security is denominated against United States dollars last quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Fund. The Trustees will monitor, on an ongoing basis, a Fund's method of valuation. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of business on each business day in New York. In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. 32 Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. Such calculation does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange will not be reflected in a Fund's calculation of net asset value unless the Trustees deem that the particular event would materially affect net asset value, in which case an adjustment will be made. Securities transactions are accounted for on the trade date, the date the order to buy or sell is executed. Dividend income and other distributions are recorded on the ex-dividend date, except certain dividends and distributions from foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. PURCHASE OF SHARES The following information supplements that set forth in each Prospectus under the heading "Purchase and Redemption of Shares - How To Buy Shares." General Shares of each Fund will be offered on a continuous basis at a price equal to their net asset value plus an initial sales charge at the time of purchase (the "front-end sales charge alternative"), with a contingent deferred sales charge (the deferred sales charge alternative"), or without any front-end sales charge, but with a contingent deferred sales charge imposed only during the first year after purchase (the "level-load alternative"), as described below. Class Y shares which, as described below, are not offered to the general public, are offered without any front-end or contingent sales charges. Shares of each Fund are offered on a continuous basis through (i) investment dealers that are members of the National Association of Securities Dealers, Inc. and have entered into selected dealer agreements with the Distributor ("selected dealers"), (ii) depository institutions and other financial intermediaries or their affiliates, that have entered into selected agent agreements with the Distributor ("selected agents"), or (iii) the Distributor. The minimum for initial investments is $1,000; there is no minimum for subsequent investments. The subscriber may use the Share Purchase Application available from the Distributor for his or her initial investment. Sales personnel of selected dealers and agents distributing a Fund's shares may receive differing compensation for selling Class A, Class B or Class C shares. Investors may purchase shares of a Fund in the United States either through selected dealers or agents or directly through the Distributor. A Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. Each Fund will accept unconditional orders for its shares to be executed at the public offering price equal to the net asset value next determined (plus for Class A shares, the applicable sales charges), as described below. Orders received by the Distributor prior to the close of regular trading on the Exchange on each day the Exchange is open for trading are priced at the net asset value computed as of the close of regular trading on the Exchange on that day (plus for Class A shares the sales charges). In the case of orders for purchase of shares placed through selected dealers or agents, the applicable public offering price will be the net asset value as so determined, but only if the selected dealer or agent receives the order prior to the close of regular trading on the Exchange and transmits it to the Distributor prior to its close of business that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is responsible for transmitting such orders by 5:00 p.m. If the selected dealer or agent fails to do so, the investor's right to that day's closing price must be settled between the investor and the selected dealer or agent. If the selected dealer or agent receives the order after the close of regular trading on the Exchange, the price will be based on the net asset value determined as of the close of regular trading on the Exchange on the next day it is open for trading. Following the initial purchase of shares of a Fund, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Share Purchase Application. Payment for shares purchased by telephone can be made only by Electronic Funds Transfer from a bank account maintained by the shareholder at a bank that is a member of the National Automated Clearing House Association ("ACH"). If a shareholder's telephone purchase request is received before 3:00 p.m. New York time on a 33 Fund business day, the order to purchase shares is automatically placed the same Fund business day for non-money market funds, and two days following the day the order is received for money market funds, and the applicable public offering price will be the public offering price determined as of the close of business on such business day. Full and fractional shares are credited to a subscriber's account in the amount of his or her subscription. As a convenience to the subscriber, and to avoid unnecessary expense to a Fund, stock certificates representing Class Y shares of a Fund are not issued except upon written request to the Fund by the shareholder or his or her authorized selected dealer or agent. This facilitates later redemption and relieves the shareholder of the responsibility for and inconvenience of lost or stolen certificates. No certificates are issued for fractional shares, although such shares remain in the shareholder's account on the records of a Fund, or for Class A, B or C shares of any Fund. Alternative Purchase Arrangements Each Fund issues four classes of shares: (i) Class A shares, which are sold to investors choosing the front-end sales charge alternative; (ii) Class B shares, which are sold to investors choosing the deferred sales charge alternative; (iii) Class C shares, which are sold to investors choosing the level-load sales charge alternative; and (iv) Class Y shares, which are offered only to (a) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (b) certain investment advisory clients of the Advisers and their affiliates, and (c) institutional investors. The four classes of shares each represent an interest in the same portfolio of investments of the Fund, have the same rights and are identical in all respects, except that (I) only Class A, Class B and Class C shares are subject to a Rule 12b-1 distribution fee, (II) Class B and Class C shares of Balanced, Utility and Value are subject to a shareholder service fee, (III) Class A shares bear the expense of the front-end sales charge and Class B and Class C shares bear the expense of the deferred sales charge, (IV) Class B shares and Class C shares each bear the expense of a higher Rule 12b-1 distribution services fee and shareholder service fee than Class A shares and, in the case of Class B shares, higher transfer agency costs, (V) with the exception of Class Y shares, each Class of each Fund has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution services (and, to the extent applicable, shareholder service) fee is paid which relates to a specific Class and other matters for which separate Class voting is appropriate under applicable law, provided that, if the Fund submits to a simultaneous vote of Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan that would materially increase the amount to be paid thereunder with respect to the Class A shares, the Class A shareholders and the Class B and Class C shareholders will vote separately by Class, and (VI) only the Class B shares are subject to a conversion feature. Each Class has different exchange privileges and certain different shareholder service options available. The alternative purchase arrangements permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares, and other circumstances. Investors should consider whether, during the anticipated life of their investment in the Fund, the accumulated distribution services (and, to the extent applicable, shareholder service) fee and contingent deferred sales charges on Class B shares prior to conversion, or the accumulated distribution services (and, to the extent applicable, shareholder service) fee on Class C shares, would be less than the front-end sales charge and accumulated distribution services fee on Class A shares purchased at the same time, and to what extent such differential would be offset by the higher return of Class A shares. Class B and Class C shares will normally not be suitable for the investor who qualifies to purchase Class A shares at the lowest applicable sales charge. For this reason, the Distributor will reject any order (except orders for Class B shares from certain retirement plans) for more than $2,500,000 for Class B or Class C shares. Class A shares are subject to a lower distribution services fee and no shareholder service fee and, accordingly, pay correspondingly higher dividends per share than Class B shares or Class C shares. However, because front-end sales charges are deducted at the time of purchase, investors purchasing Class A shares would not have all their funds invested initially and, therefore, would initially own fewer shares. Investors not qualifying for reduced front-end sales charges who expect to maintain their investment for an extended period of time might consider purchasing Class A shares because the accumulated continuing distribution (and, to the extent applicable, shareholder service) charges on Class B shares or Class C shares may exceed the front-end sales charge on Class A 34 shares during the life of the investment. Again, however, such investors must weigh this consideration against the fact that, because of such front-end sales charges, not all their funds will be invested initially. Other investors might determine, however, that it would be more advantageous to purchase Class B shares or Class C shares in order to have all their funds invested initially, although remaining subject to higher continuing distribution services (and, to the extent applicable, shareholder service) fees and, in the case of Class B shares, being subject to a contingent deferred sales charge for a seven-year period. For example, based on current fees and expenses, an investor subject to the 4.75% front-end sales charge would have to hold his or her investment approximately seven years for the Class B and Class C distribution services (and, to the extent applicable, shareholders service) fees, to exceed the front-end sales charge plus the accumulated distribution services fee of Class A shares. In this example, an investor intending to maintain his or her investment for a longer period might consider purchasing Class A shares. This example does not take into account the time value of money, which further reduces the impact of the Class B and Class C distribution services (and, to the extent applicable, shareholder service) fees on the investment, fluctuations in net asset value or the effect of different performance assumptions. Those investors who prefer to have all of their funds invested initially but may not wish to retain Fund shares for the seven year period during which Class B shares are subject to a contingent deferred sales charge may find it more advantageous to purchase Class C shares. With respect to each Fund, the Trustees have determined that currently no conflict of interest exists between or among the Class A, Class B, Class C and Class Y shares. On an ongoing basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws, will seek to ensure that no such conflict arises. Front-end Sales Charge Alternative--Class A Shares The public offering price of Class A shares for purchasers choosing the front-end sales charge alternative is the net asset value plus a sales charge as set forth in the Prospectus for each Fund. Shares issued pursuant to the automatic reinvestment of income dividends or capital gains distributions are not subject to any sales charges. The Fund receives the entire net asset value of its Class A shares sold to investors. The Distributor's commission is the sales charge set forth in the Prospectus for each Fund, less any applicable discount or commission "reallowed" to selected dealers and agents. The Distributor will reallow discounts to selected dealers and agents in the amounts indicated in the table in the Prospectus. In this regard, the Distributor may elect to reallow the entire sales charge to selected dealers and agents for all sales with respect to which orders are placed with the Distributor. Set forth below is an example of the method of computing the offering price of the Class A shares of each Fund. The example assumes a purchase of Class A shares of a Fund aggregating less than $100,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of Class A shares of each Fund at the end of each Fund's latest fiscal year.
Net Per Share Asset Sales Value Charge Date Balanced $11.17 $.56 12/31/94 Growth and 35 Income $14.52 $.72 12/31/94 $15.24 Total Return $17.28 $.86 1/31/95 $18.14 American Retirement $10.67 $.53 12/31/94 $11.20 Small Cap $9.70 $.48 12/31/94 $10.18 Offering Net Per Share Offering Price Asset Sales Price Per Per Share Value Charge Date Share Foundation $12.27 $.61 12/31/94 $12.88 Tax Strategic $10.27 $.51 12/31/94 $10.78 Utility $ 9.00 $.45 12/31/94 $ 9.45 $11.73 Value $16.62 $.83 12/31/94 $17.45 Prior to January 3, 1995, shares of the Funds other than Balanced, Utility and Value were offered exclusively on a no-load basis and, accordingly, no underwriting commissions were paid in respect of sales of shares of the Funds or retained by the Distributor. In addition, since Class B and Class C shares were not offered prior to January 3, 1995, contingent deferred sales charges have been paid to the distributor with respect to Class B or Class C shares only since January 3, 1995. With respect to Balanced, Utility and Value for the periods indicated, the following commissions were paid to and amounts were retained by Federated Securities Corp., which, prior to July 8, 1995, was the principal underwriter of portfolios of Evergreen Investment Trust: Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 BALANCED: Commissions Received $605,000 $283,000 $360,000 Commissions Retained 12,000 42,000 55,000 VALUE: Commissions Received $1,003,000 $392,000 $713,000 Commissions Retained 36,000 59,000 107,000 Period From January 4, 1994 UTILITY: to December 31, 1994 Commissions Received $243,000 Commissions Retained 10,000 With respect to Total Return for the period indicated, the following commissions were paid to and amounts were retained by Evergreen Funds Distributor Inc: Period from January 3, 1995 TOTAL RETURN to January 31, 1995 Commissions Received Commissions Retained Investors choosing the front-end sales charge alternative may under certain circumstances be entitled to pay reduced sales charges. The circumstances under which such investors may pay reduced sales charges are described below. Combined Purchase Privilege. Certain persons may qualify for the sales charge reductions by combining purchases of shares of one or more Evergreen mutual funds other than the money market funds into a single "purchase", if the resulting "purchase" totals at least $100,000. The term "purchase" refers to: (i) a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own account(s); (ii) a single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or (iii) a single purchase for the employee benefit plans of a single employer. The term "purchase" also includes purchases by any "company", as the term is defined in the 1940 Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of a Fund or shares of other registered investment companies at a discount. The term "purchase" does not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are 36 credit card holders of a company, policy holders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. A "purchase" may also include shares, purchased at the same time through a single selected dealer or agent, of any Evergreen mutual fund. Currently, the Evergreen mutual funds include: Evergreen Fund Evergreen Global Real Estate Equity Fund Evergreen U.S. Real Estate Equity Fund The Evergreen Limited Market Fund, Inc. Evergreen Growth and Income Fund Evergreen Total Return Fund Evergreen American Retirement Fund Evergreen Small Cap Equity Income Fund Evergreen Tax Strategic Foundation Fund Evergreen Short-Intermediate Municipal Fund Evergreen Short-Intermediate Municipal Fund-CA Evergreen Tax Exempt Money Market Fund Evergreen Money Market Fund Evergreen U.S. Government Fund* Evergreen Foundation Fund Evergreen Florida High Income Fund Evergreen Aggressive Growth Fund Evergreen Balanced Fund* Evergreen Utility Fund* Evergreen Value Fund* Evergreen Fixed Income Fund* Evergreen Managed Bond Fund* Evergreen Emerging Markets Growth Fund* Evergreen International Equity Fund* Evergreen Treasury Money Market Fund* Evergreen Florida Municipal Bond Fund* Evergreen Georgia Municipal Bond Fund* Evergreen North Carolina Municipal Bond Fund* Evergreen South Carolina Municipal Bond Fund* Evergreen Virginia Municipal Bond Fund* Evergreen High Grade Tax Free Fund* * Prior to July 7, 1995, each Fund was named "First Union" instead of "Evergreen." Prospectuses for the Evergreen Mutual Funds may be obtained without charge by contacting the Distributor or the Advisers at the address or telephone number shown on the front cover of this Statement of Additional Information. Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of additional Class A shares of a Fund may qualify for a Cumulative Quantity Discount. The applicable sales charge will be based on the total of: (i) the investor's current purchase; (ii) the net asset value (at the close of business on the previous day) of (a) all Class A, Class B and Class C shares of the Fund held by the investor and (b) all such shares of any other Evergreen Mutual Fund held by the investor; and (iii) the net asset value of all shares described in paragraph (ii) owned by another shareholder eligible to combine his or her purchase with that of the investor into a single "purchase" (see above). For example, if an investor owned Class A, B or C shares of an Evergreen mutual fund worth $200,000 at their then current net asset value and, subsequently, purchased Class A shares of a Fund worth an additional $100,000, the sales charge for the $100,000 purchase would be at the 3.00% rate applicable to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate. 37 To qualify for the Combined Purchase Privilege or to obtain the Cumulative Quantity Discount on a purchase through a selected dealer or agent, the investor or selected dealer or agent must provide the Distributor with sufficient information to verify that each purchase qualifies for the privilege or discount. Statement of Intention. Class A investors may also obtain the reduced sales charges shown in the Prospectus by means of a written Statement of Intention, which expresses the investor's intention to invest not less than $100,000 within a period of 13 months in Class A shares (or Class A, Class B and/or Class C shares) of the Fund or any other Evergreen mutual fund. Each purchase of shares under a Statement of Intention will be made at the public offering price or prices applicable at the time of such purchase to a single transaction of the dollar amount indicated in the Statement of Intention. At the investor's option, a Statement of Intention may include purchases of Class A, B or C shares of the Fund or any other Evergreen mutual fund made not more than 90 days prior to the date that the investor signs a Statement of Intention; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included. Investors qualifying for the Combined Purchase Privilege described above may purchase shares of the Evergreen mutual funds under a single Statement of Intention. For example, if at the time an investor signs a Statement of Intention to invest at least $100,000 in Class A shares of the Fund, the investor and the investor's spouse each purchase shares of the Fund worth $20,000 (for a total of $40,000), it will only be necessary to invest a total of $60,000 during the following 13 months in shares of the Fund or any other Evergreen mutual fund, to qualify for the 3.75% sales charge on the total amount being invested (the sales charge applicable to an investment of $100,000). The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount. Shares purchased with the first 5% of such amount will be held in escrow (while remaining registered in the name of the investor) to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased, and such escrowed shares will be involuntarily redeemed to pay the additional sales charge, if necessary. Dividends on escrowed shares, whether paid in cash or reinvested in additional Fund shares, are not subject to escrow. When the full amount indicated has been purchased, the escrow will be released. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period. The difference in sales charge will be used to purchase additional shares of the Fund subject to the rate of sales charge applicable to the actual amount of the aggregate purchases. Investors wishing to enter into a Statement of Intention in conjunction with their initial investment in Class A shares of the Fund should complete the appropriate portion of the Subscription Application found in the Prospectus while current Class A shareholders desiring to do so can obtain a form of Statement of Intention by contacting a Fund at the address or telephone number shown on the cover of this Statement of Additional Information. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from any applicable front-end sales charges if they meet the criteria set forth in the Prospectus under "Class A Shares-Front End Sales Charge Alternative". The Advisers may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Reinstatement Privilege. A Class A shareholder who has caused any or all of his or her shares of the Fund to be redeemed or repurchased may reinvest all or any portion of the redemption or repurchase proceeds in Class A shares of the Fund at net asset value without any sales charge, provided that such reinvestment is made within 30 calendar days after the redemption or repurchase date. Shares are sold to a reinvesting shareholder at the net asset value next determined as described above. A reinstatement pursuant to this privilege will not cancel the redemption or repurchase transaction; therefore, any gain or loss so realized will be recognized for Federal tax purposes except that no loss will be recognized to the extent that the proceeds are reinvested in shares of the Fund. The reinstatement 38 privilege may be used by the shareholder only once, irrespective of the number of shares redeemed or repurchased, except that the privilege may be used without limit in connection with transactions whose sole purpose is to transfer a shareholder's interest in the Fund to his or her individual retirement account or other qualified retirement plan account. Investors may exercise the reinstatement privilege by written request sent to the Fund at the address shown on the cover of this Statement of Additional Information. Sales at Net Asset Value. In addition to the categories of investors set forth in the Prospectus, each Fund may sell its Class A shares at net asset value, i.e., without any sales charge, to: (i) certain investment advisory clients of the Advisers or their affiliates; (ii) officers and present or former Trustees of the Trust; present or former trustees of other investment companies managed by the Adviser; present or retired full-time employees of the Adviser; officers, directors and present or retired full-time employees of the Adviser, the Distributor, and their affiliates; officers, directors and present and full-time employees of selected dealers or agents; or the spouse, sibling, direct ancestor or direct descendant (collectively "relatives") of any such person; or any trust, individual retirement account or retirement plan account for the benefit of any such person or relative; or the estate of any such person or relative, if such shares are purchased for investment purposes (such shares may not be resold except to the Fund); (iii) certain employee benefit plans for employees of the Adviser, the Distributor and their affiliates; (iv) persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer and approved by the Distributor, pursuant to which such persons pay an asset-based fee to such broker-dealer, or its affiliate or agent, for service in the nature of investment advisory or administrative services. These provisions are intended to provide additional job-related incentives to persons who serve the Funds or work for companies associated with the Funds and selected dealers and agents of the Funds. Since these persons are in a position to have a basic understanding of the nature of an investment company as well as a general familiarity with the Fund, sales to these persons, as compared to sales in the normal channels of distribution, require substantially less sales effort. Similarly, these provisions extend the privilege of purchasing shares at net asset value to certain classes of institutional investors who, because of their investment sophistication, can be expected to require significantly less than normal sales effort on the part of the Funds and the Distributor. Deferred Sales Charge Alternative--Class B Shares Investors choosing the deferred sales charge alternative purchase Class B shares at the public offering price equal to the net asset value per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The Class B shares are sold without a front-end sales charge so that the full amount of the investor's purchase payment is invested in the Fund initially. Proceeds from the contingent deferred sales charge are paid to the Distributor and are used by the Distributor to defray the expenses of the Distributor related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to selected dealers and agents for selling Class B shares. The combination of the contingent deferred sales charge and the distribution services fee (and, with respect to Balanced, Utility and Value, the shareholder service fee) enables the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. The higher distribution services fee (and, with respect to Balanced, Utility and Value, the shareholder service fee) incurred by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than those related to Class A shares. Contingent Deferred Sales Charge. Class B shares which are redeemed within seven years of purchase will be subject to a contingent deferred sales charge at the rates set forth in the Prospectus charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no contingent deferred sales charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the contingent deferred sales charge, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. 39 In determining the contingent deferred sales charge applicable to a redemption, it will be assumed, that the redemption is first of any Class A shares or Class C shares in the shareholder's Fund account, second of Class B shares held for over eight years or Class B shares acquired pursuant to reinvestment of dividends or distributions and third of Class B shares held longest during the eight-year period. To illustrate, assume that an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional Class B shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 Class B shares, 10 Class B shares will not be subject to charge because of dividend reinvestment. With respect to the remaining 40 Class B shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, of the $600 of the shares redeemed $400 of the redemption proceeds (40 shares x $10 original purchase price) will be charged at a rate of 4.0% (the applicable rate in the second year after purchase for a contingent deferred sales charge of $16). The contingent deferred sales charge is waived on redemptions of shares (i) following the death or disability, as defined in the Code, of a shareholder, or (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70-1/2. Conversion Feature. At the end of the period ending seven years after the end of the calendar month in which the shareholder's purchase order was accepted, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher distribution services fee (and, with respect to Balanced, Utility and Value, the shareholder service fee) imposed on Class B shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to reduce the distribution services fee paid by holders of Class B shares that have been outstanding long enough for the Distributor to have been compensated for the expenses associated with the sale of such shares. For purposes of conversion to Class A, Class B shares purchased through the reinvestment of dividends and distributions paid in respect of Class B shares in a shareholder's account will be considered to be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A, an equal pro-rata portion of the Class B shares in the sub-account will also convert to Class A. The conversion of Class B shares to Class A shares is subject to the continuing availability of an opinion of counsel to the effect that (i) the assessment of the higher distribution services fee (and, with respect to Balanced, Utility and Value, shareholder service fee) and transfer agency costs with respect to Class B shares does not result in the dividends or distributions payable with respect to other Classes of a Fund's shares being deemed "preferential dividends" under the Code, and (ii) the conversion of Class B shares to Class A shares does not constitute a taxable event under Federal income tax law. The conversion of Class B shares to Class A shares may be suspended if such an opinion is no longer available at the time such conversion is to occur. In that event, no further conversions of Class B shares would occur, and shares might continue to be subject to the higher distribution services fee for an indefinite period which may extend beyond the period ending eight years after the end of the calendar month in which the shareholder's purchase order was accepted. Level-Load Alternative--Class C Shares Investors choosing the level load sales charge alternative purchase Class C shares at the public offering price equal to the net asset value per share of the Class C shares on the date of purchase without the imposition of a front-end sales charge. However, you will pay a 1.0% contingent deferred sales charge if you redeem shares during the first year after purchase. No charge is imposed in connection with redemptions made more than one year from the date of purchase. Class C shares are sold without a front-end sales charge so that the Fund will receive the full amount of the investor's purchase payment and after the first year without a contingent deferred sales charge so that the investor will receive as proceeds upon redemption the entire net asset value of his or her Class C shares. The Class C distribution services fee (and, with respect to Balanced, Utility and Value, shareholder service fee) 40 enables the Fund to sell Class C shares without either a front-end or contingent deferred sales charge. However, unlike Class B shares, Class C shares do not convert to any other class shares of the Fund. Class C shares incur higher distribution services fees (and, with respect to Balanced, Utility and Value, shareholder service fees) than Class A shares, and will thus have a higher expense ratio and pay correspondingly lower dividends than Class A shares. Class Y Shares Class Y shares are not offered to the general public and are available only to (i) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients of the Advisers and their affiliates, and (iii) institutional investors. Class Y shares do not bear any Rule 12b-1 distribution expenses and are not subject to any front-end or contingent deferred sales charges. GENERAL INFORMATION ABOUT THE FUNDS (See also "Other Information - General Information" in each Fund's Prospectus) Capitalization and Organization Each of the Evergreen Growth and Income Fund and Evergreen Total Return Fund is a Massachusetts business trust. The Evergreen American Retirement Fund and Evergreen Small Cap Equity Income Fund are each separate series of The Evergreen American Retirement Trust, a Massachusetts business trust. The Evergreen Foundation Fund and Evergreen Tax Strategic Foundation Fund are each separate series of the Evergreen Foundation Trust, a Massachusetts business trust. The Evergreen Balanced Fund, Evergreen Utility Fund and Evergreen Value Fund, which prior to July 7, 1995 were known as the First Union Balanced Portfolio, First Union Utility Portfolio and First Union Value Portfolio, respectively, are each separate series of Evergreen Investment Trust, a Massachusetts business trust. On July 7, 1995, First Union Funds changed its name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds changed its name to First Union Funds. The above-named Trusts are individually referred to in this Statement of Additional Information as the "Trust" and collectively as the "Trusts." Each Trust is governed by a board of trustees. Unless otherwise stated, references to the "Board of Trustees" or "Trustees" in this Statement of Additional Information refer to the Trustees of all the Trusts. Total Return and Growth and Income may issue an unlimited number of shares of beneficial interest with a $0.001 par value. American Retirement, Small Cap, Foundation and Tax Strategic may issue an unlimited number of shares of beneficial interest with a $0.0001 par value. Balanced, Value and Utility may issue an unlimited number of shares of beneficial interest without par value. All shares of these Funds have equal rights and privileges. Each share is entitled to one vote, to participate equally in dividends and distributions declared by the Funds and on liquidation to their proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of these Funds are fully paid, nonassessable and fully transferable when issued and have no pre-emptive, conversion or exchange rights. Fractional shares have proportionally the same rights, including voting rights, as are provided for a full share. Under each Trust's Declaration of Trust, each Trustee will continue in office until the termination of the Fund or his or her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee upon a vote of two-thirds of the outstanding shares of beneficial interest of the Trust. Vacancies will be filled by a majority of the remaining Trustees, subject to the 1940 Act. As a result, normally no annual or regular meetings of shareholders will be held, unless otherwise required by the Declaration of Trust of each Trust or the 1940 Act. Shares have noncumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so and in such event the holders of the remaining shares so voting will not be able to elect any Trustees. The Trustees of each Trust are authorized to reclassify and issue any unissued shares to any number of additional series without shareholder approval. Accordingly, in the 41 future, for reasons such as the desire to establish one or more additional portfolios of a Trust with different investment objectives, policies or restrictions, additional series of shares may be created by one or more Funds. Any issuance of shares of another series or class would be governed by the 1940 Act and the law of the State of Massachusetts. If shares of another series of a Trust were issued in connection with the creation of additional investment portfolios, each share of the newly created portfolio would normally be entitled to one vote for all purposes. Generally, shares of all portfolios would vote as a single series on matters, such as the election of Trustees, that affected all portfolios in substantially the same manner. As to matters affecting each portfolio differently, such as approval of the Investment Advisory Agreement and changes in investment policy, shares of each portfolio would vote separately. In addition any Fund may, in the future, create additional classes of shares which represent an interest in the same investment portfolio. Except for the different distribution related an other specific costs borne by such additional classes, they will have the same voting and other rights described for the existing classes of each Fund. Procedures for calling a shareholders' meeting for the removal of the Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940 Act will be available to shareholders of each Fund. The rights of the holders of shares of a series of a Fund may not be modified except by the vote of a majority of the outstanding shares of such series. An order has been received from the Securities and Exchange Commission permitting the issuance and sale of multiple classes of shares representing interests in each Fund. In the event a Fund were to issue additional Classes of shares other than those described herein, no further relief from the Securities and Exchange Commission would be required. Distributor Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York 10169, serves as each Fund's principal underwriter, and as such may solicit orders from the public to purchase shares of any Fund. The Distributor is not obligated to sell any specific amount of shares and will purchase shares for resale only against orders for shares. Under the Agreement between the Fund and the Distributor, the Fund has agreed to indemnify the Distributor, in the absence of its willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Counsel Sullivan & Worcester, Washington, D.C., serves as counsel to the Funds. Independent Auditors Ernst & Young LLP has been selected to be the independent auditors of Total Return, Growth and Income, American Retirement and Small Cap. Price Waterhouse LLP has been selected to be the independent auditors of Foundation and Tax Strategic. KPMG Peat Marwick LLP has been selected to be the independent auditors of Balanced, Utility and Value. PERFORMANCE INFORMATION Total Return From time to time a Fund may advertise its "total return." Computed separately for each class, the Fund's "total return" is its average annual compounded total return for recent one, five, and ten-year periods (or the period since the Fund's inception). The Fund's total return for such a period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of such investment at the end of the period. For purposes of computing total return, income dividends and capital gains distributions paid on shares of the Fund are assumed to have been reinvested when paid and the maximum sales charge applicable to purchases of 42 Fund shares is assumed to have been paid. The Fund will include performance data for Class A, Class B, Class C and Class Y shares in any advertisement or information including performance data of the Fund. With respect to Total Return, Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic, the shares of each Fund outstanding prior to January 3, 1995 have been reclassified as Class Y shares. The average annual compounded total return for each Class of shares offered by the Funds for the most recently completed one, five and ten year fiscal periods is set forth in the table below. TOTAL RETURN 1 Year 5 Years 10 Years Ended Ended Ended 1/31/95 1/31/95 1/31/95 Class A -9.79% 6.34% 9.06% Class B -9.68% 7.08% 9.59% Class C -6.22% 7.36% 9.58% Class Y -5.29% 7.37% 9.59% From GROWTH AND 1 Year 5 Years 10/15/86 INCOME Ended Ended (inception) 12/31/94 12/31/94 to 12/31/94 Class A -3.14% 8.69% 10.53% Class B -3.02% 9.47% 11.19% Class C .75% 9.75% 11.19% Class Y 1.69% 9.75% 11.19% From AMERICAN 1 Year 5 Years 3/14/88 RETIREMENT Ended Ended (inception) 12/31/94 12/31/94 to 12/31/94 Class A -7.47% 6.89% 7.86% Class B -7.46% 7.64% 8.55% Class C -3.78% 7.93% 8.64% Class Y -2.86% 7.93% 8.64% From SMALL CAP 1 Year 10/1/93 Ended (inception) 12/31/94 to 12/31/94 Class A -5.37% -2.41% Class B -5.43% -1.67% Class C -1.61% 1.44% Class Y -0.65% 1.44% FOUNDATION 1 Year From 1/2/90 Ended (inception) 12/31/94 to 12/31/94 Class A -5.82% 13.72% Class B -5.80% 14.60% Class C -2.06% 14.83% Class Y -1.12% 14.83% TAX STRATEGIC 1 Year From 11/02/93 Ended (inception) to 12/31/94 12/31/94 Class A -1.47% 1.74% Class B -1.54% 2.67% Class C 2.44% 6.06% Class Y 3.44% 6.06% BALANCED 1 Year Ended From inception* 12/31/94 to 12/31/94 Class A -7.03% 6.05% Class B -7.85% 0.64% Class C -- -4.53% Class Y -2.15% 8.30% UTILITY From inception** to 12/31/94 43 Class A -10.10% Class B -10.93% Class C - 3.20% Class Y - 1.55% VALUE 1 Year 5 Years Ended Ended From inception*** 12/31/94 12/31/94 to 12/31/94 Class A -2.98% 6.71% 11.06% Class B -3.80% -- 3.15% Class C -- -- -4.40% Class Y 2.07% -- 11.06% * Inception date: Class A - June 6, 1991; Class B - January 25, 1993; Class C - September 2, 1994; Class Y - April 1, 1991. ** Inception date: Class A - January 4, 1994; Class B - January 4, 1994; Class C - - September 2, 1994; Class Y - February 28, 1994. *** Inception date: Class A - April 12, 1985; Class B - January 25, 1993; Class C - September 2, 1994; Class Y - December 31, 1990. The performance numbers for Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic for the Class A, Class B and Class C shares are hypothetical numbers based on the performance for Class Y shares as adjusted for any applicable front-end sales charge or contingent deferred sales charge. For Total Return the performance numbers for the Class A, Class B and Class C shares are hypothetical numbers based upon the performance for the Class Y shares as adjusted for any applicable front-end sales charges or contingent deferred sales charge through January 3, 1995 (commencement of class operations) and the actual performance of each class subsequent to January 3, 1995. The performance data calculated prior to January 3, 1995, does not reflect any Rule 12b-1 fees. If such fees were reflected the returns would be lower. A Fund's total return is not fixed and will fluctuate in response to prevailing market conditions or as a function of the type and quality of the securities in a Fund's portfolio and its expenses. Total return information is useful in reviewing a Fund's performance but such information may not provide a basis for comparison with bank deposits or other investments which pay a fixed yield for a stated period of time. An investor's principal invested in a Fund is not fixed and will fluctuate in response to prevailing market conditions. YIELD CALCULATIONS From time to time, a Fund may quote its yield in advertisements or in reports or other communications to shareholders. Yield quotations are expressed in annualized terms and may be quoted on a compounded basis. Yields are computed by dividing the Fund's interest income (as defined in the SEC yield formula) for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive distributions during the period, dividing this figure by the Fund's net asset value per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. The formula for calculating yield is as follows: YIELD = 2[(a-b+1)6-1] cd Where a = Interest earned during the period b = Expenses accrued for the period (net of reimbursements) c = The average daily number of shares outstanding during the period that were entitled to receive dividends d = The maximum offering price per share on the last day of the period Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Gains and losses generally are excluded from the calculation. Income calculated for purposes of determining a Fund's yield differs from income as determined for other accounting purposes. Because of the 44 different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for a Fund may differ from the rate of distributions a Fund paid over the same period, or the net investment income reported in a Fund's financial statements. Yield information is useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' investment portfolios, portfolio maturity, operating expenses and market conditions. It should be recognized that in periods of declining interest rates the yields will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the yields will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the Fund's investments, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. The yield of each Fund for the thirty-day period ended December 31, 1994 (May 31, 1995 with respect to Tax Strategic, Growth & Income, American Retirement, Small Cap, Total Return and Foundation) for each Class of shares offered by the Funds is set forth in the table below: Total Return Tax Strategic Class A 4.14% Class A 2.59% Class B 3.62% Class B 2.00% Class C 3.62% Class C 1.99% Class Y 4.44% Class Y 2.97% Growth and Income Balanced Class A .69% Class A - 4.36% Class B 0% Class B - 3.82% Class C .01% Class C - 3.82% Class Y .92% Class Y - 4.84% American Retirement Utility Class A 3.24% Class A - 4.67% Class B 2.68% Class B - 4.14% Class C 2.67% Class C - 4.14% Class Y 3.52% Class Y - 5.16% Small Cap Value Class A 3.17% Class A - 3.04% Class B 2.59% Class B - 2.42% Class C 2.68% Class C - 2.42% Class Y 3.57% Class Y - 3.45% Foundation Class A 3.41% Class B 2.90% Class C 2.47% Class Y 3.76% Non-Standardized Performance In addition to the performance information described above, a Fund may provide total return information for designated periods, such as for the most recent six months or most recent twelve months. This total return information is computed as described under "Total Return" above except that no annualization is made. GENERAL 45 From time to time, a Fund may quote its performance in advertising and other types of literature as compared to the performance of the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Russell 2000 Index, or any other commonly quoted index of common stock prices. The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average and the Russell 2000 Index are unmanaged indices of selected common stock prices. A Fund's performance may also be compared to those of other mutual funds having similar objectives. This comparative performance would be expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar independent services monitoring mutual fund performance. A Fund's performance will be calculated by assuming, to the extent applicable, reinvestment of all capital gains distributions and income dividends paid. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. Additional Information Any shareholder inquiries may be directed to the shareholder's broker or to each Adviser at the address or telephone number shown on the front cover of this Statement of Additional Information. This Statement of Additional Information does not contain all the information set forth in the Registration Statement filed by the Trusts with the Securities and Exchange Commission under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the Securities and Exchange Commission or may be examined, without charge, at the offices of the Securities and Exchange Commission in Washington, D.C. FINANCIAL STATEMENTS Each Fund's financial statements appearing in their most current fiscal year Annual Report to shareholders and the report thereon of the independent auditors appearing therein, namely Ernst & Young, LLP (in the case of Total Return, Growth and Income, American Retirement and Small Cap), Price Waterhouse LLP (in the case of Foundation and Tax Strategic) or KPMG Peat Marwick LLP (in the case of Balanced, Utility and Value) are incorporated by reference in this Statement of Additional Information. The Annual Reports to Shareholders for each Fund, which contain the referenced statements, are available upon request and without charge. 46 APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS NOTE RATINGS Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high quality, with margins of protection ample though not so large as in the preceding group. MIG-3 -- favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay principal and interest. BOND RATINGS Moody's Investors Service: Aaa -- judged to be the best quality, carry the smallest degree of investment risk; Aa -- judged to be of high quality by all standards; A -- possess many favorable investment attributes and are to be considered as higher medium grade obligations; Baa -- considered as medium grade obligations which are neither highly protected nor poorly secured. Moody's Investors Service also applies numerical indicators, 1, 2 and 3, to rating categories Aa through Baa. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group: AAA -- highest grade obligations, possesses the ultimate degree of protection as to principal and interest; AA -- also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree; A -- regarded as upper medium grade, have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions, interest and principal are regarded as safe; BBB -- regarded as having adequate capacity to pay interest and repay principal but are more susceptible than higher rated obligations to the adverse effects of changes in economic and trade conditions. Standard & Poor's Ratings Group applies indicators "+", no character, and "-" to the above rating categories AA through BBB. The indicators show relative standing within the major rating categories. Duff & Phelps: AAA - highest credit quality, with negligible risk factors; AA -- high credit quality, with strong protection factors and modest risk, which may vary very slightly from time to time because of economic conditions; A -- average credit quality with adequate protection factors, but with greater and more variable risk factors in periods of economic stress. The indicators "+" and "-" to the AA and A categories indicate the relative position of a credit within those rating categories. Fitch Investor Service: AAA -- highest credit quality, with an exceptionally strong ability to pay interest and repay principal; AA -- very high credit quality, with a very strong ability to pay interest and repay principal; A -- high credit quality, considered strong as regards principal and interest protection, but may be more vulnerable to adverse changes in economic conditions; and BBB -- satisfactory credit quality with adequate ability with regard to interest and principal, and likely to be affected by adverse changes in economic conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB categories indicate the relative position of a credit within those rating categories. COMMERCIAL PAPER RATINGS Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote relative strength within this highest classification. Standard & Poor's Ratings Group: "A" is the highest commercial paper rating category utilized by Standard & Poor's Ratings Group which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A" classification. Duff & Phelps: Duff 1 is the highest commercial paper rating category utilized by Duff & Phelps which uses + or - to denote relative strength within this classification. Duff 2 represents good certainty of timely payment, with minimal risk factors. Duff 3 47 represents satisfactory protection factors, with risk factors larger and subject to more variation. Fitch Investor Service: F-1+ -- denotes exceptionally strong credit quality given to issues regarded as having strongest degree of assurance for timely payment; F-1 -- very strong credit quality, with only slightly less degree of assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory degree of assurance for timely payment. PROSPECTUS July 7, 1995 EVERGREEN(SM) INCOME FUNDS (Evergreen Logo appears here) EVERGREEN U.S. GOVERNMENT FUND EVERGREEN FIXED INCOME FUND CLASS A SHARES CLASS B SHARES CLASS C SHARES The Evergreen Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide a high level of current income. This Prospectus provides information regarding the Class A, Class B and Class C shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 9 Investment Practices and Restrictions 11 MANAGEMENT OF THE FUNDS Investment Adviser 14 Distribution Plans and Agreements 15 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 16 How to Redeem Shares 18 Exchange Privilege 20 Shareholder Services 20 Effect of Banking Laws 21 OTHER INFORMATION Dividends, Distributions and Taxes 21 Management's Discussion of Fund Performance 22 General Information 22
OVERVIEW OF THE FUNDS The following is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Capital Management Group of First Union National Bank ("CMG") serves as investment adviser to Evergreen Income Funds which include: EVERGREEN FIXED INCOME FUND and EVERGREEN U.S. GOVERNMENT FUND. First Union National Bank of North Carolina ("FUNB"), is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. EVERGREEN FIXED INCOME FUND (formerly First Union Fixed Income Portfolio) seeks to provide a high level of current income by investing in a broad range of investment grade debt securities, with capital growth as a secondary objective. EVERGREEN U.S. GOVERNMENT FUND (formerly First Union U.S. Government Portfolio) seeks a high level of current income consistent with stability of principal. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in each Class A, Class B and Class C Shares of a Fund. For further information see "Purchase and Redemption of Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Maximum Sales Charge Imposed on Purchases (as 4.75% None a % of offering price) Sales Charge on Dividend Reinvestments None None Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the second original purchase price or redemption year, 3% during the third and fourth year, 2% proceeds, whichever is lower) during the fifth year, 1% during the sixth and seventh years and 0% after the seventh year Redemption Fee None None Exchange Fee None None SHAREHOLDER TRANSACTION EXPENSES Class C Shares Maximum Sales Charge Imposed on Purchases (as None a % of offering price) Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge (as a % of 1% during the original purchase price or redemption first year and 0% proceeds, whichever is lower) thereafter Redemption Fee None Exchange Fee None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return, and (ii) redemption at the end of each period and, additionally for Class B and C, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares and Class C Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflect the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN U.S. GOVERNMENT FUND
EXAMPLES Assuming Assuming Redemption no ANNUAL OPERATING EXPENSES** at End of Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .50% .50% .50% After 1 Year $ 57 $ 68 $ 28 $ 18 Administrative Fees .06% .06% .06% After 3 Years $ 78 $ 85 $ 55 $ 55 12b-1 Fees* .25% .75% .75% After 5 Years $ 100 $ 115 $ 95 $ 95 Shareholder Service Fees -- .25% .25% After 10 Years $ 164 $ 177 $ 206 $ 177 Other Expenses .19% .19% .19% Total 1.00% 1.75% 1.75% Class C Advisory Fees After 1 Year $ 18 Administrative Fees After 3 Years $ 55 12b-1 Fees* After 5 Years $ 95 Shareholder Service Fees After 10 Years $ 206 Other Expenses Total
EVERGREEN FIXED INCOME FUND
EXAMPLES Assuming Redemption Assuming no ANNUAL OPERATING EXPENSES** at End of Period Redemption Class B Class C Class A Class B Class C Class B Class C Class A Advisory Fees .50% .50% .50% After 1 Year $ 55 $ 67 $ 27 $ 17 $ 17 Administrative Fees .06% .06% .06% After 3 Years $ 70 $ 81 $ 51 $ 51 $ 51 12b-1 Fees* .10% .75% .75% After 5 Years $ 86 $ 109 $ 89 $ 89 $ 89 Shareholder Service Fees -- .25% .25% After 10 Years $ 134 $ 158 $ 193 $ 158 $ 193 Other Expenses .07% .07% .07% Total .73% 1.63% 1.63%
*Class A Shares can pay up to .75 of 1% of average assets as a 12b-1 fee. For the forseeable future, the Class A Shares 12b-1 fees will be limited to .25 of 1% of average net assets. **The estimated annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the year ended December 31, 1994. Actual expenses for Class A, B and C Shares net of fee waivers and expense reimbursements for the year ended December 31, 1994 were as follows:
CLASS A CLASS B CLASS C EVERGREEN U.S. GOVERNMENT FUND .96% 1.54% 1.71% EVERGREEN FIXED INCOME FUND .75% 1.50% 1.65%
3 From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the year ended December 31, 1994. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN FIXED INCOME FUND, AND EVERGREEN U.S. GOVERNMENT FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN U.S. GOVERNMENT FUND
CLASS A CLASS B CLASS C CLASS SHARES SHARES SHARES Y SHARES JANUARY 11, JANUARY 11, SEPTEMBER 2, SEPTEMBER 2, YEAR ENDED 1993* THROUGH YEAR ENDED 1993* THROUGH 1994* THROUGH YEAR ENDED 1993* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1994 1993 PER SHARE DATA Net asset value, beginning of period............... $10.05 $10.00 $10.05 $10.00 $9.39 $10.05 $10.25 Income (loss) from investment operations: Net investment income............... .66 .68 .61 .63 .20 .69 .25 Net realized and unrealized gain (loss) on investments.......... (.98) .05 (.98) .05 (.32) (.98) (.20) Total from investment operations......... (.32) .73 (.37) .68 (.12) (.29) .05 Less distributions to shareholders from: Net investment income............... (.66) (.68) (.61) (.63) (.20) (.69) (.25) Net asset value, end of period............... $ 9.07 $10.05 $ 9.07 $10.05 $9.07 $ 9.07 $10.05 TOTAL RETURN+.......... (3.2%) 7.4% (3.8%) 6.9% (1.3%) (2.9%) .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............. $23,706 $38,851 $195,571 $ 236,696 $266 $15,595 $14,486 Ratios to average net assets: Expenses (a)......... .96% .68%++ 1.54% 1.19%++ 1.71%++ .71% .48%++ Net investment income (a)......... 6.97% 6.93%++ 6.42% 6.44%++ 6.70%++ 7.27% 7.20%++ Portfolio turnover rate................. 19% 39% 19% 39% 19% 19% 39%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES JANUARY 11, JANUARY 11, SEPTEMBER 2, SEPTEMBER 2, YEAR ENDED 1993 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH YEAR ENDED 1993 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1994 1993 Expenses....... 1.00% .99% 1.58% 1.50% 1.75% .75% .79% Net investment income....... 6.93% 6.62% 6.38% 6.13% 6.66% 7.23% 6.89%
5 EVERGREEN FIXED INCOME FUND -- CLASS Y SHARES
JANUARY 4, 1991* YEAR ENDED DECEMBER 31, THROUGH 1994 1993 1992 DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period................................... $10.43 $10.41 $10.54 $10.06 Income (loss) from investment operations: Net investment income.................................................. .65 .69 .70 .71 Net realized and unrealized gain (loss) on investments................. (.91) .19 (.02) .56 Total from investment operations..................................... (.26) .88 .68 1.27 Less distributions to shareholders from: Net investment income.................................................. (.65) (.68) (.70) (.71) Net realized gains..................................................... -- (.18) (.11) (.07) In excess of net investment income..................................... -- -- -- (.01)(b) Total distributions.................................................. (.65) (.86) (.81) (.79) Net asset value, end of period......................................... $9.52 $10.43 $10.41 $10.54 TOTAL RETURN +......................................................... (2.6%) 8.7% 6.6% 13.8% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............................. $345,025 $376,445 $324,068 $ 256,254 Ratios to average net assets: Expenses............................................................. .65% .66% .69% .69%++(a) Net investment income................................................ 6.56% 6.41% 6.67% 7.12%++(a) Portfolio turnover rate................................................ 48% 73% 66% 55%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period and is not annualized. ++ Annualized (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 4, 1991 THROUGH DECEMBER 31, 1991 Expenses....................................................................... .76% Net investment income.......................................................... 7.05%
(b) Distributions in excess of net investment income for the year ended December 31, 1991 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1991. 6 EVERGREEN FIXED INCOME FUND -- CLASS A SHARES
JANUARY 28, NINE MONTHS YEAR 1989* ENDED ENDED THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, 1994 1993 1992 1991 1990** 1990 1989 PER SHARE DATA Net asset value, beginning of period....... $10.42 $10.41 $10.54 $9.99 $9.72 $9.50 $9.70 Income (loss) from investment operations: Net investment income...................... .65 .65 .71 .73 .55 .79 .10 Net realized and unrealized gain (loss) on investments.............................. (.91) .19 (.06) .60 .24 .20 (.14) Total from investment operations......... (.26) .84 .65 1.33 .79 .99 (.04) Less distributions to shareholders from: Net investment income...................... (.64) (.65) (.67) (.70) (.52) (.77) (.16) Net realized gains......................... -- (.18) (.11) (.07) -- -- -- In excess of net investment income......... -- -- -- (.01)(b) -- -- -- Total distributions...................... (.64) (.83) (.78) (.78) (.52) (.77) (.16) Net asset value, end of period............. $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50 TOTAL RETURN+.............................. (2.6%) 8.3% 6.4% 13.7% 8.3% 10.5% (.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $19,127 $22,865 $21,488 $17,680 $ 11,765 $6,496 $11,580 Ratios to average net assets: Expenses................................. .75% .93% .90% .80%(a) 1.01%++(a) 1.00%(a) 1.78%++ Net investment income.................... 6.46% 6.15% 6.79% 7.30%(a) 7.53%++(a) 7.57%(a) 6.10%++ Portfolio turnover rate.................... 48% 73% 66% 53% 27% 32% 18%
* Commencement of operations. ** The Fund changed its fiscal year end to December 31. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge is not reflected. ++ Annualized. (a) Net of voluntary expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED NINE MONTHS ENDED YEAR ENDED DECEMBER 31, 1991 DECEMBER 31, 1990 MARCH 31, 1990 Expenses............................ .89% 1.82% 1.50% Net investment income............... 7.21% 6.72% 7.07%
(b) Distributions in excess of net investment income for the year ended December 31, 1991 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1991. 7 EVERGREEN FIXED INCOME FUND -- CLASS B AND CLASS C SHARES
CLASS B SHARES JANUARY 25, CLASS C SHARES 1993* SEPTEMBER 2, YEAR ENDED THROUGH 1993* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period.......................................... $10.44 $10.57 $9.85 Income (loss) from investment operations: Net investment income......................................................... .58 .58 .18 Net realized and unrealized gain (loss) on investments........................ (.92) .05 (.30) Total from investment operations............................................ (.34) .63 (.12) Less distributions to shareholders from: Net investment income......................................................... (.56) (.58) (.18) Net realized gains............................................................ -- (.18) -- Total distributions......................................................... (.56) (.76) (.18) Net asset value, end of period................................................ $9.54 $10.44 $9.55 TOTAL RETURN+................................................................. (3.3%) 6.1% (1.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................................... $ 17,625 $8,876 $512 Ratios to average net assets: Expenses.................................................................... 1.50% 1.57%++ 1.65%++ Net investment income....................................................... 5.75% 5.42%++ 5.87%++ Portfolio turnover rate....................................................... 48% 73% 48%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. 8 9 - -------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - -------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES The investment objectives and policies of each Fund are stated below. Each Fund's investment objective cannot be changed without shareholder approval. While there is no assurance that each objective will be achieved, the Funds will endeavor to do so by following the investment policies detailed below. Unless otherwise indicated, the investment policies of a Fund may be changed by the Trust's Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. Evergreen Fixed Income Fund The objective of Evergreen Fixed Income Fund is to attain a high level of current income, with capital growth as a secondary objective, through investment in a broad range of investment grade debt securities. The Fund is suitable for conservative investors who want attractive income and permits them to participate in a broad portfolio of fixed income securities rather than purchasing a single issue. While the Fund may invest in securities rated BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), the investment adviser currently intends to limit the Fund's investments to securities rated A or higher by Moody's or S&P, or which, if unrated, are considered to be of comparable quality by the investment adviser. A description of the rating categories is contained in an Appendix to the Statement of Additional Information. Debt securities may include fixed, adjustable rate, zero coupon, or stripped securities, debentures, notes, U.S. government securities, and debt securities convertible into, or exchangeable for, preferred or common stock. Debt securities may also include mortgage-backed and asset-backed securities (see "Investment Practices and Restrictions, below)." Stated final maturity for these securities may range up to 30 years. The duration of the securities will not exceed 10 years. The Fund intends to maintain a dollar-weighted average maturity of 5 years or less. Market-expected average life will be used for certain types of issues in computing the average maturity. In normal market conditions the Fund may invest up to 20% of its assets in money market instruments consisting of: (1) high grade commercial paper, including master demand notes; (2) obligations of banks or savings and loan associations having at least $1 billion in deposits, including certificates of deposit and bankers' acceptances; (3) A-rated or better corporate obligations; (4) obligations issued or guaranteed by the U.S. government or by any agency or instrumentality of the U.S. government; and (5) repurchase agreements collateralized by any security listed above. The types of U.S. government securities in which the Fund may invest include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds, and discount notes of U.S. government agencies or instrumentalities, such as the: Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage Association; Government National Mortgage Association; Student Loan Marketing Association; Tennessee Valley Authority; Export-Import Bank of the United States; Commodity Credit Corporation; Federal Financing Bank; and National Credit Union Administration (collectively, "U.S. government securities"). Some U.S. government agency obligations are backed by the full faith and credit of the U.S. Treasury. Others in which the Fund may invest are supported by: the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or the credit of the agency or instrumentality. The Fund may also invest up to 20% of its assets in foreign securities or U.S. securities traded in foreign markets in order to provide further diversification. The Fund may also invest in preferred stock; units which are debt securities with stock or warrants attached; and obligations denominated in foreign currencies. In making these decisions, the investment adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation considerations and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions " - "Foreign Investments.") The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen U.S. Government Fund The investment objective of Evergreen U.S. Government Fund is a high level of current income consistent with stability of principal. The Fund will invest in debt instruments issued or guaranteed by the U.S. government, its agencies, or instrumentalities ("U.S. government securities"). Evergreen U.S. Government Fund is suitable for conservative investors seeking high current yields plus relative safety and permits an investor to participate in a portfolio that benefits from active management of a blend of securities and maturities to maximize the opportunities and minimize the risks created by changing interest rates. In addition to U.S. government securities, the Evergreen U.S. Government Fund may invest in: Securities representing ownership interests in mortgage pools ("mortgage-backed securities"). The yield and maturity characteristics of mortgage-backed securities correspond to those of the underlying mortgages, with interest and principal payments including prepayments (i.e. paying remaining principal before the mortgage's scheduled maturity) passed through to the holder of the mortgage-backed securities. The yield and price of mortgage-backed securities will be affected by prepayments which substantially shorten effective maturities. Thus, during periods of declining interest rates, prepayments may be expected to increase, requiring the Fund to reinvest the proceeds at lower interest rates, making it difficult to effectively lock in high interest rates. Conversely, mortgage-backed securities may experience less pronounced declines in value during periods of rising interest rates; Securities representing ownership interests in a pool of assets ("asset-backed securities"), for which automobile and credit card receivables are the most common collateral. Because much of the underlying collateral is unsecured, asset-backed securities are structured to include additional collateral and/or additional credit support to protect against default. The investment adviser evaluates the strength of each particular issue of asset-backed security, taking into account the structure of the issue and its credit support. (See "Investment Practices and Restrictions - Risk Characteristics of Asset-Backed Securities."); Collateralized mortgage obligations ("CMOs") issued by single-purpose, stand-alone entities. A CMO is a mortgage-backed security that manages the risk of repayment by separating mortgage pools into short, medium and long term portions. These portions are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. Similarly, as prepayments are made, the portion of CMO first to mature will be retired prior to its maturity, thus having the same effect as the prepayment of mortgages underlying a mortgage-backed security. The issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC"), which has certain special tax attributes. The Fund will invest only in CMOs which are rated AAA by a nationally recognized statistical rating organization and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. The Fund may invest up to 20% of its total assets in CMOs; Commercial paper which matures in 270 days or less so long as at least two of its ratings are high quality ratings by nationally recognized statistical rating organizations. Such ratings would include A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch Investors Service and bonds and other debt securities rated Baa or higher by Moody's or BBB or higher by S&P, or which, if unrated, are considered to be comparable quality by the investment adviser. Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered to be investment grade. (See the description of the rating categories contained in the Statement of Additional Information). The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Risk Factors. Bond prices move inversely to interest rates, i.e. as interest rates decline, the values of the bonds increase and vice versa. The longer the maturity of a bond, the greater the exposure to market price fluctuations. The same market factors are reflected in the share price or net asset value of bond funds which will vary with interest rates. Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. Government securities if, in the opinion of the Funds' investment adviser, market conditions warrant a temporary defensive investment strategy. Downgrades. If any security invested in by any of the Funds 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. Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security (usually U.S. government securities) for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Fund's risk is the inability of the seller to pay the agreed-upon price on delivery date. However, this risk is tempered by the ability of the Fund to sell the security in the open market in the case of a default. In such a case, the Fund may incur costs in disposing of the security which would increase Fund expenses. The investment adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. The Funds may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which a Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause a Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, a Fund may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the investment adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Lending Of Portfolio Securities. In order to generate additional income, the Funds may lend portfolio securities on a short-term or long-term basis to broker/dealers, banks, or other institutional borrowers of securities. The Funds will only enter into loan arrangements with creditworthy borrowers and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned. As a matter of fundamental investment policy which cannot be changed without shareholder approval, the Funds will not lend any of their assets except portfolio securities up to 15% (in the case of the Evergreen Fixed Income Fund) or one-third (in the case of Evergreen U.S. Government Fund) of the value of their total assets. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Options And Futures. All of the Funds may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market, interest rate or exchange rate risk, and the Funds do not use these transactions for speculation or leverage. The Funds may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds also may write straddles (combinations of covered puts and calls on the same underlying security). The Funds may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option, the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into currency and other financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities, currencies, or index-based futures contracts in order to hedge against changes in interest or exchange rates or securities prices. A futures contract on securities or currencies is an agreement to buy or sell securities or currencies during a designated month at whatever price exists at that time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase currency and other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities or currencies declines and to fall when the value of such securities or currencies increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities or currencies. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities or currencies increases and to fall when the value or such securities or currencies declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds' ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case the Funds would continue to bear market risk on the transaction. Risk Characteristics Of Options And Futures. Although options and futures transactions are intended to enable the Funds to manage market, exchange, or interest rate risks, these investment devices can be highly volatile, and the Funds' use of them can result in poorer performance (i.e., the Funds' returns may be reduced). The Funds' attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contracts and options on financial futures contracts as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the investment adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements, and other economic factors. Even if the investment adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its investments. In these events, the Funds may lose money on the financial futures contracts or the options on financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the investment adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds' ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. Zero-Coupon And Stripped Securities. The Funds may invest in zero-coupon and stripped securities. Zero- coupon securities in which the Fund may invest are debt obligations which are generally issued at a discount and payable in full at maturity, and which do not provide for current payments of interest prior to maturity. Zero-coupon securities usually trade at a deep discount from their face or par value and are subject to greater market value fluctuations from changing interest rates than debt obligations of comparable maturities which make current distributions of interest. As a result, the net asset value of shares of the Funds may fluctuate over a greater range than shares of other mutual funds investing in securities making current distributions of interest and having similar maturities. Zero-coupon securities may include U.S. Treasury bills issued directly by the U.S. Treasury or other short-term debt obligations, and longer-term bonds or notes and their unmatured interest coupons which have been separated by their holder, typically a custodian bank or investment banking firm. A number of securities firms and banks have stripped the interest coupons from the underlying principal (the "corpus") of U.S. Treasury securities and resold them in custodial receipt programs with a number of different names, including Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered securities which are owned ostensibly by the bearer of holder thereof), in trust on behalf of the owners thereof. In addition, the Treasury has facilitated transfers of ownership of zero-coupon securities by accounting separately for the beneficial ownership of particular interest coupons and corpus payments on Treasury securities through the Federal Reserve book-entry record-keeping system. The Federal Reserve program as established by the Treasury Department is known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities." Under the STRIPS program, the Funds will be able to have their beneficial ownership of U.S. Treasury zero-coupon securities recorded directly in the book-entry record-keeping system in lieu of having to hold certificates or other evidence of ownership of the underlying U.S. Treasury securities. When debt obligations have been stripped of their unmatured interest coupons by the holder, the stripped coupons are sold separately. The principal or corpus is sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic cash interest payments. Once stripped or separated, the corpus and coupons may be sold separately. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold in such bundled form. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero-coupon securities issued directly by the obligor. Foreign Investments. Evergreen Fixed Income Fund may invest in foreign securities or securities denominated in or indexed to foreign currencies. In addition, Evergreen Fixed Income Fund may invest in foreign currencies. These may involve additional risks. Specifically, they may be affected by the strength of foreign currencies relative to the U.S. dollar, or by political or economic developments in foreign countries. Accounting procedures and government supervision may be less stringent than those applicable to U.S. companies. There may be less publicly available information about a foreign company than about a U.S. company. Foreign markets may be less liquid or more volatile than U.S. markets and may offer less protection to investors. It may also be more difficult to enforce contractual obligations abroad than would be the case in the United States because of differences in the legal systems. Foreign securities may be subject to foreign taxes, which may reduce yield, and may be less marketable than comparable U.S. securities. All these factors are considered by the investment adviser before making any of these types of investments. Risk Characteristics Of Asset-Backed Securities. The Funds may invest in asset-backed securities. Asset-backed securities are created by the grouping of certain governmental, government-related and private loans, receivables and other lender assets into pools. Interests in these pools are sold as individual securities. Payments from the asset pools may be divided into several different tranches of debt securities, with some tranches entitled to receive regular installments of principal and interest, other tranches entitled to receive regular installments of interest, with principal payable at maturity or upon specified call dates, and other tranches only entitled to receive payments of principal and accrued interest at maturity or upon specified call dates. Different tranches of securities will bear different interest rates, which may be fixed or floating. Because the loans held in the asset pool often may be prepaid without penalty or premium, asset-backed securities and mortgage backed securities are generally subject to higher prepayment risks than most other types of debt instruments. Prepayment risks on mortgage securities tend to increase during periods of declining mortgage interest rates, because many borrowers refinance their mortgages to take advantage of the more favorable rates. Depending upon market conditions, the yield that Evergreen Fixed Income Fund and Evergreen U.S. Government Fund receive from the reinvestment of such prepayments, or any scheduled principal payments, may be lower than the yield on the original mortgage security. As a consequence, mortgage securities may be a less effective means of "locking in" interest rates than other types of debt securities having the same stated maturity and may also have less potential for capital appreciation. For certain types of asset pools, such as CMOs, prepayments may be allocated to one tranche of securities ahead of other tranches, in order to reduce the risk of prepayment for the other tranches. Prepayments may result in a capital loss to Evergreen Fixed Income Fund and Evergreen U.S. Government Fund to the extent that the prepaid mortgage securities were purchased at a market premium over their stated amount. Conversely, the prepayment of mortgage securities purchased at a market discount from their stated principal amount will accelerate the recognition of interest income by Evergreen Fixed Income Fund and Evergreen U.S. Government Fund which would be taxed as ordinary income when distributed to the shareholders. The credit characteristics of asset-backed securities also differ in a number of respects from those of traditional debt securities. The credit quality of most asset-backed securities depends primarily upon the credit quality of the assets underlying such securities, how well the entity issuing the securities is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement to such securities. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Restricted And Illiquid Securities. Evergreen Fixed Income Fund may invest up to 10% of its net assets and Evergreen U.S. Government Fund may invest up to 10% of its total assets in securities which are subject to restrictions on resale under federal securities law. In the case of the Evergreen Fixed Income Fund and Evergreen U.S. Government Fund, this restriction is not applicable to commercial paper issued under Section 4(2) of the Securities Act of 1933. The Evergreen Fixed Income Fund may invest up to 10% of its net assets in illiquid securities. Evergreen U.S. Government Fund may invest up to 15% of its net assets in illiquid securities. Illiquid securities include certain restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, and repurchase agreements providing for settlement in more than seven days after notice. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISER The management of each Fund is supervised by the Trustees. The Capital Management Group of First Union National Bank of North Carolina ("CMG") serves as investment adviser to each Fund. First Union National Bank of North Carolina ("FUNB") is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. CMG manages investments and supervises the daily business affairs of each Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund. The total annualized operating expenses of Evergreen Fixed Income Fund and Evergreen U.S. Government Fund for the most recent fiscal year ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset Management Corp. ("Evergreen Asset"), a subsidiary of FUNB, serves as administrator to each Fund and is entitled to receive a fee based on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator for each Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of the Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager of Evergreen Fixed Income Fund is Thomas L. Ellis, who is a Vice President of FUNB. Prior to joining FUNB in 1985, Mr. Ellis had seventeen years of investment management and sales experience, including eleven years marketing short and medium-term obligations to institutional investors, plus three years as head trader for First Boston Corporation. Mr. Ellis has managed the Fund since its inception in July 1988. The portfolio manager of Evergreen U.S. Government Fund is Rollin C. Williams, a Vice President of FUNB, who has over 24 years of investment management experience. Mr. Williams was the Head of Fixed Income Investments at Dominion Trust Company from 1988 until its acquisition by First Union. Mr. Williams has served as the portfolio manager for the Evergreen U.S. Government Fund since its inception in December 1992. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A and Class B shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, .75 of 1.00% of the aggregate average daily net assets attributable to the Class B and Class C shares of each Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. The Funds have, in addition to the Plans adopted with respect to their Class B and Class C shares, adopted a shareholder service plan ("Service Plans") relating to the Class B shares and Class C shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plans, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B and Class C shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans and the Service Plans in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B and Class C shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment plan. Share certificates are not issued for Class A, Class B and Class C shares. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A, Class B and Class C shares are offered through this Prospectus (See "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee on transactions in shares of the Funds. Class A shares may also be purchased at net asset value by qualified and non-qualified employee benefit and savings plans which make shares of the Funds and the other Evergreen mutual funds available to their participants, and which: (a) are employee benefit plans having at least $1,000,000 in investable assets, or 250 or more eligible participants; or (b) are non-qualified benefit or profit sharing plans which are sponsored by an organization which also makes the Evergreen mutual funds available through a qualified plan meeting the criteria specified under (a). In connection with sales made to plans of the type described in the preceeding sentence that are clients of broker-dealers, and which do not qualify for sales at net asset value under the conditions set forth in the paragraph above, payments may be made in an amount equal to .50 of 1% of the net asset value of shares purchased. These payments are subject to reclaim in the event shares are redeemed within 12 months after purchase. When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .25 of 1% of the average daily value on an annual basis of Class A shares held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which it is expected that they will convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. Class C Shares--Level-Load Alternative. You can purchase Class C shares without any initial sales charge and, therefore, the full amount of your investment will be used to purchase Fund shares. However, you will pay a 1.0% CDSC if you redeem shares during the first year after purchase. Class C shares incur higher distribution and/or shareholder service fees than Class A shares but, unlike Class B shares, do not convert to any other class of shares of the Fund. The higher fees mean a higher expense ratio, so Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. No contingent deferred sales charge will be imposed on Class C shares purchased by institutional investors, and through employee benefit and savings plans eligible for the exemption from front-end sales charges described under "Class A Shares-Front End Sales Charge Alternative", above. Broker-dealers and other financial intermediaries whose clients have purchased Class C shares may receive a trailing commission equal to .75 of 1% of the average daily value of such shares on an annual basis held by their clients more than one year from the date of purchase. The payment of trailing commissions will commence immediately with respect to shares eligible for exemption from the contingent deferred sales charge normally applicable to Class C shares. With respect to Class B Shares and Class C Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years (in the case of Class B Shares) or one year (in the case of Class C Shares) after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution and/or shareholder service fees, after seven years. If you are unsure of the time period of your investment, you might consider Class C shares since there are no initial sales charges and, although there is no conversion feature, the CDSC only applies to redemptions made during the first year. Consult your financial intermediary for further information. The compensation received by dealers and agents may differ depending on whether they sell Class A, Class B or Class C shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen mutual funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or its investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B or Class C shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 10 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B or C shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m.(Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The redemption of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive sixty days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the Fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B or Class C shares are exchanged for Class B or Class C shares, respectively, of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B or Class C shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number on the front of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Funds and the other Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from front-end sales charges if they meet the criteria set forth under "Class A Shares-Front End Sales Charge Alternative". Each Fund's investment adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Internal Revenue Code of 1986, as amended (the "Code"). Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of each Fund for its most recent fiscal year is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Funds are each separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. The Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing-related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. The Funds' performance may be quoted in advertising in terms of "yield" or "total return". Both types of performance are based on formulas prescribed by the Securities and Exchange Commission ("SEC") and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of a Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all the Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in the Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc. and Morningstar, Inc. as well as other industry publications, and comparisons to various indices. A Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trust with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick, LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536117 PROSPECTUS July 7, 1995 EVERGREEN(SM) INCOME FUNDS (Evergreen Logo appears here) EVERGREEN U.S. GOVERNMENT FUND EVERGREEN FIXED INCOME FUND EVERGREEN MANAGED BOND FUND CLASS Y SHARES The Evergreen Income Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide a high level of current income. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Adviser Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information
OVERVIEW OF THE FUNDS The following is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Capital Management Group of First Union National Bank ("CMG") serves as investment adviser to Evergreen Income Funds which include: EVERGREEN FIXED INCOME FUND, EVERGREEN MANAGED BOND FUND, and EVERGREEN U.S. GOVERNMENT FUND. First Union National Bank of North Carolina ("FUNB"), is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. EVERGREEN FIXED INCOME FUND (formerly First Union Fixed Income Portfolio) seeks to provide a high level of current income by investing in a broad range of investment grade debt securities, with capital growth as a secondary objective. EVERGREEN MANAGED BOND FUND (formerly First Union Managed Bond Portfolio) seeks to achieve total return through investment in high grade corporate bonds and U.S. Government and agency bonds. EVERGREEN U.S. GOVERNMENT FUND (formerly First Union U.S. Government Portfolio) seeks a high level of current income consistent with stability of principal. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $ 5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN U.S. GOVERNMENT FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees .50% After 1 Year $ 8 Administrative Fees .06% After 3 Years $24 12b-1 Fees -- After 5 Years $41 Other Expenses .19% After 10 Years $93 Total .75%
EVERGREEN FIXED INCOME FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees .50% After 1 Year $ 6 Administrative Fees .06% After 3 Years $20 12b-1 Fees -- After 5 Years $35 Other Expenses .07% After 10 Years $79 Total .63%
EVERGREEN MANAGED BOND FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees .50% After 1 Year $ 7 Administrative Fees .06% After 3 Years $23 12b-1 Fees -- After 5 Years $40 Other Expenses .16% After 10 Years $90 Total .72%
*The estimated annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the year ended December 31, 1994. Actual expenses for Class Y Shares net of fee waivers and expense reimbursements for the year ended December 31, 1994 were as follows: Evergreen U.S. Government Fund..................................................... .71% Evergreen Fixed Income Fund........................................................ .65% Evergreen Managed Bond Fund........................................................ .70%
3 From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the year ended December 31, 1994. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds." As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter, for EVERGREEN FIXED INCOME FUND, EVERGREEN MANAGED BOND FUND, and EVERGREEN U.S. GOVERNMENT FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN U.S. GOVERNMENT FUND
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES JANUARY 11, JANUARY 11, SEPTEMBER 2, YEAR ENDED 1993* THROUGH YEAR ENDED 1993* THROUGH 1994* THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1994 PER SHARE DATA Net asset value, beginning of period........................ $10.05 $10.00 $10.05 $10.00 $9.39 $10.05 Income from investment operations: Net investment income.......... .66 .68 .61 .63 .20 .69 Net realized and unrealized gain (loss) on investments.... (.98) .05 (.98) .05 (.32) (.98) Total from investment operations.................. (.32) .73 (.37) .68 (.12) (.29) Less distributions to shareholders from: Net investment income.......... (.66) (.68) (.61) (.63) (.20) (.69) Net asset value, end of period........................ $9.07 $10.05 $9.07 $10.05 $9.07 $9.07 TOTAL RETURN+.................. (3.2%) 7.4% (3.8%) 6.9% (1.3%) (2.9%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............... $ 23,706 $38,851 $195,571 $ 236,696 $266 $ 15,595 Ratios to average net assets: Expenses (a).................. .96% .68%++ 1.54% 1.19%++ 1.71%++ .71% Net investment income (a)..... 6.97% 6.93%++ 6.42% 6.44%++ 6.70%++ 7.27% Portfolio turnover rate........ 19% 39% 19% 39% 19% 19% SEPTEMBER 2, 1993* THROUGH DECEMBER 31, 1993 PER SHARE DATA Net asset value, beginning of period........................ $10.25 Income from investment operations: Net investment income.......... .25 Net realized and unrealized gain (loss) on investments.... (.20) Total from investment operations.................. .05 Less distributions to shareholders from: Net investment income.......... (.25) Net asset value, end of period........................ $10.05 TOTAL RETURN+.................. .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............... $14,486 Ratios to average net assets: Expenses (a).................. .48%++ Net investment income (a)..... 7.20%++ Portfolio turnover rate........ 39%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS C CLASS A SHARES CLASS B SHARES SHARES CLASS Y SHARES JANUARY 11, JANUARY 11, SEPTEMBER 2, SEPTEMBER 2, YEAR ENDED 1993 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH YEAR ENDED 1993 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1994 1993 Expenses......... 1.00% .99% 1.58% 1.50% 1.75% .75% .79% Net investment income......... 6.93% 6.62% 6.38% 6.13% 6.66% 7.23% 6.89%
5 EVERGREEN FIXED INCOME FUND -- CLASS Y SHARES
JANUARY 4, 1991* YEAR ENDED DECEMBER 31, THROUGH 1994 1993 1992 DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period................................... $10.43 $10.41 $10.54 $10.06 Income (loss) from investment operations: Net investment income.................................................. .65 .69 .70 .71 Net realized and unrealized gain (loss) on investments................. (.91) .19 (.02) .56 Total from investment operations..................................... (.26) .88 .68 1.27 Less distributions to shareholders from: Net investment income.................................................. (.65) (.68) (.70) (.71) Net realized gains..................................................... -- (.18) (.11) (.07) In excess of net investment income..................................... -- -- -- (.01)(b) Total distributions.................................................. (.65) (.86) (.81) (.79) Net asset value, end of period......................................... $9.52 $10.43 $10.41 $10.54 TOTAL RETURN +......................................................... (2.6%) 8.7% 6.6% 13.8% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............................. $345,025 $376,445 $324,068 $ 256,254 Ratios to average net assets: Expenses............................................................. .65% .66% .69% .69%++(a) Net investment income................................................ 6.56% 6.41% 6.67% 7.12%++(a) Portfolio turnover rate................................................ 48% 73% 66% 55%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 4, 1991 THROUGH DECEMBER 31, 1991 Expenses....................................................................... .76% Net investment income.......................................................... 7.05%
(b) Distributions in excess of net investment income for the year ended December 31, 1991 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1991. 6 EVERGREEN FIXED INCOME FUND -- CLASS A SHARES
JANUARY 28, NINE MONTHS YEAR 1989* ENDED ENDED THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, 1994 1993 1992 1991 1990** 1990 1989 PER SHARE DATA Net asset value, beginning of period....... $10.42 $10.41 $10.54 $9.99 $9.72 $9.50 $9.70 Income (loss) from investment operations: Net investment income...................... .65 .65 .71 .73 .55 .79 .10 Net realized and unrealized gain (loss) on investments.............................. (.91) .19 (.06) .60 .24 .20 (.14) Total from investment operations......... (.26) .84 .65 1.33 .79 .99 (.04) Less distributions to shareholders from: Net investment income...................... (.64) (.65) (.67) (.70) (.52) (.77) (.16) Net realized gains......................... -- (.18) (.11) (.07) -- -- -- In excess of net investment income......... -- -- -- (.01)(b) -- -- -- Total distributions...................... (.64) (.83) (.78) (.78) (.52) (.77) (.16) Net asset value, end of period............. $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50 TOTAL RETURN+.............................. (2.6%) 8.3% 6.4% 13.7% 8.3% 10.5% (.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $19,127 $22,865 $21,488 $17,680 $ 11,765 $6,496 $11,580 Ratios to average net assets: Expenses................................. .75% .93% .90% .80%(a) 1.01%++(a) 1.00%(a) 1.78%++ Net investment income.................... 6.46% 6.15% 6.79% 7.30%(a) 7.53%++(a) 7.57%(a) 6.10%++ Portfolio turnover rate.................... 48% 73% 66% 53% 27% 32% 18%
* Commencement of class operations. ** The Fund changed its fiscal year end to December 31. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED NINE MONTHS ENDED YEAR ENDED DECEMBER 31, 1991 DECEMBER 31, 1990 MARCH 31, 1990 Expenses............................ .89% 1.82% 1.50% Net investment income............... 7.21% 6.72% 7.07%
(b) Distributions in excess of net investment income for the year ended December 31, 1991 were a result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended December 31, 1991. 7 EVERGREEN FIXED INCOME FUND -- CLASS B AND CLASS C SHARES
CLASS B SHARES CLASS C JANUARY 25, SHARES 1993* SEPTEMBER 2, YEAR ENDED THROUGH 1993* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period.......................................... $10.44 $10.57 $9.85 Income (loss) from investment operations: Net investment income......................................................... .58 .58 .18 Net realized and unrealized gain (loss) on investments........................ (.92) .05 (.30) Total from investment operations............................................ (.34) .63 (.12) Less distributions to shareholders from: Net investment income......................................................... (.56) (.58) (.18) Net realized gains............................................................ -- (.18) -- Total distributions......................................................... (.56) (.76) (.18) Net asset value, end of period................................................ $9.54 $10.44 $9.55 TOTAL RETURN+................................................................. (3.3%) 6.1% (1.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................................... $ 17,625 $8,876 $512 Ratios to average net assets: Expenses.................................................................... 1.50% 1.57%++ 1.65%++ Net investment income....................................................... 5.75% 5.42%++ 5.87%++ Portfolio turnover rate....................................................... 48% 73% 48%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. 8 EVERGREEN MANAGED BOND FUND -- CLASS Y SHARES
APRIL 1, 1991* YEAR ENDED DECEMBER 31, THROUGH 1994 1993 1992 DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period.................................... $10.46 $10.34 $10.60 $10.00 Income (loss) from investment operations: Net investment income................................................... .66 .65 .66 .49 Net realized and unrealized gain (loss) on investments.................. (1.11) .43 (.08) .63 Total from investment operations...................................... (.45) 1.08 .58 1.12 Less distributions to shareholders from: Net investment income................................................... (.66) (.65) (.66) (.49) Net realized gains...................................................... -- (.31) (.18) (.03) Total distributions................................................... (.66) (.96) (.84) (.52) Net asset value, end of period.......................................... $9.35 $10.46 $10.34 $10.60 TOTAL RETURN+........................................................... (4.4%) 10.6% 5.7% 11.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $90,318 $109,067 $121,655 $ 112,984 Ratios to average net assets: Expenses.............................................................. .70%(a) .70%(a) .70%(a) .70%++ Net investment income................................................. 6.68%(a) 6.02%(a) 6.30%(a) 6.57%++ Portfolio turnover rate................................................. 32% 53% 56% 17%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1994 1993 1992 Expenses.................................................................. .71% .73% .75% Net investment income..................................................... 6.67% 5.99% 6.25%
9 10 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- Investment Objectives and Policies The investment objectives and policies of each Fund are stated below. Each Fund's investment objective cannot be changed without shareholder approval. While there is no assurance that each objective will be achieved, the Funds will endeavor to do so by following the investment policies detailed below. Unless otherwise indicated, the investment policies of a Fund may be changed by the Trust's Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. Evergreen Fixed Income Fund The objective of Evergreen Fixed Income Fund is to attain a high level of current income, with capital growth as a secondary objective, through investment in a broad range of investment grade debt securities. The Fund is suitable for conservative investors who want attractive income and permits them to participate in a broad portfolio of fixed income securities rather than purchasing a single issue. While the Fund may invest in securities rated BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), the Adviser currently intends to limit the Fund's investments to securities rated A or higher by Moody's or S&P, or which, if unrated, are considered to be of comparable quality by the Adviser. A description of the rating categories is contained in an Appendix to the Statement of Additional Information. Debt securities may include fixed, adjustable rate, zero coupon, or stripped securities, debentures, notes, U.S. government securities, and debt securities convertible into, or exchangeable for, preferred or common stock. Debt securities may also include mortgage-backed and asset-backed securities (see"Investment Practices and Restrictions, below)." Stated final maturity for these securities may range up to 30 years. The duration of the securities will not exceed 10 years. The Fund intends to maintain a dollar-weighted average maturity of 5 years or less. Market-expected average life will be used for certain types of issues in computing the average maturity. In normal market conditions the Fund may invest up to 20% of its assets in money market instruments consisting of: (1) high grade commercial paper, including master demand notes; (2) obligations of banks or savings and loan associations having at least $1 billion in deposits, including certificates of deposit and bankers' acceptances; (3) A-rated or better corporate obligations; (4) obligations issued or guaranteed by the U.S. government or by any agency or instrumentality of the U.S. government; and (5) repurchase agreements collateralized by any security listed above. The types of U.S. government securities in which the Fund may invest include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds; and notes, bonds, and discount notes of U.S. government agencies or instrumentalities, such as the: Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage Association; Government National Mortgage Association; Student Loan Marketing Association; Tennessee Valley Authority; Export-Import Bank of the United States; Commodity Credit Corporation; Federal Financing Bank; and National Credit Union Administration (collectively, "U.S. government securities"). Some U.S. government agency obligations are backed by the full faith and credit of the U.S. Treasury. Others in which the Fund may invest are supported by: the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or the credit of the agency or instrumentality. The Fund may also invest up to 20% of its assets in foreign securities or U.S. securities traded in foreign markets in order to provide further diversification. The Fund may also invest in preferred stock; units which are debt securities with stock or warrants attached; and obligations denominated in foreign currencies. In making these decisions, the Adviser will consider such factors as the condition and growth potential of various economies and securities markets, currency and taxation considerations and other pertinent financial, social, national and political factors. (See "Investment Practices and Restrictions " - "Foreign Investments.") The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Managed Bond Fund The objective of Evergreen Managed Bond Fund is total return through investment in high grade corporate bonds and U.S. government and agency bonds. The Fund is suitable for conservative investors who seek both income and capital appreciation. The Fund permits an investor to participate in a diversified portfolio of investment grade bonds. Investments for Evergreen Managed Bond Fund are selected with a view towards total return. Total return of an investment consists of the income (net of associated expenses) it generates, plus or minus any change in its principal value. The Fund seeks capital appreciation during periods of falling interest rates and protection against capital depreciation during periods of rising rates. In seeking its objective, the Fund invests primarily in a professionally managed, diversified portfolio of high grade bonds with maturities up to 30 years. Under normal conditions, at least 65% of the value of the Fund's total assets will be invested in high grade corporate bonds and government and agency bonds. Financial futures may also be used depending upon the outlook for the economy. The Fund may invest in: domestic issues of corporate debt obligations rated A or better by Moody's or S&P; U.S. government securities as more fully described under "Evergreen Fixed Income Fund"; commercial paper which matures in 270 days or less, with at least two high quality ratings by nationally recognized statistical rating organizations, e.g. A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's (see the description of the rating categories contained in the Statement of Additional Information); time and savings deposits (including certificates of deposit) in commercial or savings banks whose accounts are insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF") (both of which are administered by the Federal Deposit Insurance Corp. ("FDIC")), including certificates of deposit and other time deposits in foreign branches of banks insured by the BIF; bankers' acceptances (maximum 0.25% of the bank's total deposits according to the bank's last published statement of condition) issued by a bank insured by the BIF, or issued by the bank's Edge Act subsidiary and guaranteed by the bank, with remaining maturities of nine months or less; and repurchase agreements collateralized by eligible investments. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen U.S. Government Fund The investment objective of Evergreen U.S. government Fund is a high level of current income consistent with stability of principal. The Fund will invest in debt instruments issued or guaranteed by the U.S. government, its agencies, or instrumentalities ("U.S. government securities"). Evergreen U.S. Government Fund is suitable for conservative investors seeking high current yields plus relative safety and permits an investor to participate in a portfolio that benefits from active management of a blend of securities and maturities to maximize the opportunities and minimize the risks created by changing interest rates. In addition to U.S. government securities, the Evergreen U.S. Government Fund may invest in: Securities representing ownership interests in mortgage pools ("mortgage-backed securities"). The yield and maturity characteristics of mortgage-backed securities correspond to those of the underlying mortgages, with interest and principal payments including prepayments (i.e. paying remaining principal before the mortgage's scheduled maturity) passed through to the holder of the mortgage-backed securities. The yield and price of mortgage-backed securities will be affected by prepayments which substantially shorten effective maturities. Thus, during periods of declining interest rates, prepayments may be expected to increase, requiring the Fund to reinvest the proceeds at lower interest rates, making it difficult to effectively lock in high interest rates. Conversely, mortgage-backed securities may experience less pronounced declines in value during periods of rising interest rates; Securities representing ownership interests in a pool of assets ("asset-backed securities"), for which automobile and credit card receivables are the most common collateral. Because much of the underlying collateral is unsecured, asset-backed securities are structured to include additional collateral and/or additional credit support to protect against default. The Adviser evaluates the strength of each particular issue of asset-backed security, taking into account the structure of the issue and its credit support. (See "Investment Practices and Restrictions - Risk Characteristics of Asset-Backed Securities."); Collateralized mortgage obligations ("CMOs") issued by single-purpose, stand-alone entities. A CMO is a mortgage-backed security that manages the risk of repayment by separating mortgage pools into short, medium and long term portions. These portions are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. Similarly, as prepayments are made, the portion of CMO first to mature will be retired prior to its maturity, thus having the same effect as the prepayment of mortgages underlying a mortgage-backed security. The issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC"), which has certain special tax attributes. The Fund will invest only in CMOs which are rated AAA by a nationally recognized statistical rating organization and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. The Fund may invest up to 20% of its total assets in CMOs; Commercial paper which matures in 270 days or less so long as at least two of its ratings are high quality ratings by nationally recognized statistical rating organizations. Such ratings would include A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch Investors Service and bonds and other debt securities rated Baa or higher by Moody's or BBB or higher by S&P, or which, if unrated, are considered to be comparable quality by the Adviser. Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered to be investment grade. (See the description of the rating categories contained in the Statement of Additional Information). The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Investment Practices and Restrictions Risk Factors. Bond prices move inversely to interest rates, i.e. as interest rates decline, the values of the bonds increase and vice versa. The longer the maturity of a bond, the greater the exposure to market price fluctuations. The same market factors are reflected in the share price or net asset value of bond funds which will vary with interest rates. Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. Government securities if, in the opinion of the Funds' investment adviser, market conditions warrant a temporary defensive investment strategy. Downgrades. If any security invested in by any of the Funds 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. Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security (usually U.S. government securities) for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Fund's risk is the inability of the seller to pay the agreed-upon price on delivery date. However, this risk is tempered by the ability of the Fund to sell the security in the open market in the case of a default. In such a case, the Fund may incur costs in disposing of the security which would increase Fund expenses. The Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. The Funds may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which a Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause a Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, a Fund may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the Adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Lending Of Portfolio Securities. In order to generate additional income, the Funds may lend portfolio securities on a short-term or long-term basis to broker/dealers, banks, or other institutional borrowers of securities. The Funds will only enter into loan arrangements with creditworthy borrowers and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned. As a matter of fundamental investment policy which cannot be changed without shareholder approval, the Funds will not lend any of their assets except portfolio securities up to 15% (in the case of the Evergreen Fixed Income Fund and Evergreen Managed Bond Fund) or one-third (in the case of Evergreen U.S. Government Fund) of the value of their total assets. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Options And Futures. All of the Funds may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market, interest rate or exchange rate risk, and the Funds do not use these transactions for speculation or leverage. The Funds may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds also may write straddles (combinations of covered puts and calls on the same underlying security). The Funds may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option, the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into currency and other financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities, currencies, or index-based futures contracts in order to hedge against changes in interest or exchange rates or securities prices. A futures contract on securities or currencies is an agreement to buy or sell securities or currencies during a designated month at whatever price exists at that time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase currency and other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities or currencies declines and to fall when the value of such securities or currencies increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities or currencies. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities or currencies increases and to fall when the value or such securities or currencies declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds' ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case the Funds would continue to bear market risk on the transaction. Risk Characteristics Of Options And Futures. Although options and futures transactions are intended to enable the Funds to manage market, exchange, or interest rate risks, these investment devices can be highly volatile, and the Funds' use of them can result in poorer performance (i.e., the Funds' returns may be reduced). The Funds' attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contracts and options on financial futures contracts as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the Adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements, and other economic factors. Even if the Adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its investments. In these events, the Funds may lose money on the financial futures contracts or the options on financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the Adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds' ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. Zero-Coupon And Stripped Securities. The Evergreen Fixed Income Fund and Evergreen U.S. Government Fund may invest in zero-coupon and stripped securities. Zero- coupon securities in which the Fund may invest are debt obligations which are generally issued at a discount and payable in full at maturity, and which do not provide for current payments of interest prior to maturity. Zero-coupon securities usually trade at a deep discount from their face or par value and are subject to greater market value fluctuations from changing interest rates than debt obligations of comparable maturities which make current distributions of interest. As a result, the net asset value of shares of Evergreen Fixed Income Fund may fluctuate over a greater range than shares of other mutual funds investing in securities making current distributions of interest and having similar maturities. Zero-coupon securities may include U.S. Treasury bills issued directly by the U.S. Treasury or other short-term debt obligations, and longer-term bonds or notes and their unmatured interest coupons which have been separated by their holder, typically a custodian bank or investment banking firm. A number of securities firms and banks have stripped the interest coupons from the underlying principal (the "corpus") of U.S. Treasury securities and resold them in custodial receipt programs with a number of different names, including Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered securities which are owned ostensibly by the bearer of holder thereof), in trust on behalf of the owners thereof. In addition, the Treasury has facilitated transfers of ownership of zero-coupon securities by accounting separately for the beneficial ownership of particular interest coupons and corpus payments on Treasury securities through the Federal Reserve book-entry record-keeping system. The Federal Reserve program as established by the Treasury Department is known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities." Under the STRIPS program, the Evergreen Fixed Income Fund will be able to have its beneficial ownership of U.S. Treasury zero-coupon securities recorded directly in the book-entry record-keeping system in lieu of having to hold certificates or other evidence of ownership of the underlying U.S. Treasury securities. When debt obligations have been stripped of their unmatured interest coupons by the holder, the stripped coupons are sold separately. The principal or corpus is sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic cash interest payments. Once stripped or separated, the corpus and coupons may be sold separately. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold in such bundled form. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero-coupon securities issued directly by the obligor. Foreign Investments. Evergreen Fixed Income Fund may invest in foreign securities or securities denominated in or indexed to foreign currencies. In addition, Evergreen Fixed Income Fund may invest in foreign currencies. These may involve additional risks. Specifically, they may be affected by the strength of foreign currencies relative to the U.S. dollar, or by political or economic developments in foreign countries. Accounting procedures and government supervision may be less stringent than those applicable to U.S. companies. There may be less publicly available information about a foreign company than about a U.S. company. Foreign markets may be less liquid or more volatile than U.S. markets and may offer less protection to investors. It may also be more difficult to enforce contractual obligations abroad than would be the case in the United States because of differences in the legal systems. Foreign securities may be subject to foreign taxes, which may reduce yield, and may be less marketable than comparable U.S. securities. All these factors are considered by the Adviser before making any of these types of investments. Risk Characteristics Of Asset-Backed Securities. Evergreen Fixed Income Fund and Evergreen U.S. Government Fund may invest in asset-backed securities. Asset-backed securities are created by the grouping of certain governmental, government-related and private loans, receivables and other lender assets into pools. Interests in these pools are sold as individual securities. Payments from the asset pools may be divided into several different tranches of debt securities, with some tranches entitled to receive regular installments of principal and interest, other tranches entitled to receive regular installments of interest, with principal payable at maturity or upon specified call dates, and other tranches only entitled to receive payments of principal and accrued interest at maturity or upon specified call dates. Different tranches of securities will bear different interest rates, which may be fixed or floating. Because the loans held in the asset pool often may be prepaid without penalty or premium, asset-backed securities and mortgage backed securities are generally subject to higher prepayment risks than most other types of debt instruments. Prepayment risks on mortgage securities tend to increase during periods of declining mortgage interest rates, because many borrowers refinance their mortgages to take advantage of the more favorable rates. Depending upon market conditions, the yield that Evergreen Fixed Income Fund and Evergreen U.S. Government Fund receive from the reinvestment of such prepayments, or any scheduled principal payments, may be lower than the yield on the original mortgage security. As a consequence, mortgage securities may be a less effective means of "locking in" interest rates than other types of debt securities having the same stated maturity and may also have less potential for capital appreciation. For certain types of asset pools, such as CMOs, prepayments may be allocated to one tranche of securities ahead of other tranches, in order to reduce the risk of prepayment for the other tranches. Prepayments may result in a capital loss to Evergreen Fixed Income Fund and Evergreen U.S. Government Fund to the extent that the prepaid mortgage securities were purchased at a market premium over their stated amount. Conversely, the prepayment of mortgage securities purchased at a market discount from their stated principal amount will accelerate the recognition of interest income by Evergreen Fixed Income Fund and Evergreen U.S. Government Fund which would be taxed as ordinary income when distributed to the shareholders. The credit characteristics of asset-backed securities also differ in a number of respects from those of traditional debt securities. The credit quality of most asset-backed securities depends primarily upon the credit quality of the assets underlying such securities, how well the entity issuing the securities is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement to such securities. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Restricted And Illiquid Securities. The Funds may invest up to 10% of their net assets (in the Evergreen U.S. Government Fund) in securities which are subject to restrictions on resale under federal securities law. In the case of the Evergeen Fixed Income Fund and Evergreen U.S. Government Fund, this restriction is not applicable to commercial paper issued under Section 4(2) of the Securities Act of 1933. The Evergreen Fixed Income Fund and Evergreen Managed Bond Fund may invest up to 10% of their net assets in illiquid securities. Evergreen U.S. Government Fund may invest up to 15% of its net assets in illiquid securities. With respect to the Evergreen Fixed Income Fund, Evergreen Managed Bond Fund and Evergreen U.S. Government Fund, illiquid securities include certain restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, and repurchase agreements providing for settlement in more than seven days after notice. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISER The management of each Fund is supervised by the Trustees. The Capital Management Group of First Union National Bank of North Carolina ("CMG") serves as investment adviser to each Fund. First Union National Bank of North Carolina ("FUNB") is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $74.2 billion in consolidated assets as of September 30, 1994. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. CMG manages investments and supervises the daily business affairs of each Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund. The total annualized operating expenses of Evergreen Fixed Income Fund, Evergreen Managed Bond Fund and Evergreen U.S. Government Fund for the most recent fiscal year ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset Management Corp. ("Evergreen Asset"), a subsidiary of FUNB, serves as administrator to each Fund and is entitled to receive a fee based on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator for each Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of the Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager of Evergreen Fixed Income Fund is Thomas L. Ellis, who is a Vice President of FUNB. Prior to joining FUNB in 1985, Mr. Ellis had seventeen years of investment management and sales experience, including eleven years marketing short and medium-term obligations to institutional investors, plus three years as head trader for First Boston Corporation. Mr. Ellis has managed the Fund since its inception in July 1988. The portfolio manager of Evergreen Managed Bond Fund is Glen T. Insley who is a Senior Vice President and Director of Fixed Income Portfolio Management for FUNB. Mr. Insley served as Director of Fixed Income Management at One Federal Asset Management, a subsidiary of Shawmut Bank, for six years prior to joining FUNB. Mr. Insley has served as the portfolio manager for the Evergreen Managed Bond Fund since May 1993. The portfolio manager of Evergreen U.S. Government Fund is Rollin C. Williams, a Vice President of FUNB, who has over 24 years of investment management experience. Mr. Williams was the Head of Fixed Income Investments at Dominion Trust Company from 1988 until its acquisition by First Union. Mr. Williams has served as the portfolio manager for the Evergreen U.S. Government Fund since its inception in December 1992. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Fund imposes no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to the Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Fund Values Its Shares. The net asset value of each Class of shares of the Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in the Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Fund's Trustees believe would accurately reflect fair market value. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss the Fund or the Adviser incurs. If such investor is an existing shareholder, the Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. The Share Purchase Application may not be used to invest in any of the prototype retirement plans for which the Fund is an available investment. For information about the requirements to make such investments, including copies of the necessary application forms, please call the telephone number set forth on the cover page of this Prospectus. The Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, the Fund reserves the right to suspend the offer of shares for a period of time. Shares of the Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Institutions should telephone the Fund (800-235-0064) for additional information on purchases by telephone. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in the Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, the Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for the Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with the Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach the Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in the Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Fund will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Fund reserves the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. The Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, the Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by the Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Fund offers the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Fund, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Internal Revenue Code of 1986, as amended (the "Code"). Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of each Fund for its most recent fiscal year is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Funds are each separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. The Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to the Funds. Other Classes of Shares. Each Fund other than Evergreen Managed Bond Fund, which only offers class Y shares, currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing-related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. The Funds' performance may be quoted in advertising in terms of "yield" or "total return". Both types of performance are based on formulas prescribed by the Securities and Exchange Commission ("SEC") and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of a Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all the Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in the Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc. and Morningstar, Inc. as well as other industry publications, and comparisons to various indices. A Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trust with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick, LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536125 STATEMENT OF ADDITIONAL INFORMATION July 7, 1995 THE EVERGREEN INCOME FUNDS 2500 Westchester Avenue, Purchase, New York 10577 800-807-2940 Evergreen U.S. Government Fund (formerly First Union U.S. Government Portfolio) ("U.S. Government") Evergreen Fixed Income Fund (formerly First Union Fixed Income Portfolio) ("Fixed Income") Evergreen Managed Bond Fund (formerly First Union Managed Bond Portfolio) ("Managed Bond") This Statement of Additional Information pertains to all classes of shares of the Funds listed below. It is not a prospectus and should be read in conjunction with the Prospectus dated July 7, 1995 for the Fund in which you are making or contemplating an investment. The Evergreen Income Funds are offered through two separate prospectuses: one offering Class A, Class B and Class C shares of U.S. Government and Fixed Income, and a separate prospectus offering Class Y shares of each Fund. Copies of each Prospectus may be obtained without charge by calling the number listed above. TABLE OF CONTENTS Page Investment Objectives and Policies................................ Investment Restrictions........................................... Non-Fundamental Operating Policies................................ Certain Risk Considerations....................................... Management........................................................ Investment Adviser................................................ Distribution Plans................................................ Allocation of Brokerage........................................... Additional Tax Information........................................ Net Asset Value................................................... Purchase of Shares................................................ Performance Information........................................... Financial Statements.............................................. Appendix A - Note, Bond And Commercial Paper Ratings INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the Funds - Investment Objective and Policies" in each Fund's Prospectus) The investment objective of each Fund and a description of the securities in which each Fund may invest is set forth under "Description of the Funds - Investment Objective and Policies" in the relevant Prospectus. The investment objectives of each Fund are fundamental and cannot be changed without the approval of shareholders. The following expands the discussion in the Prospectus regarding certain investments of each Fund. Types of Investments U.S. Government Obligations (All Funds) The types of U.S. government obligations in which the Funds may invest generally include obligations issued or guaranteed by U.S. government agencies or instrumentalities. These securities are backed by: (i) the discretionary authority of the U.S. government to purchase certain obligations of agencies or instrumentalities; or (ii) the credit of the agency or instrumentality issuing the obligations. Examples of agencies and instrumentalities that may not always receive financial support from the U.S. Government are: (i) Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks and Banks for Cooperatives; (ii) Farmers Home Administration; (iii) Federal Home Loan Banks; (iv) Federal Home Loan Mortgage Corporation; (v) Federal National Mortgage Association; (vi) Government National Mortgage Association; and (vii) Student Loan Marketing Association Restricted and Illiquid Securities (All Funds) The ability of the Board of Trustees ("Trustees") to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for sale under the Rule. The Funds which invest in Rule 144A Securities believe that the Staff of the SEC has left the question of determining the liquidity of all restricted securities (eligible for resale under the Rule) for determination by the Trustees. The Trustees consider the following criteria in determining the liquidity of certain restricted securities: (i) the frequency of trades and quotes for the security; (ii) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (iii) dealer undertakings to make a market in the security; and (iv) the nature of the security and the nature of the marketplace trades. When-Issued and Delayed Delivery Securities (All Funds) These transactions are made to secure what is considered to be an advantageous price or yield for a Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of a Fund sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Funds do not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of their assets. Lending of Portfolio Securities (All Funds) The collateral received when a Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. A Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Fund does not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Reverse Repurchase Agreements (All Funds) As described herein, certain Funds may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of a Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. Options and Futures Transactions Options which Fixed Income and Managed Bond trade must be listed on national securities exchanges. .........Purchasing Put and Call Options on Financial Futures Contracts Fixed Income and U.S. Government may purchase listed put and call options on financial futures contracts for U.S. government securities. U.S. Government may buy and sell financial futures contracts and options on financial futures contracts and may buy and sell put and call options on U.S. Government securities. Managed Bond may purchase put and call options on portfolio securities and listed put options on financial futures contracts for portfolio securities. Managed Bond may also write covered call options on its portfolio securities and covered put options to attempt to increase its current income. The aggregate value of the obligations underlying the puts will not exceed 5% of Managed Bond's assets. This policy of Managed Bond cannot be changed without shareholder approval. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at an undetermined price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. The Fund may purchase put and call options on futures to protect portfolio securities against decreases in value resulting from an anticipated increase in market interest rates. 3 Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the put option will increase in value. In such an event, a Fund will normally close out its option by selling an identical put option. If the hedge is successful, the proceeds received by the Fund upon the sale of the put option plus the realized decrease in value of the hedged securities. Alternately, a Fund may exercise its put option to close out the position. To do so, it would enter into a futures contract of the type underlying the option. If the Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and the premium paid for the contract will be lost. .........Purchasing Options The Funds may purchase both put and call options on their portfolio securities. These options will be used as a hedge to attempt to protect securities which a Fund holds or will be purchasing against decreases or increases in value. A Fund may purchase call and put options for the purpose of offsetting previously written call and put options of the same series. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying securities or dispose of assets held in a segregated account until the options expire or are exercised. Managed Bond and Fixed Income intend to purchase put and call options on currency and other financial futures contracts for hedging purposes. A put option purchased by a Fund would give it the right to assume a position as the seller of a futures contract. A call option purchased by the Fund would give it the right to assume a position as the purchaser of a futures contract. The purchase of an option on a futures contract requires the Fund to pay a premium. In exchange for the premium, the Fund becomes entitled to exercise the benefits, if any, provided by the futures contract, but is not required to take any action under the contract. If the option cannot be exercised profitably before it expires, the Fund's loss will be limited to the amount of the premium and any transaction costs. Managed Bond and Fixed Income currently do not intend to invest more than 5% of their net assets in options transactions. A Fund may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. When the Fund purchases futures contracts, an amount of cash and cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Fund's custodian (or the broker, if legally permitted) to collateralize the position and thereby insure that the sue of such futures contracts is unleveraged. Purchasing Call Options on Financial Futures Contracts An additional way in which U.S. Government may hedge against decreases in market interest rates is to buy a listed call option on a financial futures contract for U.S. government securities. When the Fund purchases a call option on a futures contract, it is purchasing the right (not the obligation) to assume a long futures position (buy a futures contract) at a fixed price at any time during the life of the option. As market interest rates fall, the value of the underlying futures contract will normally increase, resulting in an increase in value of the Fund's option position. When the market price of the underlying futures contract increases above the strike price plus premium paid, the Fund could exercise its option and buy the futures contact below market price. Prior to the exercise or expiration of the call option, the Fund could sell an identical call option and close out its position. If the premium received upon selling the offsetting call is greater than the premium originally paid, the Fund has completed a successful hedge. ........."Margin" in Futures Transactions Unlike the purchase or sale of a security, a Fund does not pay or receive money upon the purchase or sale of a futures contract. Rather, a Fund is required to deposit an 4 amount of "initial margin" in cash or U.S. Treasury bills with its custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contract initial margin does not involve the borrowing of funds by a Fund to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, a Fund will mark-to-market its open futures positions. The Fund is also required to deposit and maintain margin when it writes call options on futures contracts. Managed Bond and U.S. Government will not maintain open positions in futures contracts they have sold or call options they have written on futures contracts if, in the aggregate, the value of the open positions (marked to market) exceeds the current market value of their securities portfolio plus or minus the unrealized gain or loss on those open positions, adjusted for the correlation of volatility between the hedged securities and the futures contracts. If this limitation is exceeded at any time, a Fund will take prompt action to close out a sufficient number of open contracts to bring its open futures and options positions within this limitation. Purchasing and Writing Put and Call Options on U.S. Government Securities U.S. Government may purchase put and call options on U.S. government securities to protect against price movements in particular securities. A put option gives the Fund, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. A call option gives the Fund, in return for a premium, the right to buy the underlying security from the seller. The Fund may generally purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options since options on the portfolio securities held by the Fund are not traded on an exchange. The Fund purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Fund's investment adviser. Over-the-counter options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market while over-the-counter options may not. Asset-Backed Securities Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of asset-backed securities backed by automobile receivables permit the services of such receivables to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the rated asset- backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. In general, issues of asset-backed securities are structured to include additional collateral and/or additional credit support to protect against the risk that a portion of the collateral supporting the asset-backed securities may default and/or may suffer from 5 these defects. In evaluating the strength of particular issues of asset-backed securities, the Fund's investment adviser considers the financial strength of the guarantor or other provider of credit support, the type and extent of credit enhancement provided as well as the documentation and structure of the issue itself and the credit support. Collateralized Mortgage Obligations (CMOs) Privately issued CMOs generally represent an ownership interest in federal agency mortgage pass-through securities such as those issued by Government National Mortgage Association. The terms and characteristics of the mortgage instruments may vary among pass-through mortgage loan pools. Most of the CMOs in which a Fund would invest use the same basic structure: (i) Several classes of securities are issued against a pool of mortgage collateral. The most common structure contains four classes of securities: the first three (A, B, and C bonds) pay interest at their stated rates beginning with the issue date; the final class (or Z bond) typically receives the residual income from the underlying investment after payments are made to the other classes. (ii) The cash flows from the underlying mortgages are applied first to pay interest and then to retire securities. (iii) The classes of securities are retired sequentially. All principal payments are directed first to the shortest-maturity class (or A bonds). When those securities are completely retired, all principal payments are then directed to the next-shortest-maturity security (or B bond). This process continues until all of the classes have been paid off. The market for such CMOs has expanded considerably since its inception. The size of the primary issuance market and the active participation in the secondary market by securities dealers and other investors make government-related pools highly liquid. Section 4(2) Commercial Paper U.S. Government and Fixed Income may invest in commercial paper issued in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is restricted as to disposition under federal securities law and is generally sold to institutional investors, such as the Fund, who agree that they are purchasing the paper for investment purposes and not with a view to public distribution. Any resale by the purchaser must be in an exempt transaction. Section 4(2) commercial paper is normally resold to other institutional investors like the Funds through or with the assistance of the issuer or investment dealers who make a market in Section 4(2) commercial paper, thus providing liquidity. The Funds believe that Section 4(2) commercial paper and possibly certain other restricted securities which meet the criteria for liquidity established by the Trustees are quite liquid. The Funds intend, therefore, to treat the restricted securities which meet the criteria for liquidity established by the Trustees, including Section 4(2) commercial paper, as determined by the Fund's investment adviser, as liquid and not subject to the investment limitation applicable to illiquid securities. In addition, because Section 4(2) commercial paper is liquid, the Funds do not intend to subject such paper to the limitation applicable to restricted securities. Repurchase Agreements A Fund or its custodian 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 a Fund might be delayed pending court action. The Funds believe that under the regular procedures normally in effect for custody of a 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 Fund's investment adviser to be creditworthy pursuant to guidelines established by the Trustees. 6 Foreign Currency Transactions As one way of managing exchange rate risk, Fixed Income may enter into forward currency exchange contracts (agreements to purchase or sell currencies at a specified price and date). The exchange rate for the transaction (the amount of currency a Fund will deliver and receive when the contract is completed) is fixed when the Fund enters into the contract. The Fund usually will enter into these contracts to stabilize the U.S. dollar value of a security it has agreed to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar value of a security it already owns, particularly if the Fund expects a decrease in the value of the currency in which the foreign security is denominated. Although the Fund will attempt to benefit from using forward contracts, the success of its hedging strategy will depend on the investment adviser's ability to predict accurately the future exchange rates between foreign currencies and the U.S. dollar. The value of the Fund's investments denominated in foreign currencies will depend on the relative strengths of those currencies and the U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in the exchange rates or exchange control regulations between foreign currencies and the dollar. Changes in foreign currency exchange rates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by the Fund. The Fund may also purchase and sell options related to foreign currencies in connection with hedging strategies. The Fund will not enter into forward contracts for hedging purposes in a particular currency in an amount in excess of the Fund's assets denominated in that currency, but as consistent with its other investment policies, is not otherwise limited in its ability to use this strategy. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS .........Except as noted, the investment restrictions set forth below are fundamental and may not be changed with respect to each Fund without the affirmative vote of a majority of the outstanding voting securities of the Fund. Where an asterisk (*) appears after a Fund's name, the relevant policy is non-fundamental with respect to that Fund and may be changed by the Fund's investment adviser without shareholder approval, subject to review and approval by the Trustees. As used in this Statement of Additional Information and in the Prospectus, "a majority of the outstanding voting securities of the Fund" means the lesser of (1) the holders of more than 50% of the outstanding shares of beneficial interest of the Fund or (2) 67% of the shares present if more than 50% of the shares are present at a meeting in person or by proxy. 1........Concentration of Assets in Any One Issuer Diversification of Investments With respect to 75% of the value of its assets, a Fund will not purchase securities of any one issuer (other than cash, cash items or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) if as a result more than 5% of the value of its total assets would be invested in the securities of the issuer. U.S. Government will not acquire more than 10% of the outstanding voting securities of any one issuer. 2........Purchase of Securities on Margin .........No Fund will purchase securities on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of transactions. A deposit or payment by a Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 3........Unseasoned Issuers .........Neither Fixed Income* nor U.S. Government* may invest more than 5% of its total assets in securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors. 7 4........Underwriting .........The Funds will not underwrite any issue of securities except as they may be deemed an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with their investment objectives, policies and limitations. 5........Interests in Oil, Gas or Other Mineral Exploration or Development Programs .........Managed Bond* and Fixed Income* will not purchase interests in oil, gas or other mineral exploration or development programs or leases, although each Fund may purchase the securities of other issuers which invest in or sponsor such programs. 6........Concentration in Any One Industry .........No Fund will invest 25% or more of the value of its total assets in any one industry except a Fund may invest more than 25% of its total assets in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. 7........Warrants .........Fixed Income*, will not invest more than 5% of its net assets in warrants, including those acquired in units or attached to other securities. To comply with certain state restrictions, the Fund will limit its investment in such warrants not listed on the New York Stock Exchange or the American Stock Exchange to 2% of its net assets. (If state restrictions change, this latter restriction may be changed without notice to shareholders). For purposes of this restriction, warrants acquired by the Funds' in units or attached to securities may be deemed to be without value. 8.......Ownership by Trustees/Officers .........None of Fixed Income*, Managed Bond* and U.S. Government* may purchase or retain the securities of any issuer if (i) one or more officers or Trustees of a Fund or its investment adviser individually owns or would own, directly or beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such persons own or would own, directly or beneficially, more than 5% of such securities. 9.......Short Sales .........Fixed Income and Managed Bond will 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 use of short sales will allow a Fund to retain certain bonds in its portfolio longer than it would without such sales. To the extent that the Fund receives the current income produced by such bonds for a longer period than it might otherwise, the Fund's investment objective is furthered. .........U.S. Government will not sell any securities short. 10.......Lending of Funds and Securities .........U.S. Government and Managed Bond will not lend any of their assets except portfolio securities in accordance with their investment objectives, policies and limitations. Fixed Income will not lend portfolio securities valued at more than 15% of its total assets to broker-dealers. 11.......Commodities .........None of Fixed Income, Managed Bond or U.S. Government will purchase or sell commodities or commodity contracts; however, each Fund may enter into futures contracts on financial instruments or currency and sell or buy options on such contracts. 12.......Real Estate 8 .........No Fund will buy or sell real estate although each Fund may invest in securities of companies whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. 13.......Borrowing, Senior Securities, Reverse Repurchase Agreements The Funds will not issue senior securities except that a Fund may borrow money directly or through reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes in an amount up to one-third of the value of its total assets, including the amounts borrowed, or, in addition, in the case of Fixed Income, only in amounts not in excess of 5% of the value of its total assets in order to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous and except to the extent that a Fund will enter into futures contracts. Any such borrowings need not be collateralized. During the period any reverse repurchase agreements are outstanding, but only to the extent necessary to assure completion of the reverse repurchase agreements, Managed Bond will restrict the purchase of portfolio instruments to money market instruments maturing on or before the expiration date of the reverse repurchase agreement. Fixed Income and U.S. Government will not purchase any securities while borrowings in excess of 5% of the value of their total assets are outstanding and Managed Bond will not purchase any securities while any borrowings are outstanding. 14.......Pledging Assets .........No Fund will mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In these cases, Fixed Income and Managed Bond may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of borrowing. Margin deposits for the purchase and sale of financial futures contracts and related options and segregation or collateral arrangements made in connection with options activities are not deemed to be a pledge. 15.......Investing in Securities of Other Investment Companies .........Fixed Income, U.S. Government* and Managed Bond* will purchase securities of investment companies only in open-market transactions involving customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. 16.......Restricted Securities .........Fixed Income, U.S. Government* and Managed Bond will not invest more than 10% of their net assets (total assets in the case of U.S. Government) in securities subject to restrictions on resale under the Securities Act of 1933 (except for, in the case of Managed Bond and U.S. Government, certain restricted securities which meet criteria for liquidity established by the Trustees). For U.S. Government, the restriction is not applicable to commercial paper issued under Section 4(2) of the Securities Act of 1933. 17........Illiquid Securities. .........Fixed Income and Managed Bond* will not invest more than 10% and U.S. Government* will not invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice and certain securities determined by the Trustees not to be liquid. 18.......Other. In order to comply with certain state blue sky limitations Fixed Income* will not invest in real estate limited partnerships. ----- Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting form any change in value or net assets will not result in a violation of such restriction. The Funds did not borrow money, sell securities short, invest in reverse repurchase agreements in excess of 5% of the value of their net assets, or invest more than 5% of 9 their net assets in the securities of other investment companies in the last fiscal year, and have no present intent to do so during the coming year. For purposes of their policies and limitations, the Funds consider certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan, having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment, to be "cash items." CERTAIN RISK CONSIDERATIONS ...........There can be no assurance that a Fund will achieve its investment objective and an investment in the Fund involves certain risks which are described under "Description of the Funds - Investment Objective and Policies" in the Prospectus. MANAGEMENT The Trustees and executive officers of the Evergreen Investment Trust (formerly First Union Funds) (the "Trust"), their ages, addresses and principal occupations during the past five years are set forth below: James S. Howell (70), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee. Retired Vice President of Lance Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the Carolinas from 1989 to 1993. Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC-Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since 1988. Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham Corporation from 1979 to 1990. William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since 1990; Attorney, Clontz and Clontz from 1980 to 1990. Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990. Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee. Attorney, Law Offices of Michael S. Scofield since prior to 1989. John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY-President and Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992, Managing Director from 1984 to 1992. Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney, Securities and Exchange Commission from 1986 to 1991. The Trustees and officers listed above hold the same positions with a total of ten registered investment companies offering a total of thirty-one investment funds within the Evergreen mutual fund complex. - -------- * Mr. Pettit may each be deemed to be an "interested person" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). The officers of the Trust are all officers and/or employees of Furman Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds Distributor, Inc., the distributor of each Class of shares of each Fund. The Funds do not pay any direct remuneration to any officer or Trustee who is an "affiliated person" of either First Union National Bank of North Carolina or Evergreen 10 Asset Management Corp. or their affiliates. See "Investment Adviser." Currently, none of the Trustees is an "affiliated person" as defined in the 1940 Act. The Trust pays each Trustee who is not an "affiliated person" an annual retainer and a fee per meeting attended, plus expenses (and $50 for each telephone conference meeting) as follows: Name of Fund Annual Retainer Meeting Fee Evergreen Investment Trust - 9,000** 1,500** U.S. Government Fixed Income Managed Bond - -------------------- ** Evergreen Investment Trust pays an annual retainer to each trustee and a per-meeting fee that are allocated among its fifteen series. Additionally, each member of the Audit Committee receives $200 for attendance at each meeting of the of the Audit Committee and an additional fee is paid to the Chairman of the Board of $2,000. Set forth below for each of the Trustees is the aggregate compensation paid to such Trustees by Evergreen Investment Trust for the fiscal year ended December 31, 1994. Aggregate Compensation From Evergreen Investment Trust Aggregate Total Compensation Compensation From Trust Name of From Evergreen & Fund Complex Person Investment Trust Paid To Trustees James S. Howell $14,900 $26,900 Gerald M. McDonnell 11,900 26,100 Thomas L. McVerry 11,900 26,150 William Walt Pettit 11,900 26,100 Russell A. Salton, III, M.D. 11,900 26,100 Michael S. Scofield 11,900 26,650 No officer or Trustee of the Trust owned Class B or C shares of any Fund as of the date hereof. The number and percent of outstanding shares of each Fund owned by officers and Trustees as a group on June 15, 1995, is as follows: No. of Shares Owned By Officers and Ownership by Officers and Trustees Trustees as a % of Class Y Name of Fund as a Group Shares Outstanding U.S. Government -0- -0- Fixed Income -0- -0- Managed Bond -0- -0- Set forth below is information with respect to each person, who, to each Fund's knowledge, owned beneficially or of record more than 5% of a class of each Fund's total outstanding shares and their aggregate ownership of the Fund's total outstanding shares as of June 15, 1995. 11 Name of % of Name and Address Fund/Class No. of Shares Class/Fund - ---------------- ---------- ------------- ---------- First Union National Bank- U.S. Government/A 2,112 5.55%/.01% NC C/F Hilda C. Borders IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- FL C/F U.S. Government/A 2,688 7.06%/.01% Carlos L. Conde IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union Ntaional Bank- U.S. Government/A 5,869 15.41%/.02% GA C/F John W. McGarr IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank of U.S. Government/A 12,803 33.61%/.05% NC C/F Sylvia L. Jarrell IRA Rollover C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- U.S. Government/A 2,662 6.99%/.01% GA C/F, Inc. Ronald J. Kucharski IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/A 2,156 5.66%/.01% Patricia F. Bigazzi C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/A 196,581 8.57%/.80% LCMS Foundation Attn: Joel Lange C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/B 16,399 5.74%/.07% Matilda Wacher and Luke Brady and Beverly Brady C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/B 16,853 5.89%/.07% Cheryl C. Gentry and Jennifer Amy Gentry C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/B 15,473 5.41%/.07% Maud M. Kearns C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. FBO U.S. Government/C 1,766 30.47%/.01% James P. Faherty Clara Faherty C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 2,874 49.57%/.01% Lee Pinnell and Fran Pinnell C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 12 Fubs & Co. FBO U.S. Government/C 569 9.82%/0% Carlos B. Benitez C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 563 9.72%/0% Nazeera Mohammed C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 11,037 30.62%/.04% Helen G. Bender C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 4,279 11.87%/.02% Douglas H. Thompson, Sr. C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 3,950 10.96%/.02% Aileen D. Bell and John H. Bell C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 3,537 9.81%/.01% Franklin E. Moulder Anne H. Moulder C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 2,444 6.78%/.01% Virginia T. Symons Trust Virginia T. Symons Trustee UAD 1-18-94 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo U.S. Government/C 2,172 6.03%/.01% George A. Cane C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- U.S. Government/C 1,995 5.54%/.01% NC C/F Dorothy D. Lyerly IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- U.S. Government/C 1,988 5.52%/.01% GA C/F David Sikes IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Stephen A. Lieber U.S. Government/Y 15,623 6.39%/.06% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Frank P. Rizzuto U.S. Government/Y 20,435 8.36%/.08% Elyse L. Rizzuto C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 State Street Bank & Trust Co. U.S. Government/Y 17,914 7.33%/.07% Cust for the IRA Rollover of L. D. Starr C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 13 Charles Schwab & Co. Inc. U.S. Government/Y 15,609 6.38%/.06% Reinvest Account Attn: Mutual Fund Dept. 101 Montgomery Street San Francisco, CA 94104-4122 First Union National Bank U.S. Government/Y 1,306,565 74.81%/5.30% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S. Tyron Street Charlotte, NC 28288 First Union National Bank U.S. Government/Y 437,579 25.06%/1.78% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S. Tyron Street Charlotte, NC 28288 Fubs & Co. Febo Fixed Income/C 10,305 20.04%/.03% Kerry D. Fitzgerald GDH Christina Griffin C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Fixed Income/C 10,277 19.99%/.03% Lucile L. Murray C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Fixed Income/C 6,065 11.80%/.02% Sidney Goldberg and Mona V. Rose C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Fixed Income/C 3,739 7.27%/.01% Kathleen W. Gladfelter Patricia G. Sacerio JT WROS C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Fixed Income/C 3,221 6.27%/.01% Francis O. Hunt Mitchell W. Hunt C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Fixed Income/C 3,195 6.21%/.01% Robert S. New, Sr. and Willa Mae New C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Fixed Income/C 3,192 6.21%/.01% GA C/F Wayne C. Shultz IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank* Fixed Income/Y 30,876,522 89.84%/81.16% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S. Tyron Street Charlotte, NC 28288 First Union National Bank* Fixed Income/Y 3,490,145 10.16%/9.17% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S. Tyron Street Charlotte, NC 28288 14 First Union National Bank* Managed Bond/Y 6,106,163 83.84%/83.84% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S. Tyron Street Charlotte, NC 28288 First Union National Bank* Managed Bond/Y 1,177,179 16.16%/16.16% Trust Accounts Attn: Ginny Batten 11th FL CMG-151 301 S Tyron Street Charlotte, NC 28288 - --------------------------------- *Acting in various capacities for numerous accounts. As a result of its ownership of 90.34% and 100% of U.S. Government, Fixed Income and Managed Bond, respectively, on June 15, 1995, First Union National Bank of North Carolina may be deemed to "control" each Fund as that term is defined in the 1940 Act. INVESTMENT ADVISER (See also "Management of the Fund" in each Fund's Prospectus) The investment adviser of U.S. Government, Fixed Income and Managed Bond is First Union National Bank of North Carolina ("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union Corporation ("First Union"), a bank holding company headquartered in Charlotte, North Carolina. FUNB provides investment advisory services through its Capital Management Group. Under its Investment Advisory Agreement with each Fund, the Adviser has agreed to furnish reports, statistical and research services and recommendations with respect to each Fund's portfolio of investments. In addition, the Adviser provides office facilities to the Funds and performs a variety of administrative services. Each Fund pays the cost of all of its other expenses and liabilities, including expenses and liabilities incurred in connection with maintaining their registration under the Securities Act of 1933, as amended, and the 15 1940 Act, printing prospectuses (for existing shareholders) as they are updated, state qualifications, share certificates, mailings, brokerage, custodian and stock transfer charges, printing, legal and auditing expenses, expenses of shareholder meetings and reports to shareholders. Notwithstanding the foregoing, the Adviser will pay the costs of printing and distributing prospectuses used for prospective shareholders. The method of computing the investment advisory fee for each Fund is described in such Fund's Prospectus. The advisory fees paid by each Fund for the three most recent fiscal periods reflected in its registration statement are set forth below: U.S. GOVERNMENT Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $1,355,420 $802,441 --------- ------- Waiver ($105,523) ($465,195) Net Advisory Fee $1,229,897 $337,246 ========= ======= FIXED INCOME Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $2,022,773 $1,894,693 $1,531,707 ========= ========= ========= MANAGED BOND Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $523,270 $576,619 $591,232 ======== ======== ========= U.S. Government commenced operations on January 11, 1993 and, therefore, the first year's figures set forth in the table above reflect for U.S. Government investment advisory fees paid for the period from commencement of operations through December 31, 1993. Expense Limitations The Adviser's fee will be reduced by, or the Adviser will reimburse the Funds for any amount necessary to prevent such expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses, but inclusive of the Adviser's fee) from exceeding the most restrictive of the expense limitations imposed by state securities commissions of the states in which the Funds' shares are then registered or qualified for sale. Reimbursement, when necessary, will be made monthly in the same manner in which the advisory fee is paid. Currently the most restrictive state expense limitation is 2.5% of the first $30,000,000 of the Fund's average daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in excess of $100,000,000. The Investment Advisory Agreements are terminable, without the payment of any penalty, on sixty days' written notice, by a vote of the holders of a majority of each Fund's outstanding shares, or by a vote of a majority of the Trust's Trustees or by the Adviser. The Investment Advisory Agreements will automatically terminate in the event of their assignment. Each Investment Advisory Agreement provides in substance that the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser or of reckless disregard of its obligations thereunder. With respect to U.S. Government, Fixed Income and Managed Bond, the Investment Advisory Agreement dated February 28, 1985 and amended from time to time thereafter was last approved by the Trustees on April 20, 1995 and it will continue from year to year with respect to each Fund provided that such continuance is approved annually by a vote of a majority of the Trustees including a majority of those Trustees who are not parties thereto or "interested persons" of any such party cast in person at a meeting duly called for the purpose of voting on such approval or by a vote of a majority of the outstanding voting securities of each Fund. Certain other clients of the Adviser may have investment objectives and policies similar to those of the Funds. The Adviser may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of each Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the 16 Funds. When two or more of the clients of the Adviser (including one or more of the Funds) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. Although the investment objectives of the Funds are not the same, and their investment decisions are made independently of each other, they rely upon the same resources for investment advice and recommendations. Therefore, on occasion, when a particular security meets the different investment objectives of the various Funds, they may simultaneously purchase or sell the same security. This could have a detrimental effect on the price and quantity of the security available to each Fund. If simultaneous transactions occur, the Adviser attempts to allocate the securities, both as to price and quantity, in accordance with a method deemed equitable to each Fund and consistent with their different investment objectives. In some cases, simultaneous purchases or sales could have a beneficial effect, in that the ability of one Fund to participate in volume transactions may produce better executions for that Fund. Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between each Fund and the other registered investment companies for which either Evergreen Asset Management Corp., a subsidiary of FUNB ("Evergreen Asset"), or FUNB acts as investment adviser or between the Fund and any advisory clients of Evergreen Asset, FUNB or their affiliates. Each Fund may from time to time engage in such transactions but only in accordance with these procedures and if they are equitable to each participant and consistent with each participant's investment objectives. Prior to July 1, 1995, Federated Administrative Services, a subsidiary of Federated Investors, provided legal, accounting and other administrative personnel and support services to each of the portfolios of the Trust. The Trust paid a fee for such services at the following annual rate: .15% on the first $250 million average daily net assets of the Trust; .125% on the next $250 million; .10% on the next $250 million and .075% on assets in excess of $250 million. For the fiscal year ended December 31, 1994, and for the period from January 11, 1993 (commencement of operations) to December 31, 1993, U.S. Government, incurred $228,590 and $139,691, respectively, in administrative service costs of which $0 and $30,827, respectively, were voluntarily waived. For the fiscal years ended December 31, 1994, 1993 and 1992, Fixed Income incurred $341,243, $331,342 and $282,292, respectively, in administrative service costs. For the fiscal years ended December 31, 1994, 1993 and 1992, Managed Bond incurred $88,279, $101,082 and $109,032, respectively, in administrative service costs, of which $10,687, $36,701 and $52,159, respectively, were voluntarily waived. Commencing July 1, 1995, Evergreen Asset will provide administrative services to each of the portfolios of the Trust for a fee based on the average daily net assets of each fund administered by Evergreen Asset for which Evergreen Asset or FUNB also serves as investment adviser, calculated daily and payable monthly at the following annual rates: .050% on the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $10 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds (the "Distributor), serves as sub-administrator to U.S. Government, Fixed Income and Managed Bond and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of mutual funds administered by Evergreen Asset for which Evergreen Asset or FUNB serves as investment adviser as of March 31, 1995 were approximately $7.95 billion. DISTRIBUTION PLANS Reference is made to "Management of the Fund - Distribution Plans and Agreements" in the Prospectus of each Fund for additional disclosure regarding the Funds' distribution arrangements. Distribution fees are accrued daily and paid monthly on the Class A, B and C shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class B shares and Class C shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, and, in the case of Class C shares, without the assessment of a contingent deferred sales charge after the first year following purchase, while at the same time permitting the Distributor to compensate broker-dealers in connection with the sale of such shares. In 17 this regard the purpose and function of the combined contingent deferred sales charge and distribution services fee on the Class B shares and the Class C shares, are the same as those of the front-end sales charge and distribution fee with respect to the Class A shares in that in each case the sales charge and/or distribution fee provide for the financing of the distribution of the Fund's shares. Under the Rule 12b-1 Distribution Plans that have been adopted by U.S. Government and Fixed Income with respect to each of its Class A, Class B and Class C shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the amounts expended under the Plan and the purposes for which such expenditures were made to the Trustees of the Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of Trustees who are not "interested persons" of the Trust (as defined in the 1940 Act) are committed to the discretion of such disinterested Trustees then in office. The Adviser may from time to time and from its own funds or such other resources as may be permitted by rules of the Securities and Exchange Commission make payments for distribution services to the Distributor; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Prior to July 7, 1995, Federated Securities Corp., a subsidiary of Federated Investors, served as the distributor for U.S. Government, Fixed Income and Managed Bond as well as other portfolios of the Trust. The Distribution Agreements between each Fund and the Distributor pursuant to which distribution fees are paid under the Plans by U.S. Government and Fixed Income with respect to its Class A, Class B and Class C shares were approved on April 20, 1995 by the unanimous vote of the Trustees including the disinterested Trustees voting separately. Each Plan and Distribution Agreement will continue in effect for successive twelve-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Class, and, in either case, by a majority of the Trustees of the Trust who are not parties to the Agreement or interested persons, as defined in the 1940 Act, of any such party (other than as Trustees of the Trust) and who have no direct or indirect financial interest in the operation of the Plan or any agreement related thereto. 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 A, Class B and Class C shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to U.S. Government and Fixed Income and holders of Class A, Class B and Class C shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class A, Class B and Class C shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class A, Class B and Class C shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class A, Class B and Class C shares. In addition to the Plans, U.S. Government and Fixed Income have each adopted a Shareholder Services Plan whereby shareholder servicing agents may receive fees from the Fund for providing services which include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance, and communicating or facilitating purchases and redemptions of Class B and Class C shares of the Fund. In the event that a Plan or Distribution Agreement is terminated or not continued with respect to one or more Classes of a Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund would not be obligated to pay the Distributor for any amounts expended under the Distribution Agreement not previously recovered by the Distributor from distribution services fees in respect of shares of such Class or Classes through deferred sales charges. 18 All material amendments to any Plan or Distribution 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 disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular Class of shares of a Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the Class affected. Amendments to the Shareholder Services Plan require a majority vote of the disinterested Trustees but do not require a shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement may be terminated (a) by a Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by Class or by a majority vote of the Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by the Distributor. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to the Distributor. Any Distribution Agreement will terminate automatically in the event of its assignment. For the fiscal year ended December 31, 1994, U.S. Government incurred $79,158 and Fixed Income incurred $21,670 in distribution services fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, U.S. Government incurred $1,683,141 and Fixed Income incurred $108,896 in distribution services fees of Class B shares. For the period from September 7, 1994, (commencement of operations) to December 31, 1994, U.S. Government incurred $313 in distribution services fees on behalf of Class C shares. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Fixed Income incurred $918 in distribution service fees on behalf of Class C shares. Managed Bond did not offer Class A, B or C shares as of December 31, 1994. Shareholder Services Plans For the period ended December 31, 1994, U.S. Government incurred shareholder services fees of $174,961 and $104 on behalf of Class B shares and Class C shares, respectively; and Fixed Income incurred shareholder services fees of $14,697 and $306 on behalf of Class B shares and Class C shares, respectively. ALLOCATION OF BROKERAGE Decisions regarding each Fund's portfolio are made by its Adviser, subject to the supervision and control of the Trustees. Orders for the purchase and sale of securities and other investments are placed by employees of the Adviser. In general, the same individuals perform the same functions for the other funds managed by the Adviser. A Fund will not effect any brokerage transactions with any broker or dealer affiliated directly or indirectly with the Adviser unless such transactions are fair and reasonable, under the circumstances, to the Fund's shareholders. Circumstances that may indicate that such transactions are fair or reasonable include the frequency of such transactions, the selection process and the commissions payable in connection with such transactions. A portion of any transactions in equity securities for each Fund will occur on domestic stock exchanges. Transactions on stock exchanges involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated, whereas on many foreign stock exchanges these commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Over-the-counter transactions will generally be placed directly with a principal market maker, although the Fund may place an over-the-counter order with a broker-dealer if a better price (including commission) and execution are available. It is anticipated that most of each Fund's purchase and sale transactions involving fixed income securities will be with the issuer or an underwriter or with major dealers in such securities acting as principals. Such transactions are normally on a net basis and generally do not involve payment of brokerage commissions. However, the cost of securities purchased from an underwriter usually includes a commission paid by the issuer 19 to the underwriter. Purchases or sales from dealers will normally reflect the spread between bid and ask prices. In selecting firms to effect securities transactions, the primary consideration of each Fund shall be prompt execution at the most favorable price. A Fund will also consider such factors as the price of the securities and the size and difficulty of execution of the order. If these objectives may be met with more than one firm, the Fund will also consider the availability of statistical and investment data and economic facts and opinions helpful to the Fund. To the extent that receipt of these services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. U.S. Government, Fixed Income and Managed Bond did not pay any commissions to affiliated brokers. For the fiscal year ended December 31, 1994, and for the period from January 11, 1993 (commencement of operations) to December 31, 1993, U.S. Government paid $10,180 and $0, respectively, in commissions on brokerage transactions. For the fiscal years ended December 31, 1994, 1993 and 1992, Fixed Income paid $9,198, $7,908 and $15,573, respectively, in commissions on brokerage transactions. For the fiscal years ended December 31, 1994, 1993 and 1992, Managed Bond paid $10,088, $1,662 and $16,922, respectively, in commissions on brokerage transactions. ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus) Each Fund has qualified and intends to continue to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to 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; (b) derive less than 30% of its gross income from the sale or other disposition of securities, options, futures or forward contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the RIC's principal business of investing in securities (or options and futures with respect thereto) held for less than three months; and (c) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies). By so qualifying, a Fund is not subject to Federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Dividends paid by a Fund from investment company taxable income generally will be taxed to the shareholders as ordinary income. Investment company taxable income includes net investment income and net realized short-term gains (if any). Any dividends received by a Fund from domestic corporations will constitute a portion of the Fund's gross investment income. It is anticipated that this portion of the dividends paid by a Fund (other than distributions of securities profits) will qualify for the 70% dividends-received deduction for corporations. Shareholders will be informed of the amounts of dividends which so qualify. Distributions of the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders (who are not exempt from tax) as long-term capital gain, regardless of the length of time the shares of a Fund have been held by such shareholders. Short-term capital gains distributions are taxable to shareholders who are not exempt from tax as ordinary income. Such distributions are not eligible for the dividends-received deduction. Any loss recognized upon the sale of shares of a Fund held by a shareholder for six months or less will be treated as a long-term capital loss to 20 the extent that the shareholder received a long-term capital gain distribution with respect to such shares. Distributions of investment company taxable income and any net short-term capital gains will be taxable as ordinary income as described above to shareholders (who are not exempt from tax), whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the net asset value of a share of a Fund on the reinvestment date. Distributions by each Fund result in a reduction in the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable as ordinary income or capital gain as described above to shareholders (who are not exempt from tax), even though, from an investment standpoint, it may constitute a return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive what is in effect a return of capital upon the distribution which will nevertheless be taxable to shareholders subject to taxes. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gains or loss will be treated as a capital gain or loss if the shares are capital assets in the investor's hands and will be a long-term capital gain or loss if the shares have been held for more than one year. Generally, any loss realized on a sale or exchange will be disallowed to the extent shares disposed of are replaced within a period of sixty-one days beginning thirty days before and ending thirty days after the shares are disposed of. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares, and will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her Federal income tax return. Each shareholder should consult his or her own tax adviser to determine the state and local tax implications of Fund distributions. Shareholders who fail to furnish their taxpayer identification numbers to a Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% Federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisers regarding specific questions relating to Federal, state and local tax consequences of investing in shares of a Fund. Each shareholder who is not a U.S. person should consult his or her tax adviser regarding the U.S. and foreign tax consequences of ownership of shares of a Fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. NET ASSET VALUE The following information supplements that set forth in each Prospectus under the subheading "How to Buy Shares - How the Funds Value Their Shares" in the Section entitled "Purchase and Redemption of Shares". 21 The public offering price of shares of a Fund is its net asset value, plus, in the case of Class A shares, a sales charge which will vary depending on the purchase alternative chosen by the investor, as more fully described in the Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge Alternative. " On each Fund business day on which a purchase or redemption order is received by a Fund and trading in the types of securities in which a Fund invests might materially affect the value of Fund shares, the per share net asset value of each such Fund is computed in accordance with the Declaration of Trust and By-Laws governing each Fund as of the next close of regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's total assets, less its liabilities, by the total number of its shares then outstanding. A Fund business day is any weekday, exclusive of national holidays on which the Exchange is closed and Good Friday. For each Fund, securities for which the primary market is on a domestic or foreign exchange and over-the-counter securities admitted to trading on the NASDAQ National List are valued at the last quoted sale or, if no sale, at the mean of closing bid and asked prices and portfolio bonds are presently valued by a recognized pricing service when such prices are believed to reflect the fair value of the security. Over-the-counter securities not included in the NASDAQ National List for which market quotations are readily available are valued at a price quoted by one or more brokers. If accurate quotations are not available, securities will be valued at fair value determined in good faith by the Board of Trustees. The respective per share net asset values of the Class A, Class B, Class C and Class Y shares are expected to be substantially the same. Under certain circumstances, however, the per share net asset values of the Class B and Class C shares may be lower than the per share net asset value of the Class A shares (and, in turn, that of Class A shares may be lower than Class Y shares) as a result of the greater daily expense accruals, relative to Class A and Class Y shares, of Class B and Class C shares relating to distribution services fees and shareholder service fee and, to the extent applicable, transfer agency fees and the fact that Class Y shares bear no additional distribution, shareholder service or transfer agency related fees. While it is expected that, in the event each Class of shares of a Fund realizes net investment income or does not realize a net operating loss for a period, the per share net asset values of the four classes will tend to converge immediately after the payment of dividends, which dividends will differ by approximately the amount of the expense accrual differential among the Classes, there is no assurance that this will be the case. In the event one or more Classes of a Fund experiences a net operating loss for any fiscal period, the net asset value per share of such Class or Classes will remain lower than that of Classes that incurred lower expenses for the period. To the extent that any Fund invests in non-U.S. dollar denominated securities, the value of all assets and liabilities will be translated into United States dollars at the mean between the buying and selling rates of the currency in which such a security is denominated against United States dollars last quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Fund. The Trustees will monitor, on an ongoing basis, a Fund's method of valuation. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of business on each business day in New York. In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. Such calculation does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange will not be reflected in a Fund's calculation of net asset value unless the Trustees deem that the particular event would materially affect net asset value, in which case an adjustment will be made. Securities transactions are accounted for on the trade date, the date the order to buy or sell is executed. Dividend income and other distributions are recorded on the ex-dividend date, except certain dividends and distributions from foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. PURCHASE OF SHARES The following information supplements that set forth in each Prospectus under the heading "Purchase and Redemption of Shares - How To Buy Shares." 22 General Shares of each Fund will be offered on a continuous basis at a price equal to their net asset value plus an initial sales charge at the time of purchase (the "front-end sales charge alternative"), with a contingent deferred sales charge (the deferred sales charge alternative"), or without any front-end sales charge, but with a contingent deferred sales charge imposed only during the first year after purchase (the "level-load alternative"), as described below. Class Y shares which, as described below, are not offered to the general public, are offered without any front-end or contingent sales charges. Shares of each Fund are offered on a continuous basis through (i) investment dealers that are members of the National Association of Securities Dealers, Inc. and have entered into selected dealer agreements with the Distributor ("selected dealers"), (ii) depository institutions and other financial intermediaries or their affiliates, that have entered into selected agent agreements with the Distributor ("selected agents"), or (iii) the Distributor. The minimum for initial investments is $1,000; there is no minimum for subsequent investments. The subscriber may use the Share Purchase Application available from the Distributor for his or her initial investment. Sales personnel of selected dealers and agents distributing a Fund's shares may receive differing compensation for selling Class A, Class B or Class C shares. Investors may purchase shares of a Fund in the United States either through selected dealers or agents or directly through the Distributor. A Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. Each Fund will accept unconditional orders for its shares to be executed at the public offering price equal to the net asset value next determined (plus for Class A shares, the applicable sales charges), as described below. Orders received by the Distributor prior to the close of regular trading on the Exchange on each day the Exchange is open for trading are priced at the net asset value computed as of the close of regular trading on the Exchange on that day (plus for Class A shares the sales charges). In the case of orders for purchase of shares placed through selected dealers or agents, the applicable public offering price will be the net asset value as so determined, but only if the selected dealer or agent receives the order prior to the close of regular trading on the Exchange and transmits it to the Distributor prior to its close of business that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is responsible for transmitting such orders by 5:00 p.m. If the selected dealer or agent fails to do so, the investor's right to that day's closing price must be settled between the investor and the selected dealer or agent. If the selected dealer or agent receives the order after the close of regular trading on the Exchange, the price will be based on the net asset value determined as of the close of regular trading on the Exchange on the next day it is open for trading. Following the initial purchase of shares of a Fund, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Share Purchase Application. Payment for shares purchased by telephone can be made only by Electronic Funds Transfer from a bank account maintained by the shareholder at a bank that is a member of the National Automated Clearing House Association ("ACH"). If a shareholder's telephone purchase request is received before 3:00 p.m. New York time on a Fund business day, the order to purchase shares is automatically placed the same Fund business day for non-money market funds, and two days following the day the order is received for money market funds, and the applicable public offering price will be the public offering price determined as of the close of business on such business day. Full and fractional shares are credited to a subscriber's account in the amount of his or her subscription. As a convenience to the subscriber, and to avoid unnecessary expense to a Fund, stock certificates representing Class Y shares of a Fund are not issued except upon written request to the Fund by the shareholder or his or her authorized selected dealer or agent. This facilitates later redemption and relieves the shareholder of the responsibility for and inconvenience of lost or stolen certificates. No certificates are issued for fractional shares, although such shares remain in the shareholder's account on the records of a Fund, or for Class A, B or C shares of any Fund. Alternative Purchase Arrangements Managed Bond issues only Class Y shares and U.S. Government and Fixed Income each issues four classes of shares: (i) Class A shares, which are sold to investors choosing the front-end sales charge alternative; (ii) Class B shares, which are sold to 23 investors choosing the deferred sales charge alternative; (iii) Class C shares, which are sold to investors choosing the level-load sales charge alternative; and (iv) Class Y shares, which are offered only to (a) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (b) certain investment advisory clients of the Evergreen Asset, FUNB and their affiliates, and (c) institutional investors. The four classes of shares each represent an interest in the same portfolio of investments of the Fund, have the same rights and are identical in all respects, except that (I) only Class A, Class B and Class C shares are subject to a Rule 12b-1 distribution fee, (II) Class B and Class C shares are subject to a shareholder service fee, (III) Class A shares bear the expense of the front-end sales charge and Class B and Class C shares bear the expense of the deferred sales charge, (IV) Class B shares and Class C shares each bear the expense of a higher Rule 12b-1 distribution services fee and shareholder service fee than Class A shares and, in the case of Class B shares, higher transfer agency costs, (V) with the exception of Class Y shares, each Class of each Fund has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution services (and, to the extent applicable, shareholder service) fee is paid which relates to a specific Class and other matters for which separate Class voting is appropriate under applicable law, provided that, if the Fund submits to a simultaneous vote of Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan that would materially increase the amount to be paid thereunder with respect to the Class A shares, the Class A shareholders and the Class B and Class C shareholders will vote separately by Class, and (VI) only the Class B shares are subject to a conversion feature. Each Class has different exchange privileges and certain different shareholder service options available. The alternative purchase arrangements permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares, and other circumstances. Investors should consider whether, during the anticipated life of their investment in the Fund, the accumulated distribution services and shareholder service fees and contingent deferred sales charges on Class B shares prior to conversion, or the accumulated distribution services and shareholder service fees on Class C shares, would be less than the front-end sales charge and accumulated distribution services fee on Class A shares purchased at the same time, and to what extent such differential would be offset by the higher return of Class A shares. Class B and Class C shares will normally not be suitable for the investor who qualifies to purchase Class A shares at the lowest applicable sales charge. For this reason, the Distributor will reject any order (except orders for Class B shares from certain retirement plans) for more than $2,500,000 for Class B or Class C shares. Class A shares are subject to a lower distribution services fee and no shareholder service fee and, accordingly, pay correspondingly higher dividends per share than Class B shares or Class C shares. However, because front-end sales charges are deducted at the time of purchase, investors purchasing Class A shares would not have all their funds invested initially and, therefore, would initially own fewer shares. Investors not qualifying for reduced front-end sales charges who expect to maintain their investment for an extended period of time might consider purchasing Class A shares because the accumulated continuing distribution and shareholder service charges on Class B shares or Class C shares may exceed the front-end sales charge on Class A shares during the life of the investment. Again, however, such investors must weigh this consideration against the fact that, because of such front-end sales charges, not all their funds will be invested initially. Other investors might determine, however, that it would be more advantageous to purchase Class B shares or Class C shares in order to have all their funds invested initially, although remaining subject to higher continuing distribution services and shareholder service fees and, in the case of Class B shares, being subject to a contingent deferred sales charge for a seven-year period. For example, based on current fees and expenses, an investor subject to the 4.75% front-end sales charge would have to hold his or her investment approximately seven years for the Class B and Class C distribution services and shareholders service fees, to exceed the front-end sales charge plus the accumulated distribution services fee of Class A shares. In this example, an investor intending to maintain his or her investment for a longer period might consider purchasing Class A shares. This example does not take into account the time value of money, which further reduces the impact of the Class B and Class C distribution services and shareholder service fees on the investment, fluctuations in net asset value or the effect of different performance assumptions. 24 Those investors who prefer to have all of their funds invested initially but may not wish to retain Fund shares for the seven year period during which Class B shares are subject to a contingent deferred sales charge may find it more advantageous to purchase Class C shares. With respect to each Fund, the Trustees have determined that currently no conflict of interest exists between or among the Class A, Class B, Class C and Class Y shares. On an ongoing basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws, will seek to ensure that no such conflict arises. Front-end Sales Charge Alternative--Class A Shares The public offering price of Class A shares for purchasers choosing the front-end sales charge alternative is the net asset value plus a sales charge as set forth in the Prospectus for each Fund. Shares issued pursuant to the automatic reinvestment of income dividends or capital gains distributions are not subject to any sales charges. The Fund receives the entire net asset value of its Class A shares sold to investors. The Distributor's commission is the sales charge set forth in the Prospectus for each Fund, less any applicable discount or commission "reallowed" to selected dealers and agents. The Distributor will reallow discounts to selected dealers and agents in the amounts indicated in the table in the Prospectus. In this regard, the Distributor may elect to reallow the entire sales charge to selected dealers and agents for all sales with respect to which orders are placed with the Distributor. Set forth below is an example of the method of computing the offering price of the Class A shares of each Fund. The example assumes a purchase of Class A shares of a Fund aggregating less than $100,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of Class A shares of each Fund at the end of each Fund's latest fiscal year. Net Per Share Offering Asset Sales Price Value Charge Date Per Share U.S. Government $ 9.07 $.45 12/31/94 $ 9.52 Fixed Income $ 9.52 $.48 12/31/94 $10.00 Managed Bond $9.35 $.47 12/31/94 $ 9.82 For the periods indicated, the following commissions were paid to and amounts were retained by Federated Securities Corp., which, prior to July 7, 1995, was the principal underwriter of portfolios of the Trust: Period From Year Ended January 11, 1993 12/31/94 to 12/31/93 U.S. GOVERNMENT: Commissions Received $450,000 --- Commissions Retained 10,000 --- Year Ended Year Ended Year Ended FIXED INCOME: 12/31/94 12/31/93 12/31/92 Commissions Received $247,000 $98,000 Commissions Retained 21,000 15,000 Class A shares were not being offered as of December 31, 1994 by Managed Bond. Investors choosing the front-end sales charge alternative may under certain circumstances be entitled to pay reduced sales charges. The circumstances under which such investors may pay reduced sales charges are described below. 25 Combined Purchase Privilege. Certain persons may qualify for the sales charge reductions by combining purchases of shares of one or more Evergreen mutual funds other than money market funds into a single "purchase", if the resulting "purchase" totals at least $100,000. The term "purchase" refers to: (i) a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own account(s); (ii) a single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or (iii) a single purchase for the employee benefit plans of a single employer. The term "purchase" also includes purchases by any "company", as the term is defined in the 1940 Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of a Fund or shares of other registered investment companies at a discount. The term "purchase" does not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit card holders of a company, policy holders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. A "purchase" may also include shares, purchased at the same time through a single selected dealer or agent, of any Evergreen mutual fund. Currently, the Evergreen mutual funds include: Evergreen Fund Evergreen Global Real Estate Equity Fund Evergreen U.S. Real Estate Equity Fund The Evergreen Limited Market Fund, Inc. Evergreen Growth and Income Fund Evergreen Total Return Fund Evergreen American Retirement Fund Evergreen Small Cap Equity Income Fund Evergreen Tax Strategic Foundation Fund Evergreen Short-Intermediate Municipal Fund Evergreen Short-Intermediate Municipal Fund-CA Evergreen Tax Exempt Money Market Fund Evergreen Money Market Fund Evergreen Foundation Fund Evergreen Florida High Income Fund Evergreen Aggressive Growth Fund Evergreen Balanced Fund* Evergreen Utility Fund* Evergreen Value Fund* Evergreen U.S. Government Fund* Evergreen Fixed Income Fund* Evergreen Managed Bond Fund* Evergreen Emerging Markets Growth Fund* Evergreen International Equity Fund* Evergreen Treasury Money Market Fund* Evergreen Florida Municipal Bond Fund* Evergreen Georgia Municipal Bond Fund* Evergreen North Carolina Municipal Bond Fund* Evergreen South Carolina Municipal Bond Fund* Evergreen Virginia Municipal Bond Fund* Evergreen High Grade Tax Free Fund* * Prior to July 7, 1995, each Fund was named "First Union" instead of "Evergreen." Prospectuses for the Evergreen mutual funds may be obtained without charge by contacting the Distributor or the Advisers at the address or telephone number shown on the front cover of this Statement of Additional Information. Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of additional Class A shares of a Fund may qualify for a Cumulative Quantity Discount. The applicable sales charge will be based on the total of: (i) the investor's current purchase; 26 (ii) the net asset value (at the close of business on the previous day) of (a) all Class A, Class B and Class C shares of the Fund held by the investor and (b) all such shares of any other Evergreen mutual fund held by the investor; and (iii) the net asset value of all shares described in paragraph (ii) owned by another shareholder eligible to combine his or her purchase with that of the investor into a single "purchase" (see above). For example, if an investor owned Class A, B or C shares of an Evergreen mutual fund worth $200,000 at their then current net asset value and, subsequently, purchased Class A shares of a Fund worth an additional $100,000, the sales charge for the $100,000 purchase would be at the 3.00% rate applicable to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate. To qualify for the Combined Purchase Privilege or to obtain the Cumulative Quantity Discount on a purchase through a selected dealer or agent, the investor or selected dealer or agent must provide the Distributor with sufficient information to verify that each purchase qualifies for the privilege or discount. Statement of Intention. Class A investors may also obtain the reduced sales charges shown in the Prospectus by means of a written Statement of Intention, which expresses the investor's intention to invest not less than $100,000 within a period of 13 months in Class A shares (or Class A, Class B and/or Class C shares) of the Fund or any other Evergreen mutual fund. Each purchase of shares under a Statement of Intention will be made at the public offering price or prices applicable at the time of such purchase to a single transaction of the dollar amount indicated in the Statement of Intention. At the investor's option, a Statement of Intention may include purchases of Class A, B or C shares of the Fund or any other Evergreen mutual fund made not more than 90 days prior to the date that the investor signs a Statement of Intention; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included. Investors qualifying for the Combined Purchase Privilege described above may purchase shares of the Evergreen mutual funds under a single Statement of Intention. For example, if at the time an investor signs a Statement of Intention to invest at least $100,000 in Class A shares of the Fund, the investor and the investor's spouse each purchase shares of the Fund worth $20,000 (for a total of $40,000), it will only be necessary to invest a total of $60,000 during the following 13 months in shares of the Fund or any other Evergreen mutual fund, to qualify for the 3.75% sales charge on the total amount being invested (the sales charge applicable to an investment of $100,000). The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount. Shares purchased with the first 5% of such amount will be held in escrow (while remaining registered in the name of the investor) to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased, and such escrowed shares will be involuntarily redeemed to pay the additional sales charge, if necessary. Dividends on escrowed shares, whether paid in cash or reinvested in additional Fund shares, are not subject to escrow. When the full amount indicated has been purchased, the escrow will be released. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period. The difference in sales charge will be used to purchase additional shares of the Fund subject to the rate of sales charge applicable to the actual amount of the aggregate purchases. Investors wishing to enter into a Statement of Intention in conjunction with their initial investment in Class A shares of the Fund should complete the appropriate portion of the Subscription Application found in the Prospectus while current Class A shareholders desiring to do so can obtain a form of Statement of Intention by contacting a Fund at the address or telephone number shown on the cover of this Statement of Additional Information. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Evergreen mutual funds 27 available to their participants. Investments made by such employee benefit plans may be exempt from any applicable front-end sales charges if they meet the criteria set forth in the Prospectus under "Class A Shares-Front End Sales Charge Alternative". The Adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Reinstatement Privilege. A Class A shareholder, who has caused any or all of his or her shares of the Fund to be redeemed or repurchased, may reinvest all or any portion of the redemption or repurchase proceeds in Class A shares of the Fund at net asset value without any sales charge, provided that such reinvestment is made within 30 calendar days after the redemption or repurchase date. Shares are sold to a reinvesting shareholder at the net asset value next determined as described above. A reinstatement pursuant to this privilege will not cancel the redemption or repurchase transaction; therefore, any gain or loss so realized will be recognized for Federal tax purposes except that no loss will be recognized to the extent that the proceeds are reinvested in shares of the Fund. The reinstatement privilege may be used by the shareholder only once, irrespective of the number of shares redeemed or repurchased, except that the privilege may be used without limit in connection with transactions whose sole purpose is to transfer a shareholder's interest in the Fund to his or her individual retirement account or other qualified retirement plan account. Investors may exercise the reinstatement privilege by written request sent to the Fund at the address and telephone number shown on the cover of this Statement of Additional Information. Sales at Net Asset Value. In addition to the categories of investors set forth in the Prospectus, each Fund may sell its Class A shares at net asset value, i.e., without any sales charge, to: (i) certain investment advisory clients of Evergreen Asset, FUNB or their affiliates; (ii) officers and present or former Trustees of the Trust; present or former trustees of other investment companies managed by the Adviser; present or retired full-time employees of the Adviser; officers, directors and present or retired full-time employees of the Adviser, the Distributor, and their affiliates; officers, directors and present and full-time employees of selected dealers or agents; or the spouse, sibling, direct ancestor or direct descendant (collectively "relatives") of any such person; or any trust, individual retirement account or retirement plan account for the benefit of any such person or relative; or the estate of any such person or relative, if such shares are purchased for investment purposes (such shares may not be resold except to the Fund); (iii) certain employee benefit plans for employees of the Adviser, the Distributor and their affiliates; (iv) persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer and approved by the Distributor, pursuant to which such persons pay an asset-based fee to such broker-dealer, or its affiliate or agent, for service in the nature of investment advisory or administrative services. These provisions are intended to provide additional job-related incentives to persons who serve the Funds or work for companies associated with the Funds and selected dealers and agents of the Funds. Since these persons are in a position to have a basic understanding of the nature of an investment company as well as a general familiarity with the Fund, sales to these persons, as compared to sales in the normal channels of distribution, require substantially less sales effort. Similarly, these provisions extend the privilege of purchasing shares at net asset value to certain classes of institutional investors who, because of their investment sophistication, can be expected to require significantly less than normal sales effort on the part of the Funds and the Distributor. Deferred Sales Charge Alternative--Class B Shares Investors choosing the deferred sales charge alternative purchase Class B shares at the public offering price equal to the net asset value per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The Class B shares are sold without a front-end sales charge so that the full amount of the investor's purchase payment is invested in the Fund initially. Proceeds from the contingent deferred sales charge are paid to the Distributor and are used by the Distributor to defray the expenses of the Distributor related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to selected dealers and agents for selling Class B shares. The combination of the contingent deferred sales charge and the distribution services fee and the shareholder service fee enables the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. The higher 28 distribution services fee and the shareholder service fee incurred by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than those related to Class A shares. Contingent Deferred Sales Charge. Class B shares which are redeemed within seven years of purchase will be subject to a contingent deferred sales charge at the rates set forth in the Prospectus charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no contingent deferred sales charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the contingent deferred sales charge, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. In determining the contingent deferred sales charge applicable to a redemption, it will be assumed, that the redemption is first of any Class A shares or Class C shares in the shareholder's Fund account, second of Class B shares held for over eight years or Class B shares acquired pursuant to reinvestment of dividends or distributions and third of Class B shares held longest during the eight-year period. To illustrate, assume that an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional Class B shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 Class B shares, 10 Class B shares will not be subject to charge because of dividend reinvestment. With respect to the remaining 40 Class B shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, of the $600 of the shares redeemed $400 of the redemption proceeds (40 shares x $10 original purchase price) will be charged at a rate of 4.0% (the applicable rate in the second year after purchase for a contingent deferred sales charge of $16). The contingent deferred sales charge is waived on redemptions of shares (i) following the death or disability, as defined in the Code, of a shareholder, or (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70-1/2. Conversion Feature. At the end of the period ending seven years after the end of the calendar month in which the shareholder's purchase order was accepted, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher distribution services fee and the shareholder service fee imposed on Class B shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to reduce the distribution services fee paid by holders of Class B shares that have been outstanding long enough for the Distributor to have been compensated for the expenses associated with the sale of such shares. For purposes of conversion to Class A, Class B shares purchased through the reinvestment of dividends and distributions paid in respect of Class B shares in a shareholder's account will be considered to be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A, an equal pro-rata portion of the Class B shares in the sub-account will also convert to Class A. The conversion of Class B shares to Class A shares is subject to the continuing availability of an opinion of counsel to the effect that (i) the assessment of the higher distribution services fee and shareholder service fee and transfer agency costs with respect to Class B shares does not result in the dividends or distributions payable with respect to other Classes of a Fund's shares being deemed "preferential dividends" under the Code, and (ii) the conversion of Class B shares to Class A shares does not constitute a taxable event under Federal income tax law. The conversion of Class B shares to Class A shares may be suspended if such an opinion is no longer available at the time such conversion is to occur. In that event, no further conversions of Class B shares would occur, and shares might continue to be subject to the higher distribution services fee and shareholder services fee 29 for an indefinite period which may extend beyond the period ending eight years after the end of the calendar month in which the shareholder's purchase order was accepted. Level-Load Alternative--Class C Shares Investors choosing the level load sales charge alternative purchase Class C shares at the public offering price equal to the net asset value per share of the Class C shares on the date of purchase without the imposition of a front-end sales charge. However, you will pay a 1.0% contingent deferred sales charge if you redeem shares during the first year after purchase. No charge is imposed in connection with redemptions made more than one year from the date of purchase. Class C shares are sold without a front-end sales charge so that the Fund will receive the full amount of the investor's purchase payment and after the first year without a contingent deferred sales charge so that the investor will receive as proceeds upon redemption the entire net asset value of his or her Class C shares. The Class C distribution services fee and shareholder service fee enables the Fund to sell Class C shares without either a front-end or contingent deferred sales charge. However, unlike Class B shares, Class C shares do not convert to any other class shares of the Fund. Class C shares incur higher distribution services fees and shareholder service fees than Class A shares, and will thus have a higher expense ratio and pay correspondingly lower dividends than Class A shares. Class Y Shares Class Y shares are not offered to the general public and are available only to (i) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients of Evergreen Asset, FUNB and their affiliates, and (iii) institutional investors. Class Y shares do not bear any Rule 12b-1 distribution expenses and are not subject to any front-end or contingent deferred sales charges. GENERAL INFORMATION ABOUT THE FUNDS (See also "Other Information - General Information" in each Fund's Prospectus) Capitalization and Organization The Evergreen U.S. Government Fund, Evergreen Fixed Income Fund and Evergreen Managed Bond Fund, which prior to July 7, 1995 were known as the First Union U.S. Government Portfolio, First Union Fixed Income Portfolio and First Union Managed Bond Portfolio, respectively, are each separate series of Evergreen Investment Trust, a Massachusetts business trust. On July 7, 1995, First Union Funds changed its name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds changed its name to First Union Funds. The Trust is governed by a Board of Trustees. U.S. Government, Fixed Income and Managed Bond may issue an unlimited number of shares of beneficial interest without par value. All shares of these Funds have equal rights and privileges. Each share is entitled to one vote, to participate equally in dividends and distributions declared by the Funds and on liquidation to their proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of these Funds are fully paid, nonassessable and fully transferable when issued and have no pre-emptive, conversion or exchange rights. Fractional shares have proportionally the same rights, including voting rights, as are provided for a full share. Under the Trust's Declaration of Trust, each Trustee will continue in office until the termination of the Fund or his or her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee upon a vote of two-thirds of the outstanding shares of beneficial interest of the Trust. Vacancies will be filled by a majority of the remaining Trustees, subject to the 1940 Act. As a result, normally no annual or regular meetings of shareholders will be held, unless otherwise required by the Declaration of Trust of the Trust or the 1940 Act. Shares have noncumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so and in such event the holders of the remaining shares so voting will not be able to elect any Trustees. 30 The Trustees of the Trust are authorized to reclassify and issue any unissued shares to any number of additional series without shareholder approval. Accordingly, in the future, for reasons such as the desire to establish one or more additional portfolios of a Trust with different investment objectives, policies or restrictions, additional series of shares may be created by one or more Funds. Any issuance of shares of another series or class would be governed by the 1940 Act and the law of the State of Massachusetts. If shares of another series of the Trust were issued in connection with the creation of additional investment portfolios, each share of the newly created portfolio would normally be entitled to one vote for all purposes. Generally, shares of all portfolios would vote as a single series on matters, such as the election of Trustees, that affected all portfolios in substantially the same manner. As to matters affecting each portfolio differently, such as approval of the Investment Advisory Agreement and changes in investment policy, shares of each portfolio would vote separately. In addition any Fund may, in the future, create additional classes of shares which represent an interest in the same investment portfolio. Except for the different distribution related an other specific costs borne by such additional classes, they will have the same voting and other rights described for the existing classes of each Fund. Procedures for calling a shareholders' meeting for the removal of the Trustees of the Trust, similar to those set forth in Section 16(c) of the 1940 Act will be available to shareholders of each Fund. The rights of the holders of shares of a series of a Fund may not be modified except by the vote of a majority of the outstanding shares of such series. An order has been received from the Securities and Exchange Commission permitting the issuance and sale of multiple classes of shares representing interests in each Fund. In the event a Fund were to issue additional Classes of shares other than those described herein, no further relief from the Securities and Exchange Commission would be required. Distributor Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York 10169, serves as each Fund's principal underwriter, and as such may solicit orders from the public to purchase shares of any Fund. The Distributor is not obligated to sell any specific amount of shares and will purchase shares for resale only against orders for shares. Under the Agreement between the Fund and the Distributor, the Fund has agreed to indemnify the Distributor, in the absence of its willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Counsel Sullivan & Worcester, Washington, D.C., serves as counsel to the Funds. Independent Auditors KPMG Peat Marwick LLP has been selected to be the independent auditors of U.S. Government, Fixed Income and Managed Bond. PERFORMANCE INFORMATION Total Return From time to time a Fund may advertise its "total return." Computed separately for each class, the Fund's "total return" is its average annual compounded total return for recent one, five, and ten-year periods (or the period since the Fund's inception). The Fund's total return for such a period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of such investment at the end of the period. For purposes of computing total return, income dividends and capital gains distributions paid on shares of the Fund are assumed to have been reinvested when paid and the maximum sales charge applicable to purchases of Fund shares is assumed to have been paid. The Fund will include performance data for Class A, Class B, Class C and Class Y shares in any advertisement or information including performance data of the Fund. 31 With respect to Managed Bond, Class A, Class B and Class C shares were not being offered as of December 31, 1994. The average annual compounded total return for each Class of shares offered by the Funds for the most recently completed one, five and ten year fiscal periods is set forth in the table below. U.S. GOVERNMENT 1 Year From Ended (inception)* 12/31/94 to 12/31/94 Class A -7.77% -0.48% Class B -8.50% -0.59% Class C -- -2.28% Class Y -2.94% -1.83% FIXED INCOME 1 Year 5 Years From Ended Ended (inception)** 12/31/94 12/31/94 to 12/31/94 Class A -7.20% 6.50% Class B -8.20% -0.80% Class C -- -2.30% Class Y -2.55% 6.48% MANAGED BOND 1 Year From Ended (inception)*** 12/31/94 to 12/31/94 Class Y -4.40% 6.06% * Inception date: Class A - January 12, 1993; Class B - January 12, 1993; Class C - September 2, 1994; Class Y - August 25, 1993. ** Inception date: Class A - January 31, 1989; Class B - January 25, 1993; Class C - September 2, 1994; Class Y - December 31, 1990. *** Inception date: Class Y - April 1, 1991. A Fund's total return is not fixed and will fluctuate in response to prevailing market conditions or as a function of the type and quality of the securities in a Fund's portfolio and its expenses. Total return information is useful in reviewing a Fund's performance but such information may not provide a basis for comparison with bank deposits or other investments which pay a fixed yield for a stated period of time. An investor's principal invested in a Fund is not fixed and will fluctuate in response to prevailing market conditions. YIELD CALCULATIONS From time to time, a Fund may quote its yield in advertisements or in reports or other communications to shareholders. Yield quotations are expressed in annualized terms and may be quoted on a compounded basis. Yields are computed by dividing the Fund's interest income (as defined in the SEC yield formula) for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive distributions during the period, dividing this figure by the Fund's net asset value per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. The formula for calculating yield is as follows: YIELD = 2[(a-b+1)6-1] cd Where a = Interest earned during the period b = Expenses accrued for the period (net of reimbursements) c = The average daily number of shares outstanding during the period that were entitled to receive dividends 32 d = The maximum offering price per share on the last day of the period Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Gains and losses generally are excluded from the calculation. Income calculated for purposes of determining a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for a Fund may differ from the rate of distributions a Fund paid over the same period, or the net investment income reported in a Fund's financial statements. Yield information is useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' investment portfolios, portfolio maturity, operating expenses and market conditions. It should be recognized that in periods of declining interest rates the yields will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the yields will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the Fund's investments, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. The yield of each Fund for the thirty-day period ended December 31, 1994 for each Class of shares offered by the Funds is set forth in the table below: U.S. Government Class A - 7.10% Class B - 6.08% Class C - 6.08% Class Y - 7.10% Fixed Income Class A - 6.53% Class B - 5.95% Class C - 5.95% Class Y - 6.97% Managed Bond Class Y - 7.35% Non-Standardized Performance In addition to the performance information described above, a Fund may provide total return information for designated periods, such as for the most recent six months or most recent twelve months. This total return information is computed as described under "Total Return" above except that no annualization is made. GENERAL From time to time, a Fund may quote its performance in advertising and other types of literature as compared to the performance of the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman Brothers Intermediate Government Bond Index, or any other commonly quoted index of common stock and bond prices. The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average and the Lehman Brothers Intermediate Government Bond Index are unmanaged indices of selected common stock and bond prices. A Fund's performance may also be compared to those of other mutual funds having similar objectives. This comparative performance would be expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar independent services 33 monitoring mutual fund performance. A Fund's performance will be calculated by assuming, to the extent applicable, reinvestment of all capital gains distributions and income dividends paid. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. Additional Information Any shareholder inquiries may be directed to the shareholder's broker or to the Adviser at the address or telephone number shown on the front cover of this Statement of Additional Information. This Statement of Additional Information does not contain all the information set forth in the Registration Statement filed by the Trust with the Securities and Exchange Commission under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the Securities and Exchange Commission or may be examined, without charge, at the offices of the Securities and Exchange Commission in Washington, D.C. FINANCIAL STATEMENTS Each Fund's financial statements appearing in their most current fiscal year Annual Report to shareholders and the report thereon of the independent auditors appearing therein, namely KPMG Peat Marwick LLP are incorporated by reference in this Statement of Additional Information. The Annual Reports to Shareholders for each Fund, which contain the referenced statements, are available upon request and without charge. 34 APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS NOTE RATINGS Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high quality, with margins of protection ample though not so large as in the preceding group. MIG-3 -- favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay principal and interest. BOND RATINGS Moody's Investors Service: Aaa -- judged to be the best quality, carry the smallest degree of investment risk; Aa -- judged to be of high quality by all standards; A -- possess many favorable investment attributes and are to be considered as higher medium grade obligations; Baa -- considered as medium grade obligations which are neither highly protected nor poorly secured. Moody's Investors Service also applies numerical indicators, 1, 2 and 3, to rating categories Aa through Baa. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group: AAA -- highest grade obligations, possesses the ultimate degree of protection as to principal and interest; AA -- also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree; A -- regarded as upper medium grade, have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions, interest and principal are regarded as safe; BBB -- regarded as having adequate capacity to pay interest and repay principal but are more susceptible than higher rated obligations to the adverse effects of changes in economic and trade conditions. Standard & Poor's Ratings Group applies indicators "+", no character, and "-" to the above rating categories AA through BBB. The indicators show relative standing within the major rating categories. Duff & Phelps: AAA - highest credit quality, with negligible risk factors; AA -- high credit quality, with strong protection factors and modest risk, which may vary very slightly from time to time because of economic conditions; A -- average credit quality with adequate protection factors, but with greater and more variable risk factors in periods of economic stress. The indicators "+" and "-" to the AA and A categories indicate the relative position of a credit within those rating categories. Fitch Investors Service: AAA -- highest credit quality, with an exceptionally strong ability to pay interest and repay principal; AA -- very high credit quality, with a very strong ability to pay interest and repay principal; A -- high credit quality, considered strong as regards principal and interest protection, but may be more vulnerable to adverse changes in economic conditions; and BBB -- satisfactory credit quality with adequate ability with regard to interest and principal, and likely to be affected by adverse changes in economic conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB categories indicate the relative position of a credit within those rating categories. COMMERCIAL PAPER RATINGS Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote relative strength within this highest classification. Standard & Poor's Ratings Group: "A" is the highest commercial paper rating category utilized by Standard & Poor's Ratings Group which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A" classification. Duff & Phelps: Duff 1 is the highest commercial paper rating category utilized by Duff & Phelps which uses + or - to denote relative strength within this classification. Duff 2 represents good certainty of timely payment, with minimal risk factors. Duff 3 35 represents satisfactory protection factors, with risk factors larger and subject to more variation. Fitch Investors Service: F-1+ -- denotes exceptionally strong credit quality given to issues regarded as having strongest degree of assurance for timely payment; F-1 -- very strong credit quality, with only slightly less degree of assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory degree of assurance for timely payment. PROSPECTUS July 7, 1995 EVERGREEN(SM) INTERNATIONAL/GLOBAL GROWTH FUNDS (Evergreen Logo appears here) EVERGREEN EMERGING MARKETS GROWTH FUND EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN GLOBAL REAL ESTATE EQUITY FUND CLASS A SHARES CLASS B SHARES CLASS C SHARES The Evergreen International/Global Growth Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide capital growth and diversification. This Prospectus provides information regarding the Class A, Class B and Class C shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 9 Investment Practices and Restrictions 10 MANAGEMENT OF THE FUNDS Investment Adviser 15 Sub-Advisers 17 Distribution Plan and Agreements 17 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 18 How to Redeem Shares 21 Exchange Privilege 22 Shareholder Services 23 Effect of Banking Laws 23 OTHER INFORMATION Dividends, Distributions and Taxes 24 Management's Discussion of Fund Performance 25 General Information 26
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN GLOBAL REAL ESTATE EQUITY FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN EMERGING MARKETS GROWTH FUND and EVERGREEN INTERNATIONAL EQUITY FUND. EVERGREEN EMERGING MARKETS GROWTH FUND (formerly First Union Emerging Markets Growth Portfolio) seeks to provide long-term capital appreciation. The EVERGREEN EMERGING MARKETS GROWTH FUND invests in equity securities of issuers located in countries with emerging markets. EVERGREEN INTERNATIONAL EQUITY FUND (formerly First Union International Equity Portfolio) seeks to provide long-term capital appreciation. The EVERGREEN INTERNATIONAL EQUITY FUND invests in equity securities of non-U.S. issuers. EVERGREEN GLOBAL REAL ESTATE EQUITY FUND seeks long-term capital growth. Current income is a secondary objective. It invests primarily in equity securities of United States and non-United States companies which are principally engaged in the real estate industry or which own significant real estate assets. It will not purchase direct interests in real estate. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in each Class A, Class B and Class C Shares of a Fund. For further information see "Purchase and Redemption of Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares Maximum Sales Charge Imposed on Purchases 4.75% None None (as a % of offering price) Sales Charge on Dividend Reinvestments None None None Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the 1% during the original purchase price or redemption second year, 3% during the third and fourth first year and proceeds, whichever is lower) years, 2% during the fifth year, 1% during 0% thereafter the sixth and seventh years and 0% after the seventh year Redemption Fee None None None Exchange Fee None None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return, and (ii) redemption at the end of each period and, additionally for Class B and C, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares and Class C Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflect the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN EMERGING MARKETS GROWTH FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES** Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees 1.50% 1.50% 1.50% After 1 Year $ 71 $ 82 $ 42 $ 32 Administrative Fees .06% .06% .06% After 3 Years $ 119 $ 127 $ 97 $ 97 12b-1 Fees* .25% .75% .75% After 5 Years $ 169 $ 185 $ 165 $ 165 Shareholder Service Fees -- .25% .25% After 10 Years $ 308 $ 320 $ 346 $ 320 Other Expenses .59% .59% .59% Total 2.40% 3.15% 3.15% Class C Advisory Fees After 1 Year $ 32 Administrative Fees After 3 Years $ 97 12b-1 Fees* After 5 Years $ 165 Shareholder Service Fees After 10 Years $ 346 Other Expenses Total
EVERGREEN INTERNATIONAL EQUITY FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES** Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees .82% .82% .82% After 1 Year $ 61 $ 72 $ 32 $ 22 Administrative Fees .06% .06% .06% After 3 Years $ 90 $ 98 $ 68 $ 68 12b-1 Fees* .25% .75% .75% After 5 Years $ 121 $ 136 $ 116 $ 116 Shareholder Service Fees -- .25% .25% After 10 Years $ 209 $ 272 $ 250 $ 222 Other Expenses .29% .29% .29% Total 1.42% 2.17% 2.17% Class C Advisory Fees After 1 Year $ 22 Administrative Fees After 3 Years $ 68 12b-1 Fees* After 5 Years $ 116 Shareholder Service Fees After 10 Years $ 250 Other Expenses Total
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
EXAMPLES Assuming Assuming Redemption at End of no ANNUAL OPERATING EXPENSES** Period Redemption Class B Class C Class A Class B Class C Class B Class A Advisory Fees 1.00% 1.00% 1.00% After 1 Year $ 64 $ 75 $ 35 $ 25 12b-1 Fees* .25% 1.00% 1.00% After 3 Years $ 99 $ 107 $ 77 $ 77 Other Expenses .46% .46% .46% After 5 Years $ 136 $ 151 $ 131 $ 131 Total 1.71% 2.46% 2.46% After 10 Years $ 240 $ 252 $ 280 $ 252 Class C Advisory Fees After 1 Year $ 25 12b-1 Fees* After 3 Years $ 77 Other Expenses After 5 Years $ 131 Total After 10 Years $ 280
3 *Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1 Fee. For the forseeable future, the Class A 12b-1 Fees will be limited to .25 of 1% of average net assets. For Class B and Class C Shares of EVERGREEN GLOBAL REAL ESTATE EQUITY FUND, a portion of the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1% of average net assets as permitted under the rules of the National Association of Securities Dealers, Inc. **The annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the most recent fiscal period. Actual expenses net of fee waivers and expense reimbursements for the fiscal period ended December 31, 1994 or September 30, 1994, as applicable, for Class A, B and C Shares were as follows:
CLASS A CLASS B CLASS C Evergreen Emerging Markets Growth Fund 1.78% 2.53% 2.53% Evergreen International Equity Fund 1.26% 2.02% 2.01%
From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN EMERGING MARKETS GROWTH FUND and EVERGREEN INTERNATIONAL EQUITY FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, for EVERGREEN GLOBAL REAL ESTATE EQUITY FUND has, except as noted otherwise, been audited by Price Waterhouse LLP, the Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN EMERGING MARKETS GROWTH FUND
SEPTEMBER 6, 1994* THROUGH DECEMBER 31, 1994 CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES PER SHARE DATA Net asset value, beginning of period............................................. $10.00 $10.00 $10.00 $ 10.00 Income (loss) from investment operations: Net investment income (loss)..................................................... -- (.02) (.02) .01 Net realized and unrealized loss on investments and foreign currency transactions................................................................... (1.83) (1.82) (1.82) (1.84) Total from investment operations............................................... (1.83) (1.84) (1.84) (1.83) Net asset value, end of period................................................... $8.17 $8.16 $8.16 $8.17 TOTAL RETURN+.................................................................... (18.3%) (18.4%) (18.4%) (18.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................................ $867 $1,589 $89 $5,878 Ratios to average net assets: Expenses (a)................................................................... 1.78%++ 2.53%++ 2.53%++ 1.53%++ Net investment income (loss) (a)............................................... (.12%)++ (.84%)++ (.82%)++ .43%++ Portfolio turnover rate.......................................................... 17% 17% 17% 17%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, for the period from September 6, 1994 through December 31, 1994 would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES Expenses..................................................... 3.96% 4.71% 4.71% 3.71% Net investment income (loss)................................. (2.30%) (3.02%) (3.00%) (1.75%)
5 EVERGREEN INTERNATIONAL EQUITY FUND
CLASS A CLASS C SHARES CLASS B SHARES SHARES SEPTEMBER 2, 1994* THROUGH DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period.............................................. $10.00 $ 10.00 $10.00 Income (loss) from investment operations: Net investment income............................................................. .02 -- .03 Net realized and unrealized loss on investments................................... (.52) (.50 ) (.54) Total from investment operations................................................ (.50) (.50 ) (.51) Less distributions to shareholders from: Net investment income............................................................. -- -- -- Net asset value, end of period.................................................... $9.50 $9.50 $9.49 TOTAL RETURN+..................................................................... (5.1%) (5.2% ) (5.2%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)......................................... $2,545 $5,602 $163 Ratios to average net assets: Expenses (a).................................................................... 1.26%++ 2.02% ++ 2.01%++ Net investment income (a)....................................................... .91%++ .10% ++ .85%++ Portfolio turnover rate........................................................... 1% 1% 1% CLASS Y SHARES PER SHARE DATA Net asset value, beginning of period.............................................. $10.00 Income (loss) from investment operations: Net investment income............................................................. .02 Net realized and unrealized loss on investments................................... (.51 ) Total from investment operations................................................ (.49 ) Less distributions to shareholders from: Net investment income............................................................. (.01 ) Net asset value, end of period.................................................... $9.50 TOTAL RETURN+..................................................................... (5.0% ) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)......................................... $23,830 Ratios to average net assets: Expenses (a).................................................................... 1.06% ++ Net investment income (a)....................................................... 1.03% ++ Portfolio turnover rate........................................................... 1%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, for the period from September 2, 1994 through December 31, 1994 would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES Expenses..................................................... 2.09% 2.85% 2.84% 1.89% Net investment income (loss)................................. .08% (.73%) .02% .20%
6 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND -- CLASS Y SHARES
SIX MONTHS NINE MONTHS FEBRUARY 1, 1989* ENDED MARCH ENDED THROUGH 31, 1995 SEPTEMBER 30, YEAR ENDED DECEMBER 31, DECEMBER 31, (UNAUDITED) 1994# 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period............................ $ 13.81 $ 14.75 $9.86 $9.16 $8.10 $10.03 $10.00 Income (loss) from investment operations: Net investment income (loss)........ .01 .07 -- (.01) (.02) (.03) .17 Net realized and unrealized gain (loss) on investments............. (2.48) (1.01) 5.07 .94 1.08 (1.90) .03 Total from investment operations.................... (2.47) (.94) 5.07 .93 1.06 (1.93) .20 Less distributions to shareholders from: Net investment income............... (.10) -- -- -- -- -- (.17) Net realized gains.................. (.52) -- (.18) (.23) -- -- -- Total distributions............. (.62) -- (.18) (.23) -- -- (.17) Net asset value, end of period...... $ 10.72 $ 13.81 $14.75 $9.86 $9.16 $8.10 $10.03 TOTAL RETURN+....................... (18.4%) (6.4%) 51.4% 10.2% 13.1% (19.2%) 2.0% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).......................... $74,001 $132,294 $146,173 $8,618 $7,557 $6,004 $7,336 Ratios to average net assets: Operating expenses................ 1.51%++ 1.46%++ 1.56%(a) 2.00%(a) 2.00%(a) 2.00%(a) 2.00%(a)++ Interest expense.................. .08%++ .08%++ -- -- -- -- -- Net investment income (loss)...... .39%++ .56%++ .03%(a) (.10%)(a) (.27%)(a) (.39%)(a) 2.23%(a)++ Portfolio turnover rate............. 17% 63% 88% 245% 207% 325% 151%
# On September 21, 1994, the Fund changed its fiscal year end from December 31 to September 30. * Commencement of operations. + Total return is calculated on net asset value per share and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
FEBRUARY 1, 1989 THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, 1993 1992 1991 1990 1989 Operating expenses................................ 1.64% 3.72% 3.76% 3.99% 3.17% Net investment income (loss)...................... (.05%) (1.82%) (2.02%) (2.38%) 1.06%
7 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND -- CLASS A, B AND C SHARES
CLASS A SHARES CLASS B SHARES CLASS C SHARES FEBRUARY 10, 1995* FEBRUARY 8, 1995* FEBRUARY 9, 1995* THROUGH THROUGH THROUGH MARCH 31, 1995 MARCH 31, 1995 MARCH 31, 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) PER SHARE DATA Net asset value, beginning of period.............................. $11.46 $ 11.44 $ 11.43 Income (loss) from investment operations: Net investment income............................................. .02 .02 .01 Net realized and unrealized loss on investments................... (.76) (.75) (.73) Total from investment operations................................ (.74) (.73) (.72) Net asset value, end of period.................................... $10.72 $ 10.71 $ 10.71 TOTAL RETURN+..................................................... (6.5%) (6.4%) (6.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)......................... $2,531 $ 3,362 $ 1,146 Ratios to average net assets: Operating expenses (a).......................................... 1.51%++ 2.27%++ 2.31%++ Interest expense................................................ .02%++ .01%++ .01%++ Net investment income (a)....................................... 3.21%++ 1.53%++ .87%++ Portfolio turnover rate#.......................................... 17% 17% 17%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A, Class B and Class C shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. # Portfolio turnover rate is calculated for the six months ended March 31, 1995. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS C SHARES FEBRUARY 10, 1995 FEBRUARY 8, 1995 FEBRUARY 9, 1995 THROUGH THROUGH THROUGH MARCH 31, 1995 MARCH 31, 1995 MARCH 31, 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) Operating expenses........................ 2.73% 3.49% 3.49% Net investment income (loss).............. 1.99% .31% (.31%)
8 9 - -------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Emerging Markets Growth Fund The objective of Evergreen Emerging Markets Growth Fund is long-term capital appreciation. In seeking this objective, the Fund invests in equity securities of issuers located in emerging markets. The Fund is suitable for aggressive investors interested in the investment opportunities offered by securities of issuers located in emerging or developing markets and the resulting potential for growth opportunities resulting from political change, economic deregulation and liberalized trade policies. The objective is fundamental and may not be changed without shareholder approval. The Fund seeks long-term capital appreciation. The Fund invests primarily in a diversified portfolio of equity securities of issuers located in countries with emerging markets. As a matter of policy, the Fund will invest at least 65% of the value of its total assets in securities of emerging market issuers. A country will be considered to have an "emerging market" if it has relatively low gross national product per capita compared to the world's major economies and the potential for rapid economic growth. Countries with emerging markets include those that have an emerging stock market (as defined by the International Finance Corporation), those with low-to middle income economies (according to the World Bank), and those listed in World Bank publications as "developing." The Fund will normally invest in at least six different countries, although it may invest all of its assets in a single country. At the present time, the Fund has no intention of investing all of its assets in a single country. The Fund focuses on equity securities, but may also invest in other types of instruments, including debt securities. Marvin & Palmer Associates, the Sub-Adviser to the Fund, will make investment decisions regarding equity securities based on its analysis of returns, price momentum, business and industry considerations, and management quality. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen International Equity Fund The objective of Evergreen International Equity Fund is long-term capital appreciation. The Fund invests primarily in equity securities of non-U.S. issuers and is suitable for investors who want to pursue their investment goals in markets outside the United States. The Fund provides investors with a vehicle to pursue investment opportunities in countries outside the U.S. whose securities markets may benefit from differing economic and political cycles. The objective is fundamental and may not be changed without shareholder approval. The Fund invests primarily in foreign equity securities that Boston International Advisers, Inc., the Sub-Adviser to the Fund, determines, through both fundamental and technical analysis, to be undervalued compared to other securities in their industries and countries. In most market conditions, the stocks comprising the Fund's assets will exhibit traditional value characteristics, such as higher than average dividend yields, lower than average price to book value, and will include stocks of companies with unrecognized or undervalued assets. As a matter of policy, the Fund will invest at least 65% of the value of its total assets in equity securities of issuers located in at least three countries outside of the United States. The Fund will emphasize value stocks, primarily of companies which are listed on one or more of thirty-two stock markets: twenty developed markets and twelve emerging markets. While the current intention of the Fund is to invest in 32 stock markets, the Fund may invest in more or less, depending upon market conditions as determined by the Sub-Adviser. The Fund will invest substantially in industrialized companies throughout the world that comprise the Morgan Stanley Capital International EAFE (Europe, Australia and the Far East) Index. In addition, the Fund intends to invest up to 10% of its assets in emerging country equity securities, as described above under "Evergreen Emerging Markets Growth Fund." The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Global Real Estate Equity Fund The Evergreen Global Real Estate Equity Fund seeks to achieve its investment objective of long-term capital growth through investment primarily in equity securities of domestic and foreign companies which are principally engaged in the real estate industry or which own significant real estate assets; the Fund will not purchase direct interests in real estate. Current income will be a secondary objective. Equity securities will include common stock, preferred stock and securities convertible into common stock. The objective is fundamental and may not be changed without shareholder approval. The Fund will, under normal conditions, invest at least 65% of its total assets in equity securities of domestic and foreign exchange or NASDAQ listed companies which are principally engaged in the real estate industry. A company is deemed to be "principally engaged" in the real estate industry if at least 50% of its assets (marked to market), gross income or net profits are attributable to ownership, construction, management or sale of residential, commercial or industrial real estate. Real estate industry companies may include among others: equity real estate investment trusts, which pool investors' funds for investment primarily in commercial real estate properties; mortgage real estate investment trusts, which invest pooled funds in real estate related loans; brokers or real estate developers; and companies with substantial real estate holdings, such as paper and lumber producers and hotel and entertainment companies. The Fund will only invest in real estate equity trusts and limited partnerships which are traded on major exchanges. As a matter of fundamental policy, the Fund will also invest at least 65% of its total assets in the equity securities of companies of at least three countries, including the United States, except when abnormal market or financial conditions warrant the assumption of a temporary defensive position. See "Investment Practices and Restrictions" and "Special Risk Considerations". The remainder of the Fund's investments may be made in equity securities of issuers whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions which issue or service mortgages. The Fund may invest more than 25% of its total assets in any one sector of the real estate or real estate related industries. In addition, the Fund may, from time to time, invest in the securities of companies unrelated to the real estate industry whose real estate assets are substantial relative to the price of the companies' securities. The Fund pursues a flexible strategy of investing in a diversified portfolio of securities of companies throughout the world. The Fund's investment adviser anticipates that the Fund will give particular consideration to investments in the United Kingdom, Western Europe, Australia, Canada, the Far East (Japan, Hong Kong, Singapore, Malaysia and Thailand) and the United States. The percentage of the Fund's assets invested in particular geographic regions will shift from time to time in accordance with the judgment of the Fund's investment adviser. Generally, a substantial portion of the assets of the Fund will be denominated or traded in foreign currencies. Investments may also be made in securities of issuers unrelated to the real estate industry believed by the Fund's investment adviser to be undervalued and to have capital appreciation potential. Also, consistent with the secondary objective of current income, investments may also be made in nonconvertible debt securities of such companies. The debt securities purchased (except for those described below) will be of investment grade or better quality (e.g., rated no lower than A by Moody's Investors Service ("Moody's") or Standard & Poor's Ratings Group ("S&P")or if not so rated, believed by the Fund's investment adviser to be of comparable quality). However, up to 10% of total assets may be invested in unrated debt securities of issuers secured by real estate assets where the Fund's investment adviser believes that the securities are trading at a discount and the underlying collateral will ensure repayment of principal. In such situations, it is conceivable that the Fund could, in the event of default, end up holding the underlying real estate directly. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS General. The Funds primarily invest in: common and preferred stocks, convertible securities and warrants of foreign corporations. Common stocks represent an equity interest in a corporation. This ownership interest often gives the Funds the right to vote on measures affecting the company's organization and operations. Although common stocks have a history of long-term growth in value, their prices tend to fluctuate in the short-term, particularly those of smaller capitalization companies. Smaller capitalization companies may have limited product lines, markets, or financial resources. These conditions may make them more susceptible to setbacks and reversals. Therefore, their securities may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger companies; obligations of foreign governments and supranational organizations; corporate and foreign government fixed income securities denominated in currencies other than U.S. dollars, rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P, or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser or sub-advisers. Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. Although the Funds do not intend to invest significantly in debt securities, it should be noted that the prices of fixed income securities fluctuate inversely to the direction of interest rates; strategic investments, such as options and futures contracts on currency transactions, securities index futures contracts, and forward foreign currency exchange contracts. The Funds can use these techniques to increase or decrease their exposure to changing security prices, interest rates, currency exchange rates, or other factors that affect security values. (Although, of course, there can be no assurance that these strategic investments will be successful in protecting the value of the Funds' securities.); and securities of closed-end investment companies. Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of a Fund's investment adviser or sub-adviser, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund bears directly. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for Evergreen Global Real Estate Equity Fund effected on those exchanges. See the Statement of Additional Information for further information regarding the brokerage allocation practices of the Funds. The portfolio turnover rate for each Fund is set forth in the tables contained in the section entitled "Financial Highlights". Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Funds' risk is the inability of the seller to pay the agreed-upon price on the delivery date. However, this risk is tempered by the ability of the Funds to sell the security in the open market in the case of a default. In such a case, the Funds may incur costs in disposing of the security which would increase Fund expenses. Each Fund's investment adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Funds purchase securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Funds to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Funds may pay more or less than the market value of the securities on the settlement date. A Fund may dispose of a commitment prior to settlement if the Fund's investment adviser deems it appropriate to do so. In addition, Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Temporary Investments. The Funds may invest in U.S. and foreign short-term money market instruments (denominated in U.S. and/or foreign currencies), including interest-bearing call deposits with banks, government obligations, certificates of deposit, bankers' acceptances, commercial paper, short-term corporate debt securities, and repurchase agreements. These investments may be used to temporarily invest cash received from the sale of Fund shares, to establish and maintain reserves for temporary defensive purposes, or to take advantage of market opportunities. Illiquid or Restricted Securities. Each Fund may invest up to 15% of its net assets in illiquid securities and other securities which are not readily marketable. Illiquid securities include certain restricted securities not determined by the Trustees to the liquid, non-negotiable time deposits and repurchase agreements providing for settlement in more than seven days after notice. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers or sub-advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the total assets of the Evergreen Global Real Estate Equity Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. Fixed-Income Securities -- Downgrades. If any security invested in by any of the Funds 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. Foreign Currency Transactions. The Funds will enter into foreign currency transactions to obtain the necessary currencies to settle securities transactions. Currency transactions may be conducted either on a spot or cash basis at prevailing rates or through forward foreign currency exchange contracts. The Funds may also enter into foreign currency transactions to protect Fund assets against adverse changes in foreign currency exchange rates or exchange control regulations. Such changes could unfavorably affect the value of Fund assets which are denominated in foreign currencies, such as foreign securities or funds deposited in foreign banks, as measured in U.S. dollars. Although foreign currency exchanges may be used by a Fund to protect against a decline in the value of one or more currencies, such efforts may also limit any potential gain that might result from a relative increase in the value of such currencies and might, in certain cases, result in losses to the Fund. Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward contract") is an obligation to purchase or sell an amount of a particular currency at a specific price and on a future date agreed upon by the parties. Generally, no commission charges or deposits are involved. At the time a Fund enters into a forward contract, Fund assets with a value equal to the Fund's obligation under the forward contract are segregated and are maintained until the contract has been settled. The Funds will not enter into a forward contract with a term of more than one year. The Funds will generally enter into a forward contract to provide the proper currency to settle a securities transaction at the time the transaction occurs ("trade date"). The period between trade date and settlement date will vary between 24 hours and 60 days, depending upon local custom. The Funds may also protect against the decline of a particular foreign currency by entering into a forward contract to sell an amount of that currency approximating the value of all or a portion of the Funds' assets denominated in that currency ("hedging"). The success of this type of short-term hedging strategy is highly uncertain due to the difficulties of predicting short-term currency market movements and of precisely matching forward contract amounts and the constantly changing value of the securities involved. Although each Fund's investment adviser or sub-adviser will consider the likelihood of changes in currency values when making investment decisions, each Fund's investment adviser or sub-adviser believes that it is important to be able to enter into forward contracts when it believes the interests of a Fund will be served. The Funds will not enter into forward contracts for hedging purposes in a particular currency in an amount in excess of the Funds' assets denominated in that currency, but as consistent with their other investment policies and as not otherwise limited in their ability to use this strategy. Options And Futures. The Funds may deal in options on foreign currencies, and portfolio securities, and, in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, securities indices, which options may be listed for trading on an international securities exchange. The Funds will use these options to manage interest rate and currency risks. The Funds also may write covered call options and secured put options to generate income or to lock in gains. Each Fund may write covered call options and secured put options on up to 25% of its net assets in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and 15% of its net assets in the case of Evergreen Global Real Estate Equity Fund, and Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may purchase put and call options provided that no more than 5% of the fair market value of its net assets may be invested in premiums on such options. A call option gives the purchaser the right to buy, and the writer the obligation to sell, the underlying asset at the exercise price during the option period. A put option gives the purchaser the right to sell, and the writer the obligation to buy, the underlying asset at the exercise price during the option period. The writer of a covered call owns assets that are acceptable for escrow and the writer of a secured put invests an amount not less than the exercise price in eligible assets to the extent that it is obligated as a writer. If a call written by a Fund is exercised, the Fund forgoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. In writing puts, there is a risk that a Fund may be required to take delivery of the underlying asset at a disadvantageous price. The Funds may enter into futures contracts involving foreign currency and, in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, securities indices,, or options on currency, for bona fide hedging purposes The Funds may not enter into futures contracts or related options if, immediately thereafter, the amounts committed to margin and premiums paid for unexpired options would exceed 5% of a Fund's total assets and, in the case of Evergreen Global Real Estate Equity Fund, more than 30% of the Fund's net assets would be hedged thereby. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, may also enter into such futures contracts or related options for purposes other than bona fide hedging if the aggregate amount of initial margin deposits on a Fund's futures and related options positions would not exceed 5% of the net liquidation value of the Fund's assets, provided further that in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating the 5% limitation. In addition, a Fund may not sell futures contracts if the value of such futures contracts exceeds the total market value of the Fund's portfolio securities. Futures contracts sold by a Fund are generally subject to segregation and coverage requirements established by either the Commodity Futures Trading Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with the result that, if a Fund does not hold the instrument underlying the futures contract or option, the Fund will be required to segregate, on an ongoing basis with its custodian, cash, U.S. government securities, or other liquid high grade debt obligations in an amount at least equal to the Fund's obligations with respect to such instruments. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into securities index futures contracts and purchase and write put and call options on securities index futures contracts that are traded on regulated exchanges, including non-U.S. exchanges, to the extent permitted by the CFTC. Securities index futures contracts are based on indices that reflect the market value of securities of the firms included in the indices. An index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the differences between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into securities index futures contracts to sell a securities index in anticipation of or during a market decline to attempt to offset the decrease in market value of securities in its portfolio that might otherwise result. When a Fund is not fully invested and anticipates a significant market advance, it may enter into futures contracts to purchase the index in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that it intends to purchase. In many of these transactions, a Fund will purchase such securities upon termination of the futures position but, depending on market conditions, a futures position may be terminated without the corresponding purchases of common stock. A Fund may also invest in securities index futures contracts when its investment adviser or sub-adviser believes such investment is more efficient, liquid or cost-effective than investing directly in the securities underlying the index. The use of futures and related options involves special considerations and risks, including: (1) the ability of a Fund to utilize futures successfully will depend on its investment adviser's or sub-adviser's ability to predict pertinent market movements; and (2) there might be an imperfect correlation (or conceivably no correlation) between the change in the market value of the securities held by a Fund and the prices of the futures relating to the securities purchased or sold by the Fund. The use of futures and related options may reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements, but these instruments can also reduce the opportunity for gain by offsetting the positive effect of favorable price movements in positions. No assurance can be given that the investment adviser's or sub-adviser's judgment in this respect will be correct. It is not certain that a secondary market for positions in futures contracts or for options will exist at all times. Although each investment adviser or sub-adviser will consider liquidity before entering into these transactions, there is no assurance that a liquid secondary market on an exchange or otherwise will exist for any particular futures contract or option at any particular time. A Fund's ability to establish and close out futures and options positions depends on this secondary market. Risk Characteristics Of Foreign Securities. Investing in non-U.S. securities carries substantial risks in addition to those associated with domestic investments. In an attempt to reduce some of these risks, the Funds diversify their investments broadly among foreign countries which may include both developed and developing countries. With respect to Evergreen International Equity Fund, at least three different countries will always be represented. The Funds may take advantage of the unusual opportunities for higher returns available from investing in developing countries. As discussed in detail below under "Emerging Markets," however, these investments carry considerably more volatility and risk because they generally are associated with less mature economies and less stable political systems. Foreign securities are denominated in foreign currencies. Therefore, the value in U.S. dollars of a Fund's assets and income may be affected by changes in exchange rates and regulations. Although the Funds value their assets daily in U.S. dollars, they will not convert their holdings of foreign currencies to U.S. dollars daily. When a Fund converts its holdings to another currency, it may incur conversion costs. Foreign exchange dealers realize a profit on the difference between the prices at which such dealers buy and sell currencies. To the extent that securities purchased by the Funds are denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Funds' net asset values; the value of interest earned; gains and losses realized on the sale of securities; and net investment income and capital gains, if any, to be distributed to shareholders by a Fund. If the value of a foreign currency rises against the U.S. dollar, the value of a Fund's assets denominated in that currency will increase; correspondingly, if the value of a foreign currency declines against the U.S. dollar, the value of a Fund's assets denominated in that currency will decrease. Other differences between investing in foreign and U.S. companies include: less publicly available information about foreign companies; the lack of uniform financial accounting standards applicable to foreign companies; less readily available market quotations on foreign companies; differences in government regulation and supervision of foreign stock exchanges, brokers, listed companies, and banks; differences in legal systems which may affect the ability to enforce contractual obligations or obtain court judgments; generally lower foreign stock market volume; the likelihood that foreign securities may be less liquid or more volatile; foreign brokerage commissions may be higher; unreliable mail service between countries; and political or financial changes which adversely affect investments in some countries. In the past, U.S. government policies have discouraged or restricted certain investments abroad by investors such as the Funds. Although the Funds are unaware of any current restrictions, investors are advised that these policies could be reinstituted. Emerging Markets. The economies of individual emerging countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent on international trade and, accordingly, have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been, and may continue to be, adversely affected by economic conditions in the countries with which they trade. Prior governmental approval for foreign investments may be required under certain circumstances in some emerging countries, and the extent of foreign investment in certain debt securities and domestic companies may be subject to limitation in other emerging countries. Foreign ownership limitations also may be imposed by the charters of individual companies in emerging countries to prevent, among other concerns, violation of foreign investment limitations. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging countries. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental registration or approval for such repatriation. Any investment subject to such repatriation controls will be considered illiquid if it appears reasonably likely that this process will take more than seven days. With respect to any emerging country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, governmental regulation, social instability or diplomatic developments (including war) which could affect adversely the economics of such countries or the value of the Funds' investments in those countries. In addition, it may be difficult to obtain and enforce a judgment in a court outside of the U.S. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees").. Evergreen Asset Management Corp. (the "Evergreen Asset") has been retained by Evergreen Global Real Estate Equity Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Fund. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund. Boston International Advisers, Inc. ("BIA") is Sub-Adviser to Evergreen International Equity Fund and Marvin & Palmer Associates, Inc. ("Marvin & Palmer") is Sub-Adviser to Evergreen Emerging Markets Growth Fund First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Global Real Estate Equity Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive a fee equal to 1% of average daily net assets on an annual basis from Evergreen Global Real Estate Equity Fund. The fee paid by Evergreen Global Real Estate Equity Fund is higher than the rate paid by most other investment companies. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Global Real Estate Equity Fund for the fiscal period ended September 30, 1994 are set forth in the section entitled "Financial Highlights". The above-mentioned expense ratios for Evergreen Global Real Estate Equity Fund is net of voluntary advisory fee waivers and expense reimbursements by Evergreen Asset which may, at its discretion, revise or cease this voluntary waiver at any time. CMG, along with BIA and Marvin & Palmer, respectively, manages investments and supervises the daily business affairs of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund. As compensation therefor, CMG is entitled to receive an annual fee from Evergreen International Equity Fund equal to: .82 of 1% of the first $20 million of average daily net assets; .79 of 1% of the next $30 million of average daily net assets; .76 of 1% of the next $50 million of average daily net assets; and .73 of 1% of average daily net assets in excess of $100 million. From Evergreen Emerging Markets Growth Fund, CMG is entitled to receive an annual fee equal to: 1.50% of the first $100 million of average daily net assets; 1.45% of the next $100 million of average daily net assets; 1.40% of the next $100 million of average daily net assets; and 1.35% of average daily net assets in excess of $300 million. The fees paid by Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund are higher than the rate paid by most other investment companies, but are not higher than the fee paid by many funds with similar investment objectives. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". CMG has agreed to pay the sub adviser to Evergreen International Equity Fund, BIA, a fee equal to: .32 of 1% of the first $20 million of average daily net assets; .29 of 1% of the next $30 million of average daily net assets; .26 of 1% of the next $50 million of average daily net assets; and .23 of 1% of average daily net assets in excess of $100 million. For its services as sub-adviser to Evergreen Emerging Markets Growth Fund, Marvin & Palmer receives from CMG a fee equal to: 1.00% of the first $100 million of average daily net assets; .95 of 1% of the next $100 million of average daily net assets; .90 of 1% of the next $100 million of average daily net assets; and .85 of 1% of average daily net assets in excess of $300 million. Evergreen Asset serves as administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and is entitled to receive a fee based on the average daily net assets of these Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Global Real Estate Equity Fund is Samuel A. Lieber. Mr. Samuel Lieber has been the Fund's principal manager since inception and has been associated with the Evergreen Asset since prior to 1989. The portfolio managers for Evergreen International Equity Fund are Maureen Ghublikian and David A. Umstead, who are Managing Directors of BIA and have been associated therewith since prior to 1989. The portfolio managers for Evergreen Emerging Markets Growth Fund, all of whom have served since its inception in September 1994, are David F. Marvin, who is Chairman of Marvin & Palmer and is primarily responsible for Latin America and currency management, Stanley Palmer, who is President of Marvin & Palmer and primarily responsible for Southeast Asia and the India subcontinent, Terry B. Mason, who is a Vice President of Marvin & Palmer and is primarily responsible for Eastern Europe and Africa, Jay F. Middleton, who is a portfolio manager for Marvin & Palmer and primarily responsible for Latin America and the Middle East, and Todd D. Marvin, who is a portfolio manager for Marvin & Palmer and, along with Mr. Palmer, primarily responsible for Southeast Asia and the India subcontinent. David F. Marvin, and Stanley Palmer, President, founded Marvin & Palmer in 1986. Mr. Mason and Mr. Middleton both joined Marvin & Palmer in 1990. Mr. Todd Marvin joined Marvin & Palmer in 1991 and, prior thereto, was employed by Oppenheimer & Company as an analyst in its investment banking department from 1989 until 1991. SUB-ADVISERS Evergreen Asset has entered into sub-advisory agreements with Lieber & Company with respect to Evergreen Global Real Estate Equity Fund which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on each such Fund's portfolio. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Global Real Estate Equity Fund for the services provided by Lieber & Company. It is contemplated that Lieber & Company will, to the extent practicable, effect substantially all of the portfolio transactions for this Fund on the New York and American Stock Exchanges. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. The sub-adviser to the Evergreen International Equity Fund, BIA, has been in operation since 1986 and specializes in the management of international equity portfolios. BIA currently manages twenty international portfolios, including five group trust funds, for pension fund sponsors and endowment plans worldwide. Messrs. Lyle H. Davis, Norman H. Meltz and David A. Umstead are the principal executive officers of BIA and each own more than 25% of the outstanding voting securities thereof. As of March 31, 1995 BIA managed a total of $2.7 billion in assets and served as sub-adviser to one other investment company with total assets of $148 million. Marvin & Palmer, Sub-Adviser for Evergreen Emerging Markets Growth Fund was founded in 1986 and is engaged in the management of global, non-United States and emerging markets equity portfolios for institutional accounts. At March 31, 1995, Marvin & Palmer managed a total of $2.5 billion in investments for 34 institutional investors and 5 commingled funds and served as sub-adviser to another investment company with total assets of $33 million. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A, Class B and Class C shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, 1.00% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen Global Real Estate Equity Fund, and .75 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund have each, in addition to the Plans adopted with respect to their Class B and Class C shares, adopted shareholder service plans ("Service Plans") relating to the Class B and Class C shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B and Class C shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plan, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares, .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class C shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans ( and in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, the Service Plans), in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B and Class C shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. ------------------------------------------------------------------------------ PURCHASE AND REDEMPTION OF SHARES ------------------------------------------------------------------------------ HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment plan. Share certificates are not issued. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A, Class B and Class C shares are offered through this Prospectus (See "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee in connection with transactions in shares of the Funds. Class A shares may also be purchased at net asset value by qualified and non-qualified employee benefit and savings plans which make shares of the Funds and the other Evergreen mutual funds available to their participants, and which: (a) are employee benefit plans having at least $1,000,000 in investable assets, or 250 or more eligible participants; or (b) are non-qualified benefit or profit sharing plans which are sponsored by an organization which also makes the Evergreen mutual funds available through a qualified plan meeting the criteria specified under (a). In connection with sales made to plans of the type described in the preceeding sentence that are clients of broker-dealers, and which do not qualify for sales at net asset value under the conditions set forth in the paragraph above, payments may be made in an amount equal to .50 of 1% of the net asset value of shares purchased. These payments are subject to reclaim in the event shares are redeemed within 12 months after purchase. When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .25 of 1% of the average daily value on an annual basis of Class A shares held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which it is expected that they will convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. Class C Shares--Level-Load Alternative. You can purchase Class C shares without any initial sales charge and, therefore, the full amount of your investment will be used to purchase Fund shares. However, you will pay a 1.0% CDSC if you redeem shares during the first year after purchase. Class C shares incur higher distribution and/or shareholder service fees than Class A shares but, unlike Class B shares, do not convert to any other class of shares of the Fund. The higher fees mean a higher expense ratio, so Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. No contingent deferred sales charge will be imposed on Class C shares purchased by institutional investors, and through employee benefit and savings plans eligible for the exemption from front-end sales charges described under "Class A Shares-Front End Sales Charge Alternative", above. Broker-dealers and other financial intermediaries whose clients have purchased Class C shares may receive a trailing commission equal to .75 of 1% of the average daily value of such shares on an annual basis held by their clients more than one year from the date of purchase. The payment of trailing commissions will commence immediately with respect to shares eligible for exemption from the contingent deferred sales charge normally applicable to Class C shares. With respect to Class B Shares and Class C Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years (in the case of Class B Shares) or one year (in the case of Class C Shares) after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution and/or shareholder service fees, after seven years. If you are unsure of the time period of your investment, you might consider Class C shares since there are no initial sales charges and, although there is no conversion feature, the CDSC only applies to redemptions made during the first year. Consult your financial intermediary for further information. The compensation received by dealers and agents may differ depending on whether they sell Class A, Class B or Class C shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen mutual funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Fund's investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B or Class C shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 10 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B or C shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The redemption of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive sixty days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the Fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B or Class C shares are exchanged for Class B or Class C shares, respectively, of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B or Class C shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Funds and the other Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from front-end sales charges if they meet the criteria set forth under "Class A Shares-Front End Sales Charge Alternative". Each Fund's investment adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Code. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. If more than 50% of the value of a Fund's assets at the end of the tax year is represented by stock or securities of foreign corporations, the Fund intends to qualify for certain Code stipulations that would allow shareholders to claim a foreign tax credit or deduction on their U.S. income tax returns. The Code may limit a shareholder's ability to claim a foreign tax credit. Furthermore, shareholders who elect to deduct their portion of a Fund's foreign taxes rather than take the foreign tax credit must itemize deductions on their income tax returns. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Global Real Estate Equity Fund for its most recent fiscal year is set forth below. A similar discussion relating to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. Evergreen Global Real Estate Equity Fund. For the nine month period ending September 30, 1994, the Evergreen Global Real Estate Equity Fund was significantly impacted by a combination of rising interest rates worldwide leading to a performance decline of -6.4%. The relative indices performance was similar, as the Morgan Stanley Global Real Estate Sub Index fell -9.9% and the Wall Street Journal/Dow Jones World Sub Index of real estate stocks lost -11.5%. The rise in interest rates in Europe was significantly higher than it was in the U.S., despite little prospect of imminent inflation due to continued slow economic recovery. We believe that both property and stock markets viewed rising rates as a brake on economic growth. This resulted in weak performance for European property shares. Japan also remained a relatively dull performer after the first quarter as little evidence of economic growth was visible. Only Southeast Asia and Latin America provided the Fund with significant opportunities for capital appreciation during this period. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Global Real Estate Equity Fund is a separate series of the Evergreen Real Estate Equity Trust, a Massachusetts business trust organized in 1988. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund are separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser Evergreen Global Real Estate Equity Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission ("SEC"), the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN EMERGING MARKETS GROWTH FUND, EVERGREEN INTERNATIONAL EQUITY FUND Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN EMERGING MARKETS GROWTH FUND, EVERGREEN INTERNATIONAL EQUITY FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536113 PROSPECTUS July 7, 1995 EVERGREEN(SM mark) INTERNATIONAL GROWTH FUNDS (Evergreen Logo appears here) EVERGREEN EMERGING MARKETS GROWTH FUND EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN GLOBAL REAL ESTATE EQUITY FUND CLASS Y SHARES The Evergreen International Growth Funds (the "Funds") are designed to provide investors with a selection of investment alternatives which seek to provide capital growth and diversification. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM mark) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Adviser Sub-Advisers Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN GLOBAL REAL ESTATE EQUITY FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN EMERGING MARKETS GROWTH FUND and EVERGREEN INTERNATIONAL EQUITY FUND. EVERGREEN EMERGING MARKETS GROWTH FUND (formerly First Union Emerging Markets Growth Portfolio) seeks to provide long-term capital appreciation. The EMERGING MARKETS GROWTH FUND invests in equity securities of issuers located in countries with emerging markets. EVERGREEN INTERNATIONAL EQUITY FUND (formerly First Union International Equity Portfolio) seeks to provide long-term capital appreciation. The EVERGREEN INTERNATIONAL EQUITY FUND invests in equity securities of non-U.S. issuers. EVERGREEN GLOBAL REAL ESTATE EQUITY FUND seeks long-term capital growth. Current income is a secondary objective. It invests primarily in equity securities of United States and non-United States companies which are principally engaged in the real estate industry or which own significant real estate assets. It will not purchase direct interests in real estate. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN EMERGING MARKETS GROWTH FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees 1.50% After 1 Year $ 22 Administrative Fees .06% After 3 Years $ 67 12b-1 Fees -- After 5 Years $ 115 Other Expenses .59% After 10 Years $ 248 Total 2.15%
EVERGREEN INTERNATIONAL EQUITY FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees .82% After 1 Year $ 12 Administrative Fees .06% After 3 Years $ 37 12b-1 Fees -- After 5 Years $ 64 Other Expenses .29% After 10 Years $ 142 Total 1.17%
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees 1.00% After 1 Year $ 15 12b-1 Fees -- After 3 Years $ 46 Other Expenses .46% After 5 Years $ 80 After 10 Years $ 175 Total 1.46%
*The estimated annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the most recent fiscal period. Actual expenses for Class Y Shares net of fee waivers and expense reimbursements for the fiscal periods ended December 31, 1994 or September 30, 1994, as applicable, were as follows:
Evergreen Emerging Markets Growth Fund 1.53% Evergreen International Equity Fund 1.06% Evergreen Global Real Estate Equity Fund 1.46%
3 From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN EMERGING MARKETS GROWTH FUND and EVERGREEN INTERNATIONAL EQUITY FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, for EVERGREEN GLOBAL REAL ESTATE EQUITY FUND has, except as noted otherwise, been audited by Price Waterhouse LLP, the Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjuction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN EMERGING MARKETS GROWTH FUND
CLASS B CLASS C CLASS Y SHARES SHARES SHARES CLASS A SHARES SEPTEMBER 6, 1994* THROUGH DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period................................................. $10.00 $10.00 $10.00 $10.00 Income (loss) from investment operations: Net investment income (loss)......................................................... -- (.02 ) (.02 ) .01 Net realized and unrealized loss on investments and foreign currency transactions.... (1.83 ) (1.82 ) (1.82 ) (1.84 ) Total from investment operations................................................... (1.83 ) (1.84 ) (1.84 ) (1.83 ) Net asset value, end of period....................................................... $8.17 $8.16 $8.16 $8.17 TOTAL RETURN+........................................................................ (18.3% ) (18.4% ) (18.4% ) (18.3% ) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................................ $867 $1,589 $89 $5,878 Ratios to average net assets: Expenses (a)....................................................................... 1.78% ++ 2.53% ++ 2.53% ++ 1.53% ++ Net investment income (loss)(a).................................................... (.12% )++ (.84% )++ (.82% )++ .43% ++ Portfolio turnover rate.............................................................. 17% 17% 17% 17%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, for the period from September 6, 1994 through December 31, 1994 would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES Expenses..................................................... 3.96% 4.71% 4.71% 3.71% Net investment income (loss)................................. (2.30%) (3.02%) (3.00%) (1.75%)
5 EVERGREEN INTERNATIONAL EQUITY FUND
CLASS A CLASS B CLASS C SHARES SHARES SHARES SEPTEMBER 2, 1994* THROUGH DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period............................................... $10.00 $10.00 $10.00 Income (loss) from investment operations: Net investment income.............................................................. .02 -- .03 Net realized and unrealized loss on investments.................................... (.52) (.50) (.54) Total from investment operations................................................. (.50) (.50) (.51) Less distributions to shareholders from: Net investment income.............................................................. -- -- -- Net asset value, end of period..................................................... $9.50 $9.50 $9.49 TOTAL RETURN+...................................................................... (5.1%) (5.2%) (5.2%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).......................................... $2,545 $5,602 $163 Ratios to average net assets: Expenses (a)..................................................................... 1.26%++ 2.02%++ 2.01%++ Net investment income (a)........................................................ .91%++ .10%++ .85%++ Portfolio turnover rate............................................................ 1% 1% 1% CLASS Y SHARES PER SHARE DATA Net asset value, beginning of period............................................... $10.00 Income (loss) from investment operations: Net investment income.............................................................. .02 Net realized and unrealized loss on investments.................................... (.51 ) Total from investment operations................................................. (.49 ) Less distributions to shareholders from: Net investment income.............................................................. (.01 ) Net asset value, end of period..................................................... $9.50 TOTAL RETURN+...................................................................... (5.0% ) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).......................................... $23,830 Ratios to average net assets: Expenses (a)..................................................................... 1.06% ++ Net investment income (a)........................................................ 1.03% ++ Portfolio turnover rate............................................................ 1%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, for the period from September 2, 1994 through December 31, 1994 would have been the following:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES Expenses..................................................... 2.09% 2.85% 2.84% 1.89% Net investment income (loss)................................. .08% (.73% ) .02% .20%
6 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND -- CLASS Y SHARES
SIX MONTHS NINE MONTHS FEBRUARY 1, 1989* ENDED ENDED THROUGH MARCH 31, 1995 SEPTEMBER 30, YEAR ENDED DECEMBER 31, DECEMBER 31, (UNAUDITED) 1994# 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period................ $13.81 $14.75 $9.86 $9.16 $8.10 $10.03 $10.00 Income (loss) from investment operations: Net investment income (loss)................... .01 .07 -- (.01) (.02) (.03) .17 Net realized and unrealized gain (loss) on investments.............. (2.48) (1.01) 5.07 .94 1.08 (1.90) .03 Total from investment operations........... (2.47) (.94) 5.07 .93 1.06 (1.93) .20 Less distributions to shareholders from: Net investment income...... (.10) -- -- -- -- -- (.17) Net realized gains......... (.52) -- (.18) (.23) -- -- -- Total distributions.... (.62) -- (.18) (.23) -- -- (.17) Net asset value, end of period................... $10.72 $13.81 $14.75 $9.86 $9.16 $8.10 $10.03 TOTAL RETURN+.............. (18.4%) (6.4%) 51.4% 10.2% 13.1% (19.2%) 2.0% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).......... $74,001 $132,294 $146,173 $8,618 $7,557 $6,004 $7,336 Ratios to average net assets: Operating expenses....... 1.51%++ 1.46%++ 1.56%(a) 2.00%(a) 2.00%(a) 2.00%(a) 2.00%(a)++ Interest expense......... .08%++ .08%++ -- -- -- -- -- Net investment income (loss)................. .39%++ .56%++ .03%(a) (.10%)(a) (.27%)(a) (.39%)(a) 2.23%(a)++ Portfolio turnover rate.... 17% 63% 88% 245% 207% 325% 151%
# On September 21, 1994, the Fund changed its fiscal year end from December 31 to September 30. * Commencement of operations. + Total return is calculated on net asset value per share and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
FEBRUARY 1, 1989 THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, 1993 1992 1991 1990 1989 Operating expenses............................. 1.64% 3.72% 3.76% 3.99% 3.17% Net investment income (loss)................... (.05%) (1.82%) (2.02%) (2.38%) 1.06%
7 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND -- CLASS A, B AND C SHARES
CLASS A SHARES CLASS B SHARES CLASS C SHARES FEBRUARY 10, 1995* FEBRUARY 8, 1995* FEBRUARY 9, 1995* THROUGH THROUGH THROUGH MARCH 31, 1995 MARCH 31, 1995 MARCH 31, 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) PER SHARE DATA Net asset value, beginning of period.............................. $11.46 $ 11.44 $ 11.43 Income (loss) from investment operations: Net investment income............................................. .02 .02 .01 Net realized and unrealized loss on investments................... (.76) (.75) (.73) Total from investment operations.............................. (.74) (.73) (.72) Net asset value, end of period.................................... $10.72 $ 10.71 $ 10.71 TOTAL RETURN+..................................................... (6.5%) (6.4%) (6.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)......................... $2,531 $ 3,362 $ 1,146 Ratios to average net assets: Operating expenses (a).......................................... 1.51%++ 2.27%++ 2.31%++ Interest expense................................................ .02%++ .01%++ .01%++ Net investment income (a)....................................... 3.21%++ 1.53%++ .87%++ Portfolio turnover rate #......................................... 17% 17% 17%
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A, Class B and Class C shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. # Portfolio turnover rate is calculated for the six months ended March 31, 1995. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS C SHARES FEBRUARY 10, 1995 FEBRUARY 8, 1995 FEBRUARY 9, 1995 THROUGH THROUGH THROUGH MARCH 31, 1995 MARCH 31, 1995 MARCH 31, 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) Operating expenses.......................... 2.73% 3.49% 3.49% Net investment income (loss)................ 1.99% .31% (.31%)
8 9 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Emerging Markets Growth Fund The objective of Evergreen Emerging Markets Growth Fund is long-term capital appreciation. In seeking this objective, the Fund invests in equity securities of issuers located in emerging markets. The Fund is suitable for aggressive investors interested in the investment opportunities offered by securities of issuers located in emerging or developing markets and the resulting potential for growth opportunities resulting from political change, economic deregulation and liberalized trade policies. The objective is fundamental and may not be changed without shareholder approval. The Fund seeks long-term capital appreciation. The Fund invests primarily in a diversified portfolio of equity securities of issuers located in countries with emerging markets. As a matter of policy, the Fund will invest at least 65% of the value of its total assets in securities of emerging market issuers. A country will be considered to have an "emerging market" if it has relatively low gross national product per capita compared to the world's major economies and the potential for rapid economic growth. Countries with emerging markets include those that have an emerging stock market (as defined by the International Finance Corporation), those with low-to middle income economies (according to the World Bank), and those listed in World Bank publications as "developing." The Fund will normally invest in at least six different countries, although it may invest all of its assets in a single country. At the present time, the Fund has no intention of investing all of its assets in a single country. The Fund focuses on equity securities, but may also invest in other types of instruments, including debt securities. Marvin & Palmer Associates, the Sub-Adviser to the Fund, will make investment decisions regarding equity securities based on its analysis of returns, price momentum, business and industry considerations, and management quality. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen International Equity Fund The objective of Evergreen International Equity Fund is long-term capital appreciation. The Fund invests primarily in equity securities of non-U.S. issuers and is suitable for investors who want to pursue their investment goals in markets outside the United States. The Fund provides investors with a vehicle to pursue investment opportunities in countries outside the U.S. whose securities markets may benefit from differing economic and political cycles. The objective is fundamental and may not be changed without shareholder approval. The Fund invests primarily in foreign equity securities that Boston International Advisers, Inc., the Sub-Adviser to the Fund, determines, through both fundamental and technical analysis, to be undervalued compared to other securities in their industries and countries. In most market conditions, the stocks comprising the Fund's assets will exhibit traditional value characteristics, such as higher than average dividend yields, lower than average price to book value, and will include stocks of companies with unrecognized or undervalued assets. As a matter of policy, the Fund will invest at least 65% of the value of its total assets in equity securities of issuers located in at least three countries outside of the United States. The Fund will emphasize value stocks, primarily of companies which are listed on one or more of thirty-two stock markets: twenty developed markets and twelve emerging markets. While the current intention of the Fund is to invest in 32 stock markets, the Fund may invest in more or less, depending upon market conditions as determined by the Sub-Adviser. The Fund will invest substantially in industrialized companies throughout the world that comprise the Morgan Stanley Capital International EAFE (Europe, Australia and the Far East) Index. In addition, the Fund intends to invest up to 10% of its assets in emerging country equity securities, as described above under "Evergreen Emerging Markets Growth Fund." The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Global Real Estate Equity Fund The Evergreen Global Real Estate Equity Fund seeks to achieve its investment objective of long-term capital growth through investment primarily in equity securities of domestic and foreign companies which are principally engaged in the real estate industry or which own significant real estate assets; the Fund will not purchase direct interests in real estate. Current income will be a secondary objective. Equity securities will include common stock, preferred stock and securities convertible into common stock. The objective is fundamental and may not be changed without shareholder approval. The Fund will, under normal conditions, invest at least 65% of its total assets in equity securities of domestic and foreign exchange or NASDAQ listed companies which are principally engaged in the real estate industry. A company is deemed to be "principally engaged" in the real estate industry if at least 50% of its assets (marked to market), gross income or net profits are attributable to ownership, construction, management or sale of residential, commercial or industrial real estate. Real estate industry companies may include among others: equity real estate investment trusts, which pool investors' funds for investment primarily in commercial real estate properties; mortgage real estate investment trusts, which invest pooled funds in real estate related loans; brokers or real estate developers; and companies with substantial real estate holdings, such as paper and lumber producers and hotel and entertainment companies. The Fund will only invest in real estate equity trusts and limited partnerships which are traded on major exchanges. As a matter of fundamental policy, the Fund will also invest at least 65% of its total assets in the equity securities of companies of at least three countries, including the United States, except when abnormal market or financial conditions warrant the assumption of a temporary defensive position. See "Investment Practices and Restrictions" and "Special Risk Considerations". The remainder of the Fund's investments may be made in equity securities of issuers whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions which issue or service mortgages. The Fund may invest more than 25% of its total assets in any one sector of the real estate or real estate related industries. In addition, the Fund may, from time to time, invest in the securities of companies unrelated to the real estate industry whose real estate assets are substantial relative to the price of the companies' securities. The Fund pursues a flexible strategy of investing in a diversified portfolio of securities of companies throughout the world. The Fund's investment adviser anticipates that the Fund will give particular consideration to investments in the United Kingdom, Western Europe, Australia, Canada, the Far East (Japan, Hong Kong, Singapore, Malaysia and Thailand) and the United States. The percentage of the Fund's assets invested in particular geographic regions will shift from time to time in accordance with the judgment of the Fund's investment adviser. Generally, a substantial portion of the assets of the Fund will be denominated or traded in foreign currencies. Investments may also be made in securities of issuers unrelated to the real estate industry believed by the Fund's investment adviser to be undervalued and to have capital appreciation potential. Also, consistent with the secondary objective of current income, investments may also be made in nonconvertible debt securities of such companies. The debt securities purchased (except for those described below) will be of investment grade or better quality (e.g., rated no lower than A by Moody's Investors Service ("Moody's") or Standard & Poor's Ratings Group ("S&P")or if not so rated, believed by the Fund's investment adviser to be of comparable quality). However, up to 10% of total assets may be invested in unrated debt securities of issuers secured by real estate assets where the Fund's investment adviser believes that the securities are trading at a discount and the underlying collateral will ensure repayment of principal. In such situations, it is conceivable that the Fund could, in the event of default, end up holding the underlying real estate directly. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS General. The Funds primarily invest in: common and preferred stocks, convertible securities and warrants of foreign corporations. Common stocks represent an equity interest in a corporation. This ownership interest often gives the Funds the right to vote on measures affecting the company's organization and operations. Although common stocks have a history of long-term growth in value, their prices tend to fluctuate in the short-term, particularly those of smaller capitalization companies. Smaller capitalization companies may have limited product lines, markets, or financial resources. These conditions may make them more susceptible to setbacks and reversals. Therefore, their securities may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger companies; obligations of foreign governments and supranational organizations; corporate and foreign government fixed income securities denominated in currencies other than U.S. dollars, rated, at the time of purchase, Baa or higher by Moody's or BBB or higher by S&P, or which, if unrated, are considered to be of comparable quality by the Fund's investment adviser or sub-advisers. Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. Although the Funds do not intend to invest significantly in debt securities, it should be noted that the prices of fixed income securities fluctuate inversely to the direction of interest rates; strategic investments, such as options and futures contracts on currency transactions, securities index futures contracts, and forward foreign currency exchange contracts. The Funds can use these techniques to increase or decrease their exposure to changing security prices, interest rates, currency exchange rates, or other factors that affect security values. (Although, of course, there can be no assurance that these strategic investments will be successful in protecting the value of the Funds' securities.); and securities of closed-end investment companies. Defensive Investments. The Funds may invest without limitation in high quality money market instruments, such as notes, certificates of deposit or bankers' acceptances, or U.S. government securities if, in the opinion of a Fund's investment adviser or sub-adviser, market conditions warrant a temporary defensive investment strategy. Portfolio Turnover and Brokerage. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects brokerage commissions and other transaction costs which the Fund bears directly. A high rate of portfolio turnover will increase such costs. It is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a member of the New York and American Stock Exchanges, will to the extent practicable effect substantially all of the portfolio transactions for Evergreen Global Real Estate Equity Fund effected on those exchanges. See the Statement of Additional Information for further information regarding the brokerage allocation practices of the Funds. The portfolio turnover rate for each Fund is set forth in the tables contained in the section entitled "Financial Highlights". Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Funds' risk is the inability of the seller to pay the agreed-upon price on the delivery date. However, this risk is tempered by the ability of the Funds to sell the security in the open market in the case of a default. In such a case, the Funds may incur costs in disposing of the security which would increase Fund expenses. Each Fund's investment adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Funds purchase securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Funds to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Funds may pay more or less than the market value of the securities on the settlement date. A Fund may dispose of a commitment prior to settlement if the Fund's investment adviser deems it appropriate to do so. In addition, Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Temporary Investments. The Funds may invest in U.S. and foreign short-term money market instruments (denominated in U.S. and/or foreign currencies), including interest-bearing call deposits with banks, government obligations, certificates of deposit, bankers' acceptances, commercial paper, short-term corporate debt securities, and repurchase agreements. These investments may be used to temporarily invest cash received from the sale of Fund shares, to establish and maintain reserves for temporary defensive purposes, or to take advantage of market opportunities. Illiquid or Restricted Securities. Each Fund may invest up to 15% of its net assets in illiquid securities and other securities which are not readily marketable. Illiquid securities include certain restricted securities not determined by the Trustees to the liquid, non-negotiable time deposits and repurchase agreements providing for settlement in more than seven days after notice. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Funds' investment advisers to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Borrowing. As a matter of fundamental policy, the Funds may not borrow money except as a temporary measure to facilitate redemption requests or for extraordinary or emergency purposes. The proceeds from borrowings may be used to facilitate redemption requests which might otherwise require the untimely disposition of portfolio securities. The specific limits applicable to borrowing by each Fund are set forth in the Statement of Additional Information. Lending of Portfolio Securities. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial institutions. The Funds' investment advisers or sub-advisers will monitor the creditworthiness of such borrowers. Loans of securities by the Funds, if and when made, may not exceed 30% of the value of the total assets of the Evergreen Global Real Estate Equity Fund, and must be collateralized by cash or U.S. Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the securities loaned, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund has the right to call a loan and obtain the securities loaned at any time on notice of not more than five business days. A Fund may pay reasonable fees in connection with such loans. Fixed-Income Securities -- Downgrades. If any security invested in by any of the Funds 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. Foreign Currency Transactions. The Funds will enter into foreign currency transactions to obtain the necessary currencies to settle securities transactions. Currency transactions may be conducted either on a spot or cash basis at prevailing rates or through forward foreign currency exchange contracts. The Funds may also enter into foreign currency transactions to protect Fund assets against adverse changes in foreign currency exchange rates or exchange control regulations. Such changes could unfavorably affect the value of Fund assets which are denominated in foreign currencies, such as foreign securities or funds deposited in foreign banks, as measured in U.S. dollars. Although foreign currency exchanges may be used by a Fund to protect against a decline in the value of one or more currencies, such efforts may also limit any potential gain that might result from a relative increase in the value of such currencies and might, in certain cases, result in losses to the Fund. Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward contract") is an obligation to purchase or sell an amount of a particular currency at a specific price and on a future date agreed upon by the parties. Generally, no commission charges or deposits are involved. At the time a Fund enters into a forward contract, Fund assets with a value equal to the Fund's obligation under the forward contract are segregated and are maintained until the contract has been settled. The Funds will not enter into a forward contract with a term of more than one year. The Funds will generally enter into a forward contract to provide the proper currency to settle a securities transaction at the time the transaction occurs ("trade date"). The period between trade date and settlement date will vary between 24 hours and 60 days, depending upon local custom. The Funds may also protect against the decline of a particular foreign currency by entering into a forward contract to sell an amount of that currency approximating the value of all or a portion of the Funds' assets denominated in that currency ("hedging"). The success of this type of short-term hedging strategy is highly uncertain due to the difficulties of predicting short-term currency market movements and of precisely matching forward contract amounts and the constantly changing value of the securities involved. Although each Fund's investment adviser or sub-adviser will consider the likelihood of changes in currency values when making investment decisions, each Fund's investment adviser or sub-adviser believes that it is important to be able to enter into forward contracts when it believes the interests of a Fund will be served. The Funds will not enter into forward contracts for hedging purposes in a particular currency in an amount in excess of the Funds' assets denominated in that currency, but as consistent with their other investment policies and as not otherwise limited in their ability to use this strategy. Options And Futures. The Funds may deal in options on foreign currencies, and portfolio securities, and, in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, securities indices, which options may be listed for trading on an international securities exchange. The Funds will use these options to manage interest rate and currency risks. The Funds also may write covered call options and secured put options to generate income or to lock in gains. Each Fund may write covered call options and secured put options on up to 25% of its net assets in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and 15% of its net assets in the case of Evergreen Global Real Estate Equity Fund, and Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may purchase put and call options provided that no more than 5% of the fair market value of its net assets may be invested in premiums on such options. A call option gives the purchaser the right to buy, and the writer the obligation to sell, the underlying asset at the exercise price during the option period. A put option gives the purchaser the right to sell, and the writer the obligation to buy, the underlying asset at the exercise price during the option period. The writer of a covered call owns assets that are acceptable for escrow and the writer of a secured put invests an amount not less than the exercise price in eligible assets to the extent that it is obligated as a writer. If a call written by a Fund is exercised, the Fund forgoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. In writing puts, there is a risk that a Fund may be required to take delivery of the underlying asset at a disadvantageous price. The Funds may enter into futures contracts involving foreign currency and, in the case of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, securities indices,, or options on currency, for bona fide hedging purposes The Funds may not enter into futures contracts or related options if, immediately thereafter, the amounts committed to margin and premiums paid for unexpired options would exceed 5% of a Fund's total assets and, in the case of Evergreen Global Real Estate Equity Fund, more than 30% of the Fund's net assets would be hedged thereby. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund, may also enter into such futures contracts or related options for purposes other than bona fide hedging if the aggregate amount of initial margin deposits on a Fund's futures and related options positions would not exceed 5% of the net liquidation value of the Fund's assets, provided further that in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating the 5% limitation. In addition, a Fund may not sell futures contracts if the value of such futures contracts exceeds the total market value of the Fund's portfolio securities. Futures contracts sold by a Fund are generally subject to segregation and coverage requirements established by either the Commodity Futures Trading Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with the result that, if a Fund does not hold the instrument underlying the futures contract or option, the Fund will be required to segregate, on an ongoing basis with its custodian, cash, U.S. government securities, or other liquid high grade debt obligations in an amount at least equal to the Fund's obligations with respect to such instruments. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into securities index futures contracts and purchase and write put and call options on securities index futures contracts that are traded on regulated exchanges, including non-U.S. exchanges, to the extent permitted by the CFTC. Securities index futures contracts are based on indices that reflect the market value of securities of the firms included in the indices. An index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the differences between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund may enter into securities index futures contracts to sell a securities index in anticipation of or during a market decline to attempt to offset the decrease in market value of securities in its portfolio that might otherwise result. When a Fund is not fully invested and anticipates a significant market advance, it may enter into futures contracts to purchase the index in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that it intends to purchase. In many of these transactions, a Fund will purchase such securities upon termination of the futures position but, depending on market conditions, a futures position may be terminated without the corresponding purchases of common stock. A Fund may also invest in securities index futures contracts when its investment adviser or sub-adviser believes such investment is more efficient, liquid or cost-effective than investing directly in the securities underlying the index. The use of futures and related options involves special considerations and risks, including: (1) the ability of a Fund to utilize futures successfully will depend on its investment adviser's or sub-adviser's ability to predict pertinent market movements; and (2) there might be an imperfect correlation (or conceivably no correlation) between the change in the market value of the securities held by a Fund and the prices of the futures relating to the securities purchased or sold by the Fund. The use of futures and related options may reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements, but these instruments can also reduce the opportunity for gain by offsetting the positive effect of favorable price movements in positions. No assurance can be given that the investment adviser's or sub-adviser's judgment in this respect will be correct. It is not certain that a secondary market for positions in futures contracts or for options will exist at all times. Although each investment adviser or sub-adviser will consider liquidity before entering into these transactions, there is no assurance that a liquid secondary market on an exchange or otherwise will exist for any particular futures contract or option at any particular time. A Fund's ability to establish and close out futures and options positions depends on this secondary market. Risk Characteristics Of Foreign Securities. Investing in non-U.S. securities carries substantial risks in addition to those associated with domestic investments. In an attempt to reduce some of these risks, the Funds diversify their investments broadly among foreign countries which may include both developed and developing countries. With respect to Evergreen International Equity Fund, at least three different countries will always be represented. The Funds may take advantage of the unusual opportunities for higher returns available from investing in developing countries. As discussed in detail below under "Emerging Markets," however, these investments carry considerably more volatility and risk because they generally are associated with less mature economies and less stable political systems. Foreign securities are denominated in foreign currencies. Therefore, the value in U.S. dollars of a Fund's assets and income may be affected by changes in exchange rates and regulations. Although the Funds value their assets daily in U.S. dollars, they will not convert their holdings of foreign currencies to U.S. dollars daily. When a Fund converts its holdings to another currency, it may incur conversion costs. Foreign exchange dealers realize a profit on the difference between the prices at which such dealers buy and sell currencies. To the extent that securities purchased by the Funds are denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Funds' net asset values; the value of interest earned; gains and losses realized on the sale of securities; and net investment income and capital gains, if any, to be distributed to shareholders by a Fund. If the value of a foreign currency rises against the U.S. dollar, the value of a Fund's assets denominated in that currency will increase; correspondingly, if the value of a foreign currency declines against the U.S. dollar, the value of a Fund's assets denominated in that currency will decrease. Other differences between investing in foreign and U.S. companies include: less publicly available information about foreign companies; the lack of uniform financial accounting standards applicable to foreign companies; less readily available market quotations on foreign companies; differences in government regulation and supervision of foreign stock exchanges, brokers, listed companies, and banks; differences in legal systems which may affect the ability to enforce contractual obligations or obtain court judgments; generally lower foreign stock market volume; the likelihood that foreign securities may be less liquid or more volatile; foreign brokerage commissions may be higher; unreliable mail service between countries; and political or financial changes which adversely affect investments in some countries. In the past, U.S. government policies have discouraged or restricted certain investments abroad by investors such as the Funds. Although the Funds are unaware of any current restrictions, investors are advised that these policies could be reinstituted. Emerging Markets. The economies of individual emerging countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent on international trade and, accordingly, have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been, and may continue to be, adversely affected by economic conditions in the countries with which they trade. Prior governmental approval for foreign investments may be required under certain circumstances in some emerging countries, and the extent of foreign investment in certain debt securities and domestic companies may be subject to limitation in other emerging countries. Foreign ownership limitations also may be imposed by the charters of individual companies in emerging countries to prevent, among other concerns, violation of foreign investment limitations. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging countries. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental registration or approval for such repatriation. Any investment subject to such repatriation controls will be considered illiquid if it appears reasonably likely that this process will take more than seven days. With respect to any emerging country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, governmental regulation, social instability or diplomatic developments (including war) which could affect adversely the economics of such countries or the value of the Funds' investments in those countries. In addition, it may be difficult to obtain and enforce a judgment in a court outside of the U.S. Investments Related to Real Estate. Risks associated with investment in securities of companies in the real estate industry include: declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants and increase in interest rates. In addition, equity real estate investment trusts may be affected by changes in the value of the underlying property owned by the trusts, while mortgage real estate investment trusts may be affected by the quality of credit extended. Equity and mortgage real estate investment trusts are dependent upon management skills, may not be diversified and are subject to the risks of financing projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code (the "Code") and to maintain exemption from the Investment Company Act of 1940, as amended (the "1940 Act"). In the event an issuer of debt securities collateralized by real estate defaulted, it is conceivable that a Fund could end up holding the underlying real estate. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). Evergreen Asset Management Corp. (the "Evergreen Asset") has been retained by Evergreen Global Real Estate Equity Fund as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Fund. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund. Boston International Advisers, Inc. ("BIA") is Sub-Adviser to Evergreen International Equity Fund and Marvin & Palmer Associates, Inc. ("Marvin & Palmer") is Sub-Adviser to Evergreen Emerging Markets Growth Fund First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. As investment adviser to Evergreen Global Real Estate Equity Fund, Evergreen Asset manages each Fund's investments, provides various administrative services and supervises each Fund's daily business affairs, subject to the authority of the Trustees. Evergreen Asset is entitled to receive a fee equal to 1% of average daily net assets on an annual basis from Evergreen Global Real Estate Equity Fund. The fee paid by Evergreen Global Real Estate Equity Fund is higher than the rate paid by most other investment companies. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen Global Real Estate Equity Fund for the fiscal period ended September 30, 1994 are set forth in the section entitled "Financial Highlights". The above-mentioned expense ratios for Evergreen Global Real Estate Equity Fund is net of voluntary advisory fee waivers and expense reimbursements by Evergreen Asset which may, at its discretion, revise or cease this voluntary waiver at any time. CMG, along with BIA and Marvin & Palmer, respectively, manages investments and supervises the daily business affairs of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund. As compensation therefor, CMG is entitled to receive an annual fee from Evergreen International Equity Fund equal to: .82 of 1% of the first $20 million of average daily net assets; .79 of 1% of the next $30 million of average daily net assets; .76 of 1% of the next $50 million of average daily net assets; and .73 of 1% of average daily net assets in excess of $100 million. From Evergreen Emerging Markets Growth Fund, CMG is entitled to receive an annual fee equal to: 1.50% of the first $100 million of average daily net assets; 1.45% of the next $100 million of average daily net assets; 1.40% of the next $100 million of average daily net assets; and 1.35% of average daily net assets in excess of $300 million. The fees paid by Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund are higher than the rate paid by most other investment companies, but are not higher than the fee paid by many funds with similar investment objectives. The total expenses as a percentage of average daily net assets on an annual basis of Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund for the fiscal year ended December 31, 1994 are set forth in the section entitled "Financial Highlights". CMG has agreed to pay the sub adviser to Evergreen International Equity Fund, BIA, a fee equal to: .32 of 1% of the first $20 million of average daily net assets; .29 of 1% of the next $30 million of average daily net assets; .26 of 1% of the next $50 million of average daily net assets; and .23 of 1% of average daily net assets in excess of $100 million. For its services as sub-adviser to Evergreen Emerging Markets Growth Fund, Marvin & Palmer receives from CMG a fee equal to: 1.00% of the first $100 million of average daily net assets; .95 of 1% of the next $100 million of average daily net assets; .90 of 1% of the next $100 million of average daily net assets; and .85 of 1% of average daily net assets in excess of $300 million. Evergreen Asset serves as administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and is entitled to receive a fee based on the average daily net assets of these Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager for Evergreen Global Real Estate Equity Fund is Samuel A. Lieber. Mr. Samuel Lieber has been the Fund's principal manager since inception and has been associated with the Evergreen Asset since prior to 1989. The portfolio managers for Evergreen International Equity Fund are Maureen Ghublikian and David A. Umstead, who are Managing Directors of BIA and have been associated therewith since prior to 1989. The portfolio managers for Evergreen Emerging Markets Growth Fund, all of whom have served since its inception in September 1994, are David F. Marvin, who is Chairman of Marvin & Palmer and is primarily responsible for Latin America and currency management, Stanley Palmer, who is President of Marvin & Palmer and primarily responsible for Southeast Asia and the India subcontinent, Terry B. Mason, who is a Vice President of Marvin & Palmer and is primarily responsible for Eastern Europe and Africa, Jay F. Middleton, who is a portfolio manager for Marvin & Palmer and primarily responsible for Latin America and the Middle East, and Todd D. Marvin, who is a portfolio manager for Marvin & Palmer and, along with Mr. Palmer, primarily responsible for Southeast Asia and the India subcontinent. David F. Marvin, and Stanley Palmer, President, founded Marvin & Palmer in 1986. Mr. Mason and Mr. Middleton both joined Marvin & Palmer in 1990. Mr. Todd Marvin joined Marvin & Palmer in 1991 and, prior thereto, was employed by Oppenheimer & Company as an analyst in its investment banking department from 1989 until 1991. SUB-ADVISERS Evergreen Asset has entered into sub-advisory agreements with Lieber & Company with respect to Evergreen Global Real Estate Equity Fund which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on each such Fund's portfolio. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Global Real Estate Equity Fund for the services provided by Lieber & Company. It is contemplated that Lieber & Company will, to the extent practicable, effect substantially all of the portfolio transactions for this Fund on the New York and American Stock Exchanges. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. The sub-adviser to the Evergreen International Equity Fund, BIA, has been in operation since 1986 and specializes in the management of international equity portfolios. BIA currently manages twenty international portfolios, including five group trust funds, for pension fund sponsors and endowment plans worldwide. Messrs. Lyle H. Davis, Norman H. Meltz and David A. Umstead are the principal executive officers of BIA and each own more than 25% of the outstanding voting securities thereof. As of March 31, 1995 BIA managed a total of $2.7 billion in assets and served as sub-adviser to one other investment company with total assets of $148 million. Marvin & Palmer, Sub-Adviser for Evergreen Emerging Markets Growth Fund was founded in 1986 and is engaged in the management of global, non-United States and emerging markets equity portfolios for institutional accounts. At March 31, 1995, Marvin & Palmer managed a total of $2.5 billion in investments for 34 institutional investors and 5 commingled funds and served as sub-adviser to another investment company with total assets of $33 million. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the number of outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as a Fund's Trustees believe would accurately reflect fair market value. Non-dollar denominated securities will be valued as of the close of the Exchange at the closing price of such securities in their principal trading market. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. The Share Purchase Application may not be used to invest in any of the prototype retirement plans for which the Funds are an available investment. For information about the requirements to make such investments, including copies of the necessary application forms, please call the telephone number set forth on the cover page of this Prospectus. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. Shares of each Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the enclosed Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the record date, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES It is the policy of each Fund to distribute to shareholders its investment company taxable and tax-exempt income, if any, quarterly and any net realized capital gains annually or more frequently as required as a condition of continued qualification as a regulated investment company by the Code. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in December of the previous year. Income dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution at the net asset value per share at the close of business on the record date, unless the shareholder has made a written request for payment in cash. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund whether such dividends and distributions are made in cash or in additional shares. Questions on how any distributions will be taxed to the investor should be directed to the investor's own tax adviser. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Certain income from a Fund may qualify for a corporate dividends-received deduction of 70%. Following the end of each calendar year, every shareholder of the Fund will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. A Fund may be subject to foreign withholding taxes which would reduce the yield on its investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Shareholders of a Fund who are subject to United States Federal income tax may be entitled, subject to certain rules and limitations, to claim a Federal income tax credit or deduction for foreign income taxes paid by a Fund. See the Statement of Additional Information for additional details. A Fund's transactions in options, futures and forward contracts may be subject to special tax rules. These rules can affect the amount, timing and characteristics of distributions to shareholders. If more than 50% of the value of a Fund's assets at the end of the tax year is represented by stock or securities of foreign corporations, the Fund intends to qualify for certain Code stipulations that would allow shareholders to claim a foreign tax credit or deduction on their U.S. income tax returns. The Code may limit a shareholder's ability to claim a foreign tax credit. Furthermore, shareholders who elect to deduct their portion of a Fund's foreign taxes rather than take the foreign tax credit must itemize deductions on their income tax returns. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that your social security or taxpayer identification number is correct and that you are not currently subject to backup withholding or are exempt from backup withholding. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. The foregoing discussion of Federal income tax consequences is based on tax laws and regulations in effect on the date of this Prospectus, and is subject to change by legislative or administrative action. As the foregoing discussion is for general information only, you should also review the discussion of "Additional Tax Information" contained in the Statement of Additional Information. In addition, you should consult your own tax adviser as to the tax consequences of investments in the Funds, including the application of state and local taxes which may be different from Federal income tax consequences described above. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Global Real Estate Equity Fund for its most recent fiscal year is set forth below. A similar discussion relating to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. Evergreen Global Real Estate Equity Fund. For the nine month period ending September 30, 1994, the Evergreen Global Real Estate Equity Fund was significantly impacted by a combination of rising interest rates worldwide leading to a performance decline of -6.4%. The relative indices performance was similar, as the Morgan Stanley Global Real Estate Sub Index fell -9.9% and the Wall Street Journal/Dow Jones World Sub Index of real estate stocks lost -11.5%. The rise in interest rates in Europe was significantly higher than it was in the U.S., despite little prospect of imminent inflation due to continued slow economic recovery. We believe that both property and stock markets viewed rising rates as a brake on economic growth. This resulted in weak performance for European property shares. Japan also remained a relatively dull performer after the first quarter as little evidence of economic growth was visible. Only Southeast Asia and Latin America provided the Fund with significant opportunities for capital appreciation during this period. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Global Real Estate Equity Fund is a separate series of the Evergreen Real Estate Equity Trust, a Massachusetts business trust organized in 1988. Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund are separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B, C and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares or Class C shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen International Equity Fund and Evergreen Emerging Markets Growth Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser Evergreen Global Real Estate Equity Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers four classes of shares, Class A, Class B, Class C and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A, Class B and Class C shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A, Class B and Class C shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, the Funds may quote their "total return" or "yield" for a specified period in advertisements, reports or other communications to shareholders, Total return and yield are computed separately for Class A, Class B and Class C shares. A Fund's total return for each such period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission ("SEC"), the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of the investment at the end of the period. For purposes of computing total return, dividends and capital gains distributions paid on shares of a Fund are assumed to have been reinvested when paid and the maximum sales charges applicable to purchases of a Fund's shares are assumed to have been paid. Yield is a way of showing the rate of income the Fund earns on its investments as a percentage of the Fund's share price. The Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, the Fund's yield may not equal its distribution rate, the income paid to your account or the net investment income reported in the Fund's financial statements. To calculate yield, the Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on the Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities Performance data for each class of shares will be included in any advertisement or sales literature using performance data of a Fund. These advertisements may quote performance rankings or ratings of a Fund by financial publications or independent organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, Trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which the Funds operate provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which has been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN EMERGING MARKETS GROWTH FUND, EVERGREEN INTERNATIONAL EQUITY FUND Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN EMERGING MARKETS GROWTH FUND, EVERGREEN INTERNATIONAL EQUITY FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN GLOBAL REAL ESTATE EQUITY FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536121 B STATEMENT OF ADDITIONAL INFORMATION July 7, 1995 THE EVERGREEN INTERNATIONAL GROWTH FUNDS 2500 Westchester Avenue, Purchase, New York 10577 800-807-2940 Evergreen Emerging Markets Growth Fund (formerly First Union Emerging Markets Growth Portfolio) ("Emerging Markets") Evergreen International Equity Fund (formerly First Union International Equity Portfolio) ("International") Evergreen Global Real Estate Equity Fund ("Global") This Statement of Additional Information pertains to all classes of shares of the Funds listed below. It is not a prospectus and should be read in conjunction with the Prospectus dated July 7, 1995 for the Fund in which you are making or contemplating an investment. The Evergreen International Growth Funds are offered through two separate prospectuses: one offering Class A, Class B and Class C shares, and a separate prospectus offering Class Y shares of each Fund. Copies of each Prospectus may be obtained without charge by calling the number listed above. TABLE OF CONTENTS Page Investment Objectives and Policies................................ Investment Restrictions........................................... Non-Fundamental Operating Policies................................ Certain Risk Considerations....................................... Management........................................................ Investment Adviser................................................ Distribution Plans................................................ Allocation of Brokerage........................................... Additional Tax Information........................................ Net Asset Value................................................... Purchase of Shares................................................ Performance Information........................................... Financial Statements.............................................. Appendix A - Note, Bond And Commercial Paper Ratings INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the Funds - Investment Objective and Policies" in each Fund's Prospectus) The investment objective of each Fund and a description of the securities in which each Fund may invest is set forth under "Description of the Funds - Investment Objective and Policies" in the relevant Prospectus. The investment objectives of Emerging Growth and International Equity are fundamental and cannot be changed without the approval of shareholders. The following expands the discussions in the Prospectus regarding certain investment practices of each Fund. Types of Investments Convertible Securities -- (All Funds) Each Fund may invest in convertible securities. Convertible securities include fixed-income securities that may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allow convertible securities to be employed for a variety of investment strategies. Each Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of its investment adviser or sub-adviser, the investment characteristics of the underlying common shares will assist a Fund in achieving its investment objective. A Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the adviser or sub-adviser evaluates the investment characteristics of the convertible security as a fixed-income instrument, and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the adviser or sub-adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other investments alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices. Warrants (All Funds) Each Fund may invest in warrants. Warrants are options to purchase common stock at a specific price (usually at a premium above the market value of the optioned common stock at issuance) valid for a specific period of time. Warrants may have a life ranging form less than one year to twenty years, or they may be perpetual. However, most warrants have expiration dates after which they are worthless. In addition, a warrant is worthless if the market price of the common stock does not exceed the warrant's exercise price during the life of the warrant. Warrants have no voting rights, pay no dividends, and have no rights with respect to the assets of the corporation issuing them. The percentage increase or decrease in the market price of the warrant may tend to be greater than the percentage increase or decrease in the market price of the optioned common stock. Sovereign Debt Obligations (All Funds) Each Fund may purchase sovereign debt instruments issued or guaranteed by foreign governments or their agencies, including debt of Latin American nations or other developing countries. Sovereign debt may be in the form of conventional securities or other types of debt instruments such as loans or loan participations. Sovereign debt of developing countries may involve a high degree of risk, and may be in default or present the risk of default. Governmental entities responsible for repayment of the debt may be unable or unwilling to repay principal and interest when due, and may require renegotiation or rescheduling of debt payments. In addition, prospects for repayment of principal and interest may depend on political as well as economic factors. Closed-End Investment Companies (All Funds) Each Fund may purchase the equity securities of closed-end investment companies to facilitate investment in certain countries. Equity securities of closed-end investment companies generally trade at a discount to their net asset value. Strategic Investments (All Funds) Foreign Currency Transactions; Currency Risks The exchange rates between the U.S. dollar and foreign currencies are a function of such factors as supply and demand in the currency exchange markets, international balances of payments, governmental intervention, speculation and other economic and political conditions. Although a Fund values its assets daily in U.S. dollars, a Fund may not convert its holdings to another currency. Foreign exchange dealers may realize a profit on the difference between the price at which a Fund buys and sells currencies. Each Fund will engage in foreign currency exchange transactions in connection with its portfolio investments. A Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through forward contracts to purchase or sell foreign currencies. Forward Foreign Currency Exchange Contracts Each Fund may enter into forward foreign currency exchange contracts in order to protect against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and a foreign currency involved in an underlying transaction. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (usually less than one year) from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has a deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the spread) between the price at which they are buying and selling various currencies. However, forward foreign currency exchange contracts may limit potential gains which could result from a positive change in such currency relationships. The adviser and the sub-advisers believe that it is important to have the flexibility to enter into forward foreign currency exchange contracts whenever they determine that it is in a Fund's best interest to do so. A Fund will not speculate in foreign currency exchange. Except for cross-hedges, a Fund will not enter into forward foreign currency exchange contracts or maintain a net exposure in such contracts when it would be obligated to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency or, in the case of a "cross-hedge" denominated in a currency or currencies that the adviser or sub-adviser believes will tend to be closely correlated with that currency with regard to price movements. At the consummation of such a forward contract, a Fund may either make delivery of the foreign currency or terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract obligating it to purchase, at the same maturity date, the same amount of such foreign currency. If a Fund chooses to make delivery of the foreign currency, it may be required to obtain such currency through the sale of portfolio securities denominated in such currency or through conversion of other assets of the Fund into such currency. If a Fund engages in an offsetting transaction, the Fund will incur a gain or loss to the extent that there has been a change in forward contract prices. The Funds will place cash or high grade debt securities in a separate account of a Fund at its custodian bank in an amount equal to the value of the Fund's total assets committed to forward foreign currency exchange contracts entered into as a hedge against a substantial decline in the value of a particular foreign currency. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. It should be realized that this method of protecting the value of a Fund's portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange which can be achieved at some future point in time. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain which might result should the value of such 3 currency increase. Generally, a Fund will not enter into a forward foreign currency exchange contract with a term longer than one year. Foreign Currency Options A foreign currency option provides the option buyer with the right to buy or sell a stated amount of foreign currency at the exercise price on a specified date or during the option period. The owner of a call option has the right, but not the obligation, to buy the currency. Conversely, the owner of a put option has the right, but not the obligation, to sell the currency. When the option is exercised, the seller (i.e., writer) of the option is obligated to fulfill the terms of the sold option. However, either the seller or the buyer may, in the secondary market, close its position during the option period at any time prior to expiration. A call option on a foreign currency generally rises in value if the underlying currency appreciates in value, and a put option on a foreign currency generally falls in value if the underlying currency depreciates in value. Although purchasing a foreign currency option can protect the Fund against an adverse movement in the value of a foreign currency, the option will not limit the movement in the value of such currency. For example, if a Fund was holding securities denominated in a foreign currency that was appreciating and had purchased a foreign currency put to hedge against a decline in the value of the currency, the Fund would not have to exercise its put option. Likewise, if a Fund were to enter into a contract to purchase a security denominated in foreign currency and, in conjunction with that purchase, were to purchase a foreign currency call option to hedge against a rise in value of the currency, and if the value of the currency instead depreciated between the date of purchase and the settlement date, the Fund would not have to exercise its call. Instead, the Fund could acquire in the spot market the amount of foreign currency needed for settlement. Special Risks Associated with Foreign Currency Options Buyers and sellers of foreign currency options are subject to the same risks that apply to options generally. In addition, there are certain additional risks associated with foreign currency options. The markets in foreign currency options are relatively new, and the Fund's ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. Although the Funds will not purchase or write such options unless and until, in the opinion of the adviser or sub-advisers, the market for them has developed sufficiently to ensure that the risks in connection with such options are not greater than the risks in connection with the underlying currency, there can be no assurance that a liquid secondary market will exist for a particular option at any specific time. A risk in employing currency futures contracts to protect against the price volatility of portfolio securities denominated in a particular currency is that the prices of such securities subject to currency futures contracts may correlate imperfectly with the behavior of the cash prices of a Fund's securities. The correlation may be distorted by the fact that the currency futures market may be dominated by short-term traders seeking to profit from changes in exchange rates. This would reduce their value for hedging purposes over a short-term period. Such distortions are generally minor and would diminish as the contract approached maturity. Another risk is that a Fund's investment adviser or sub- adviser could be incorrect in its expectations as to the direction or extent of various exchange rate movements or the time span within which the movements take place. In addition, options on foreign currencies are affected by all of those factors that influence foreign exchange rates and investments generally. The value of a foreign currency option depends upon the value of the underlying currency relative to the U.S. dollar. As a result, the price of the option position may vary with changes in the value of either or both currencies and may have no relationship to the investment merits of a foreign security. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions of less than $1 4 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e, less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that the U.S. option markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets until they reopen. Foreign Currency Futures Transactions By using foreign currency futures contracts and options on such contracts, a Fund may be able to achieve many of the same objectives as it would through the use of forward foreign currency exchange contracts. The Funds may be able to achieve these objectives possibly more effectively and at a lower cost by using futures transactions instead of forward foreign currency exchange contracts. A foreign currency futures contract sale creates an obligation by the Fund, as seller, to deliver the amount of currency called for in the contract at a specified future time for a specified price. A currency futures contract purchase creates an obligation by the Fund, as purchaser, to take delivery of an amount of currency at a specified future time at a specified price. Although the terms of currency futures contracts specify actual delivery or receipt, in most instances the contracts are closed out before the settlement date without the making or taking of delivery of the currency. Closing out of currency futures contracts is effected by entering into an offsetting purchase or sale transaction. An offsetting transaction for a currency futures contract sale is effected by the Fund entering into a currency futures contract purchase for the same aggregate amount of currency and same delivery date. If the price of the sale exceeds the price of the offsetting purchase, the Fund is immediately paid the difference and realizes a loss. Similarly, the closing out of a currency futures contract purchase is effected by the Fund entering into a currency futures contract sale. If the offsetting sale price exceeds the purchase price, the Fund realizes a gain, and if the offsetting sale price is less than the purchase price, the Fund realizes a loss. Special Risks Associated with Foreign Currency Futures Contracts and Related Options Buyers and sellers of foreign currency futures contracts are subject to the same risks that apply to the use of futures generally. In addition, there are risks associated with foreign currency futures contracts and their use as a hedging device similar to those associated with options on futures currencies, as described above. Options on foreign currency futures contracts may involve certain additional risks. Trading options on foreign currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. To reduce this risk, the Funds will not purchase or write options on foreign currency futures contracts unless and until, in the opinion of the adviser or the sub-advisers, the market for such options has developed sufficiently that the risks in connection with such options are not greater than the risks in connection with transactions in the underlying foreign currency futures contracts. Compared to the purchase or sale of foreign currency futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Funds because the maximum amount at risk is the premium paid for the option (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss, such as when there is no movement in the price of the underlying currency or futures contract. Restricted and Illiquid Securities The ability of the Board of Trustees ("Trustees") to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary 5 market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for sale under the Rule. The Funds which invest in Rule 144A Securities believe that the Staff of the SEC has left the question of determining the liquidity of all restricted securities (eligible for resale under the Rule) for determination by the Trustees. The Trustees consider the following criteria in determining the liquidity of certain restricted securities: (i) the frequency of trades and quotes for the security; (ii) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (iii) dealer undertakings to make a market in the security; and (iv) the nature of the security and the nature of the marketplace trades. When-Issued and Delayed Delivery Securities (Emerging Markets and International Equity) These transactions are made to secure what is considered to be an advantageous price or yield for a Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of a Fund sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. Emerging Markets and International Equity do not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of their assets. Lending of Portfolio Securities The collateral received when a Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. A Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Fund does not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Repurchase Agreements The Funds or their custodian 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 Funds, the Funds 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 Funds might be delayed pending court action. The Funds believe that under the regular procedures normally in effect for custody of a 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 Funds will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker-dealers, which are deemed by the adviser or a sub-adviser to be creditworthy pursuant to guidelines established by the Trustees. Reverse Repurchase Agreements The Funds may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. 6 The use of reverse repurchase agreements may enable a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of a Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS .........Except as noted, the investment restrictions set forth below are fundamental and may not be changed with respect to each Fund without the affirmative vote of a majority of the outstanding voting securities of the Fund. Where an asterisk (*) appears after a Fund's name, the relevant policy is non-fundamental with respect to that Fund and may be changed by the Fund's investment adviser without shareholder approval, subject to review and approval by the Trustees. As used in this Statement of Additional Information and in the Prospectus, "a majority of the outstanding voting securities of the Fund" means the lesser of (1) the holders of more than 50% of the outstanding shares of beneficial interest of the Fund or (2) 67% of the shares present if more than 50% of the shares are present at a meeting in person or by proxy. 1........Concentration of Assets in Any One Issuer ........No Fund may invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities and, with respect to Emerging Markets and International Equity, repurchase agreements collateralized by such securities except that up to 25% of the value of a Fund's total assets may be invested without regard to such 5% limitation. 2........Ten Percent Limitation on Securities of Any One Issuer .........Global may not purchase more than 10% of any class of securities of any one issuer other than the U.S. government and its agencies or instrumentalities. .........Neither Emerging Markets nor International Equity may purchase more than 10% of the outstanding voting securities of any one issuer. 3........Investment for Purposes of Control or Management .........Global may not invest in companies for the purpose of exercising control or management. 4........Purchase of Securities on Margin .........No Fund may purchase securities on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of transactions. A deposit or payment by a Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 5........Unseasoned Issuers ........Emerging Markets*, International Equity* and Global may not invest more than 15% of their total assets in securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors, except obligations issued or guaranteed by the U.S. government and its agencies or instrumentalities (this limitation does not apply to real estate investment trusts). 7 6........Underwriting .........The Funds will not underwrite any issue of securities except as they may be deemed an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with their investment objectives, policies and limitations. 7........Interests in Oil, Gas or Other Mineral Exploration or Development Programs .........Global may not purchase, sell or invest in interests in oil, gas or other mineral exploration or development programs. .........Neither Emerging Markets* nor International Equity* will purchase interests in oil, gas or other mineral exploration or development programs or leases, although each Fund may purchase the securities of other issuers which invest in or sponsor such programs. 8........Concentration in Any One Industry .........Global may not concentrate its investments in any one industry, except that it will invest at least 65% of its total assets in securities of companies engaged principally in the real estate industry. .........Emerging Markets and International Equity will not invest 25% or more of the value of their total assets in any one industry except that they may invest more than 25% of their total assets in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. 9........Warrants .........Global may not invest more than 5% of its net assets in warrants, and, of this amount, no more than 2% of the Fund's total net assets may be invested in warrants that are listed on neither the New York nor the American Stock Exchanges. .........Emerging Markets* and International Equity* will not invest more than 5% of their net assets in warrants, including those acquired in units or attached to other securities. To comply with certain state restrictions, the Funds will limit their investment in such warrants not listed on the New York Stock Exchange or the American Stock Exchange to 2% of their net assets. (If state restrictions change, this latter restriction may be changed without notice to shareholders). For purposes of this restriction, warrants acquired by the Funds' in units or attached to securities may be deemed to be without value. 10.......Ownership by Trustees/Officers .........None of Emerging Markets*, International Equity* or Global may purchase or retain the securities of any issuer if (i) one or more officers or Trustees of a Fund or its investment adviser or investment sub-advisers individually owns or would own, directly or beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such persons own or would own, directly or beneficially, more than 5% of such securities. 11.......Short Sales .........Neither Emerging Markets nor International Equity will sell any securities short. .........Global may not make short sales of securities unless, at the time of each such sale and thereafter while a short position exists, the Fund owns an equal amount of securities of the same issue or owns securities which, without payment by the Fund of any consideration, are convertible into, or are exchangeable for, an equal amount of securities of the same issue. 12.......Lending of Funds and Securities .........Global may not lend its funds to other persons, except through the purchase of a portion of an issue of debt securities publicly distributed or the entering into of repurchase agreements. Global may not lend its portfolio securities, unless the borrower is a broker dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash or securities issued or guaranteed by the U.S. government having a value at all times not less 8 than 100% of the current market-value of the loaned securities, including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's net assets. .........Emerging Markets and International Equity will not lend any of their assets, except portfolio securities up to one-third of the value of their total assets. This does not prevent the Funds from purchasing or holding corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements, or other transactions which are permitted by a Fund's investment objectives and policies or the Declaration of Trust governing the Fund. 13.......Commodities .........Emerging Markets and International Equity will not invest in commodities except that each Fund reserves the right to engage in transactions including futures contracts, options and forward contracts with respect to securities indices or currencies. .........Global will not purchase, sell or invest in commodities or commodity contracts; provided, however, that this policy does not prevent the Fund from purchasing and selling currency futures contracts and entering into forward foreign currency contracts. 14.......Real Estate .........Neither Emerging Markets nor International Equity will purchase or sell real estate, including limited partnership interests in real estate, although each Fund may invest in securities of companies whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. .........Global may not purchase or invest in real estate or interests in real estate (although it may purchase securities secured by real estate or interests therein or issued by companies or investment trusts which invest in real estate or interests therein). 15.......Borrowing, Senior Securities, Reverse Repurchase Agreements .........Emerging Markets and International Equity will not issue senior securities except that each Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amount borrowed and except to the extent that a Fund may enter into futures contracts. The Funds will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary or emergency measure to facilitate management of their portfolios by enabling them to, for example, meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. A Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. .........Global may not borrow money, issue senior securities or enter into reverse repurchase agreements, except for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 10% of the value of the Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Fund's total assets at the time of such borrowing, provided that Global will not purchase any securities at times when any borrowings (including reverse repurchase agreements) are outstanding. The Fund will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets. 16.......Joint Trading .........Global may not participate on a joint or joint and several basis in any trading account in any securities. (The "bunching" of orders for the purchase or sale of portfolio securities with its investment adviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.) 17.......Options 9 .........Global may not write, purchase or sell put or call options, or combinations thereof except as permitted under "Description of Funds - Investment Practices and Restrictions" in its Prospectus. .........Emerging Markets* and International Equity* may write covered call options and secured put options on up to 25% of their net assets and may purchase put and call options provided that no more than 5% of the fair market value of its net assets may be invested in premiums on such options. 18.......Pledging Assets .........Neither Emerging Markets nor International Equity will mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In these cases, a Fund may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of borrowing. For purposes of this limitation, the following are not deemed to be pledges: margin deposits for the purchase and sale of financial futures contracts and related options and segregation or collateral arrangements made in connection with options activities or the purchase of securities on a when-issued basis. 19.......Investing in Securities of Other Investment Companies .........Emerging Markets* and International Equity* will limit their investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will invest no more than 5% of their total assets in any one investment company and will invest no more than 10% of their total assets in investment companies in general. A Fund will purchase securities of closed-end investment companies only in open-market transactions involving customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. 20.......Restricted Securities .........Emerging Markets* and International Equity* will not invest more than 5% of their total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for restricted securities which meet criteria for liquidity established by the Trustees. 21........Illiquid Securities. .........Global* may not invest more than 15% of its net assets in illiquid securities and other securities which are not readily marketable, including repurchase agreements which have a maturity of longer than seven days, but excluding securities eligible for resale under Rule 144A of the Securities Act of 1933, as amended, which the Trustees have determined to be liquid. .........Emerging Markets* and International Equity* will not invest more than 15% of their net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice and certain securities not determined by the Trustees to be liquid. 22........Other. In order to comply with certain state blue sky limitations: ----- ...........Global* interprets fundamental investment restriction 7 to prohibit investments in oil, gas and mineral leases. ...........Global* interprets fundamental investment restriction 14 to prohibit investment in real estate limited partnerships which are not readily marketable. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value of net assets will not result in a violation of such restriction. 10 To comply with registration requirements in certain states, Emerging Markets* and International Equity* will limit the margin deposits on futures contracts entered into by a Fund to 5% of its net assets. (If state requirements change, these restrictions may be revised without shareholder notification.) Emerging Markets* and International Equity* have no present intention to borrow money or enter into reverse repurchase agreements in excess of 5% of the value of their net assets during the coming fiscal year. For purposes of their policies and limitations, the Funds consider certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items". CERTAIN RISK CONSIDERATIONS ...........There can be no assurance that a Fund will achieve its investment objective and an investment in the Fund involves certain risks which are described under "Description of the Funds - Investment Objective and Policies" in the Prospectus. ...........While Global is technically diversified within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), because the investment alternatives of the Fund are restricted by a policy of concentrating at least 65% of its total assets in companies in the real estate industry, investors should understand that investment in the Fund may be subject to greater risk and market fluctuation than an investment in a portfolio of securities representing a broader range of industry investment alternatives. Borrowing. The table set forth below describes the extent to which Global entered into borrowing transactions during the fiscal year ended September 30, 1994. Global Average Amount of Debt Average Amount of Average Number of Amount of Debt Outstanding Debt Outstanding Shares Outstanding Per-Share Year Ended End of Year During the Year During the Year During Year - ---------- ----------- ----------------- ------------------ -------------- 9/30/1994 $0 $ 1,369,863 50,301,298 $0.03 MANAGEMENT The Trustees and executive officers of the Trusts, their ages, addresses and principal occupations during the past five years are set forth below: Laurence B. Ashkin (67), 180 East Pearson Street, Chicago, IL-Trustee. Real estate developer and construction consultant since 1980; President of Centrum Equities since 1987 and Centrum Properties, Inc. since 1980. Foster Bam*(68), Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law firm of Cummings and Lockwood since 1968. James S. Howell (70), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee. Retired Vice President of Lance Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the Carolinas from 1989 to 1993. Robert J. Jeffries (72), 2118 New Bedford Drive, Sun City Center, FL-Trustee. Corporate consultant since 1967. Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC-Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since 1988. Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham Corporation from 1979 to 1990. 11 William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since 1990; Attorney, Clontz and Clontz from 1980 to 1990. Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990. Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee. Attorney, Law Offices of Michael S. Scofield since prior to 1989. John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY-President and Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992, Managing Director from 1984 to 1992. Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney, Securities and Exchange Commission from 1986 to 1991. Except for Messrs. Ashkin, Bam and Jeffries, who are not Trustees of Evergreen Investment Trust (formerly First Union Funds), the Trustees and officers listed above hold the same positions with a total of ten registered investment companies offering a total of thirty-one investment funds within the Evergreen mutual fund complex. - -------- * Mr. Bam and Mr. Pettit may each be deemed to be an "interested person" within the meaning of the 1940 Act. The officers of the Trusts are all officers and/or employees of Furman Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds Distributor, Inc., the distributor of each Class of shares of each Fund. The Funds do not pay any direct remuneration to any officer or Trustee who is an "affiliated person" of either First Union National Bank of North Carolina or Evergreen Asset Management Corp. or their affiliates. See "Investment Adviser." Currently, none of the Trustees is an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee who is not an "affiliated person" an annual retainer and a fee per meeting attended, plus expenses (and $50 for each telephone conference meeting) as follows: Name of Trust/Fund Annual Retainer Meeting Fee Evergreen Real Estate Equity Trust 1,000* Global 100 Evergreen Investment Trust 9,000** 1,500** Emerging Markets International - -------------------- * This reflects the aggregate retainer paid by Evergreen Real Estate Equity Trust with respect to both of its investment series, which are Evergreen U.S. Real Estate Equity Fund and Evergreen Global Real Estate Equity Fund. ** Evergreen Investment Trust pays an annual retainer to each trustee and a per-meeting fee that are allocated among its fifteen series. Additionally, each member of the Audit Committee receives $200 for attendance at each meeting of the of the Audit Committee and an additional fee is paid to the Chairman of the Board of $2,000. Set forth below for each of the Trustees is the aggregate compensation paid to such Trustees by each Trust for the fiscal year ended December 31, 1994 (fiscal year ended September 30, 1994 for Global) Total Compensation Aggregate Compensation From Trust From Trusts & Fund Name of Investment Complex Paid Person Global* Trust** to Trustees Laurence Ashkin 1,494 29,800 Foster Bam 1,494 29,850 12 James S. Howell 622 14,900 26,900 Robert J. Jeffries 1,494 29,800 Gerald M. McDonnell 722 11,900 26,100 Thomas L. McVerry 722 11,900 26,150 William Walt Pettit 722 11,900 26,100 Russell A. Salton, III, M.D. 722 11,900 26,100 Michael S. Scofield 1,108 11,700 25,650 * Global changed its fiscal year end during the period covered by the foregoing table from December 31 to September 30. Accordingly, the Trustees fees reported in the foregoing table reflect, for Global, the period from January 1, 1994 to September 30, 1994. ** Formerly known as First Union Funds. No officer or Trustee of the Trusts owned Class B or C shares of any Fund as of the date hereof. The number and percent of outstanding shares of each Fund owned by officers and Trustees as a group on June 15, 1995, is as follows: No. of Shares Owned By Officers and Ownership by Officers and Trustees Trustees as a % of Class Y Name of Fund as a Group Shares Outstanding Emerging Markets -0- -0- International -0- -0- Global 22,588 .35% Set forth below is information with respect to each person, who, to each Fund's knowledge, owned beneficially or of record more than 5% of a class of each Fund's total outstanding shares and their aggregate ownership of the Fund's total outstanding shares as of June 15, 1995. Name of % of Name and Address Fund/Class No. of Shares Class/Fund - ---------------- ---------- ------------- ---------- Fubs & Co. Febo Emerging Markets/C 1,000 39.80%/ Frances B. Goldstein C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 507 20.18%/ Victor McCauley C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 357 14.21%/ Gales Chimney Rock Shop Inc. Attn: Steve Gale C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 13 Fubs & Co. Febo Emerging Markets/C 204 8.15%/ Elizabeth R. Langdon C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 139 5.57%/ C. Robert Gidlow C/F Amy Gidlow C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 137 5.46%/ Matthew S. Palmer C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Emerging Markets/C 766,762 77.48%/ Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Emerging Markets/Y 222,795 22.51%/ Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 4,227 18.92%/ Julio Noltenius Julio G. Noltenius Alicia Noltenius C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 2,950 11.81%/ G. Gene Wilhelm Pola Wilhelm C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 2,873 11.51%/ Richard K. Hamilton and Sandra H. Hamilton C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 2,703 10.82%/ George M. Kingsbury C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Emerging Markets/C 1,632 6.54%/ C. Wilson Construction Company Profit Sharing Plan U/A/D 7-1-87 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank International Equity/Y 1,762,827 51.51%/ Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank International Equity/Y 1,659,266 48.49%/ Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 14 Fubs & Co. Febo Global Real Estate/A 134 5.88%/ Mark Major Thomsen C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/A 539 23.56%/ John E. Benson Vivianle M. Benson C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/A 338 14.77%/ Joan B. Huber C/F Andrew P. Huber C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/A 338 14.77%/ Joan B. Huber C/F Marissa A. Huber C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/A 261 11.40%/ Richard Leyba Rubio C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Global Real Estate/A 134 5.86%/ VA C/F Alisa Van Zant Shannon IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Global Real Estate/ 190 14.46%/ NC C/F Glenda E. Laws C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & & Co. Febo Global Real Estate/B 87 8.63%/ Christian Saade C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/B 85 6.54%/ Richard D. Zuroweste C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/B 832 63.34%/ Allie M. Frazier C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank- Global Real Estate/B 100 7.61%/ FL C/F David L. Schurger IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Global Real Estate/C 87 7.13%/ Patrick K. De Garay C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 NFSC Febo #144-285862 Global Real Estate/C 247 20.22%/ Eric J. Jorgenson C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 15 Fubs & Co. Febo Global Real Estate/C 871 71.05%/ R. Frazior Inc. Investment Account C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Stephen A. Lieber Global Real Estate/Y 1,089,041 16.82%/ C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Charles Schwab & Co. Inc. Global Real Estate/Y 1,823,491 25.07%/ Reinvest Account Attn: Mutual Funds Dept. 101 Montgomery Street San Francisco, CA 94104-4122 - --------------------------------- *Acting in various capacities for numerous accounts. As a result of its ownership of %, % and % of Global, Emerging Markets and International, respectively, on June 15, 1995, First Union National Bank of North Carolina may be deemed to "control" each Fund as that term is defined in the 1940 Act. INVESTMENT ADVISER (See also "Management of the Fund" in each Fund's Prospectus) The investment adviser of Global is Evergreen Asset Management Corp., a New York corporation, with offices at 2500 Westchester Avenue, Purchase, New York or ("Evergreen Asset" or the "Adviser."). Evergreen Asset is owned by First Union National Bank of North Carolina ("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union Corporation ("First Union"), a bank holding company headquartered in Charlotte, North Carolina. The investment adviser of Emerging Markets and International is FUNB which provides investment 16 advisory services through its Capital Management Group. Marvin & Palmer Associates, Inc. ("Marvin & Palmer") and Boston International Advisors, Inc. ("Boston International") are the sub-advisers for Emerging Markets and International, respectively, under the terms of Sub- Advisory Agreements between FUNB and the respective sub-adviser. The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief Executive Officer, Theodore J. Israel, Jr., Executive Vice President, Joseph J. McBrien, Senior Vice President and General Counsel, and George R. Gaspari, Senior Vice President and Chief Financial Officer. On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were acquired by First Union through certain of its subsidiaries. Evergreen Asset was acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with the succession of EAMC to the business of Evergreen Asset and its assumption of the name "Evergreen Asset Management Corp.", Global entered into a new investment advisory agreement with EAMC and into a distribution agreement with Evergreen Funds Distributor, Inc., (the "Distributor") a subsidiary of Furman Selz Incorporated. At that time, EAMC also entered into a new sub-advisory agreement with Lieber pursuant to which Lieber provides certain services to Evergreen Asset in connection with its duties as investment adviser. The partnership interests in Lieber, a New York general partnership, were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned subsidiaries of FUNB. The business of Lieber is being continued. The new advisory and sub-advisory agreements were approved by the shareholders of Global at their meeting held on June 23, 1994, and became effective on June 30, 1994. Under its Investment Advisory Agreement with each Fund, each Adviser has agreed to furnish reports, statistical and research services and recommendations with respect to each Fund's portfolio of investments. In addition, each Adviser provides office facilities to the Funds and performs a variety of administrative services. Each Fund pays the cost of all of its other expenses and liabilities, including expenses and liabilities incurred in connection with maintaining their registration under the Securities Act of 1933, as amended, and the 1940 Act, printing prospectuses (for existing shareholders) as they are updated, state qualifications, share certificates, mailings, brokerage, custodian and stock transfer charges, printing, legal and auditing expenses, expenses of shareholder meetings and reports to shareholders. Notwithstanding the foregoing, each Adviser will pay the costs of printing and distributing prospectuses used for prospective shareholders. The method of computing the investment advisory fee for each Fund is described in such Fund's Prospectus. The advisory fees paid by each Fund for the three most recent fiscal periods reflected in its registration statement are set forth below: GLOBAL Period Ended Year Ended Year Ended 9/30/94 12/31/93 12/31/92 Advisory Fee $1,133,380 $523,294 $75,696 ========== ========== ======== Expense Reimbursement --- $41,226 $130,246 ------ ------- EMERGING MARKETS Year Ended 12/31/94 Advisory Fee $35,047 -------- Waiver ($35,047) Net Advisory Fee $ 0 ======== INTERNATIONAL Year Ended 12/31/94 Advisory Fee $60,885 --------- Waiver ($44,928) Net Advisory Fee $15,957 ========= 17 Global changed its fiscal year end from December 31 to September 30 during the periods covered by the foregoing table. Accordingly, the investment advisory fees reported in the foregoing table reflect for Global, the period from January 1, 1994 to September 30, 1994. In addition, Emerging Markets and International commenced operations on September 6, 1994 and September 2, 1994, respectively, and, therefore, the first year's figures set forth in the table above reflect for Emerging Markets and International investment advisory fees paid for the period from commencement of operations through December 31, 1994. For their sub-advisory services, Marvin & Palmer and Boston International receive an annual sub-advisory fee as described in the Prospectuses. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Marvin & Palmer Associates, Inc. earned sub-advisory fees from the Emerging Markets of $23,133. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, Boston International Advisers, Inc. earned sub-advisory fees from the International of $23,505. Expense Limitations Each Adviser's fee will be reduced by, or the Adviser will reimburse the Funds for any amount necessary to prevent such expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses, but inclusive of the Adviser's fee) from exceeding the most restrictive of the expense limitations imposed by state securities commissions of the states in which the Funds' shares are then registered or qualified for sale. Reimbursement, when necessary, will be made monthly in the same manner in which the advisory fee is paid. Currently the most restrictive state expense limitation is 2.5% of the first $30,000,000 of the Fund's average daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in excess of $100,000,000. Pursuant to the Sub-Advisory Agreements between FUNB and the sub-advisers, in the event that the Adviser's fee is reduced in order to meet the expense limitations established by certain states, the sub-advisory fee for the sub-adviser to the affected Fund shall be reduced in accordance with the mutual agreement of the Adviser and the sub-adviser. In addition, each Adviser has in some instances voluntarily limited (and may in the future limit) expenses of certain of the Funds. For the years ended December 31, 1991 and 1992, and for the four month period ended March 31, 1993, Evergreen Asset voluntarily limited the expenses of Global to 2% of average net assets. The Investment Advisory Agreements and Sub-Advisory Agreements are terminable, without the payment of any penalty, on sixty days' written notice, by a vote of the holders of a majority of each Fund's outstanding shares, or by a vote of a majority of each Trust's Trustees or by the respective Adviser. The Investment Advisory Agreements will automatically terminate in the event of their assignment. Each Investment Advisory Agreement provides in substance that the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser or of reckless disregard of its obligations thereunder. The Investment Advisory Agreement with respect to Global was approved by the Fund's shareholders on June 23, 1994, became effective on June 30, 1994, and will continue in effect until June 30, 1996, and thereafter from year to year provided that its continuance is approved annually by a vote of a majority of the Trustees of the Trust including a majority of those Trustees who are not parties thereto or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting duly called for the purpose of voting on such approval or a majority of the outstanding voting shares of the Fund. With respect to Emerging Markets and International, the Investment Advisory Agreement dated February 28, 1985 and amended from time to time thereafter and the Sub-Advisory Agreements dated ------------- were last approved by the Trustees of Evergreen Investment Trust (formerly, First Union Funds) on April 20, 1995 and each Agreement will continue from year to year with respect to each Fund provided that such continuance is approved annually by a vote of a majority of the Trustees of Evergreen Investment Trust including a majority of those Trustees who are not parties thereto or "interested persons" of any such party cast in person at a meeting duly called for the purpose of voting on such approval or by a vote of a majority of the outstanding voting securities of each Fund. Certain other clients of each Adviser may have investment objectives and policies similar to those of the Funds. Each Adviser (including the sub-advisers) may, from time to time, make recommendations which result in the purchase or sale of a particular security 18 by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of each Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the Funds. When two or more of the clients of the Adviser (including one or more of the Funds) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. Although the investment objectives of the Funds are not the same, and their investment decisions are made independently of each other, they rely upon the same resources for investment advice and recommendations. Therefore, on occasion, when a particular security meets the different investment objectives of the various Funds, they may simultaneously purchase or sell the same security. This could have a detrimental effect on the price and quantity of the security available to each Fund. If simultaneous transactions occur, the Adviser attempts to allocate the securities, both as to price and quantity, in accordance with a method deemed equitable to each Fund and consistent with their different investment objectives. In some cases, simultaneous purchases or sales could have a beneficial effect, in that the ability of one Fund to participate in volume transactions may produce better executions for that Fund. Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between each Fund and the other registered investment companies for which either Evergreen Asset or FUNB acts as investment adviser or between the Fund and any advisory clients of Evergreen Asset, FUNB, Lieber & Company, Marvin & Palmer or Boston International. Each Fund may from time to time engage in such transactions but only in accordance with these procedures and if they are equitable to each participant and consistent with each participant's investment objectives. Prior to July 1, 1995, Federated Administrative Services, a subsidiary of Federated Investors, provided legal, accounting and other administrative personnel and support services to each of the portfolios of Evergreen Investment Trust. The Trust paid a fee for such services at the following annual rate: .15% on the first $250 million average daily net assets of the Trust; .125% on the next $250 million; .10% on the next $250 million and .075% on assets in excess of $250 million. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Emerging Markets incurred $15,890 in administrative service costs, all of which was voluntarily waived. From September 2, 1994 (commencement of operations) to December 31, 1994, International incurred $16,438 in administrative service costs, all of which was voluntarily waived. Commencing July 1, 1995, Evergreen Asset will provide administrative services to each of the portfolios of Evergreen Investment Trust for a fee based on the average daily net assets of each fund administered by Evergreen Asset for which Evergreen Asset or FUNB also serves as investment adviser, calculated daily and payable monthly at the following annual rates: .050% on the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $10 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of the Distributor, serves as sub-administrator to Emerging Markets and International and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of mutual funds administered by Evergreen Asset for which Evergreen Asset or FUNB serves as investment adviser as of March 31, 1995 were approximately $7.95 billion. DISTRIBUTION PLANS Reference is made to "Management of the Fund - Distribution Plans and Agreements" in the Prospectus of each Fund for additional disclosure regarding the Funds' distribution arrangements. Distribution fees are accrued daily and paid monthly on the Class A, B and C shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class B shares and Class C shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, and, in the case of Class C shares, without the assessment of a contingent deferred sales charge after the first year following purchase, while at the same time permitting the 19 Distributor to compensate broker-dealers in connection with the sale of such shares. In this regard the purpose and function of the combined contingent deferred sales charge and distribution services fee on the Class B shares and the Class C shares, are the same as those of the front-end sales charge and distribution fee with respect to the Class A shares in that in each case the sales charge and/or distribution fee provide for the financing of the distribution of the Fund's shares. Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with respect to each of its Class A, Class B and Class C shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the amounts expended under the Plan and the purposes for which such expenditures were made to the Trustees of each Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of Trustees who are not "interested persons" of each Trust (as defined in the 1940 Act) are committed to the discretion of such disinterested Trustees then in office. Each Adviser may from time to time and from its own funds or such other resources as may be permitted by rules of the Securities and Exchange Commission make payments for distribution services to the Distributor; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Global commenced offering Class A, B or C shares on January 3, 1995. The Plan with respect to the Fund became effective on December 30, 1994 and was initially approved by the sole shareholder of each Class of shares of the Fund with respect to which a Plan was adopted on that date and by the unanimous vote of the Trustees of the Trust, including the disinterested Trustees voting separately, at a meeting called for that purpose and held on December 13, 1994. The Distribution Agreement between the Fund and the Distributor, pursuant to which distribution fees are paid under the Plan by the Fund with respect to its Class A, Class B and Class C shares was also approved at the December 13, 1994 meeting by the unanimous vote of the Trustees, including the disinterested Trustees voting separately. Each Plan and Distribution Agreement will continue in effect for successive twelve-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Class, and, in either case, by a majority of the Trustees of the Trust who are not parties to the Agreement or interested persons, as defined in the 1940 Act, of any such party (other than as Trustees of the Trust) and who have no direct or indirect financial interest in the operation of the Plan or any agreement related thereto. Prior to July 7, 1995, Federated Securities Corp., a subsidiary of Federated Investors, served as the distributor for Emerging Markets and International as well as other portfolios of Evergreen Investment Trust. The Distribution Agreements between each Fund and the Distributor pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A, Class B and Class C shares were approved on April 20, 1995 by the unanimous vote of the Trustees including the disinterested Trustees voting separately. 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 A, Class B and Class C shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to each Fund and holders of Class A, Class B and Class C shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class A, Class B and Class C shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class A, Class B and Class C shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class A, Class B and Class C shares. In addition to the Plans, Emerging Markets and International have each adopted a Shareholder Services Plan whereby shareholder servicing agents may receive fees from the Fund for providing services which include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance, and communicating or facilitating purchases and redemptions of Class B and Class C shares of the Fund. 20 In the event that a Plan or Distribution Agreement is terminated or not continued with respect to one or more Classes of a Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund would not be obligated to pay the Distributor for any amounts expended under the Distribution Agreement not previously recovered by the Distributor from distribution services fees in respect of shares of such Class or Classes through deferred sales charges. All material amendments to any Plan or Distribution Agreement must be approved by a vote of the Trustees of a Trust or the holders of the Fund's outstanding voting securities, voting separately by Class, and in either case, by a majority of the disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular Class of shares of a Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the Class affected. With respect to Emerging Markets and International, amendments to the Shareholder Services Plan require a majority vote of the disinterested Trustees but do not require a shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement may be terminated (a) by a Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by Class or by a majority vote of the Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by the Distributor. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to the Distributor. Any Distribution Agreement will terminate automatically in the event of its assignment. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Emerging Markets incurred $505 in distribution services fees on behalf of Class A shares. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, International incurred $1,270 in distribution services fees on behalf of Class A shares. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Emerging Markets incurred $2,924 in distribution services fees of Class B shares. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, International incurred $8,718 in distribution services fees on behalf of Class B shares. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Emerging Markets incurred $163 in distribution services fees on behalf of Class C shares. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, International incurred $281 in distribution service fees on behalf of its Class C shares. Shareholder Services Plans - Emerging Markets and International For the period ended December 31, 1994, Emerging Markets incurred shareholder services fees of $975 and $54 on behalf of Class B shares and Class C shares, respectively; and International incurred shareholder services fees of $2,906 and $93 on behalf of Class B shares and Class C shares, respectively. ALLOCATION OF BROKERAGE Decisions regarding each Fund's portfolio are made by its Adviser or, in the case of Emerging Markets and International, the sub-advisers, subject to the supervision and control of the Trustees. Orders for the purchase and sale of securities and other investments are placed by employees of the Adviser or sub-advisers, all of whom, in the case of Evergreen Asset, are associated with Lieber. In general, the same individuals perform the same functions for the other funds managed by the Adviser or sub-advisers. A Fund will not effect any brokerage transactions with any broker or dealer affiliated directly or indirectly with the Adviser or sub-advisers unless such transactions are fair and reasonable, under the circumstances, to the Fund's shareholders. Circumstances that may indicate that such transactions are fair or reasonable include the frequency of such transactions, the selection process and the commissions payable in connection with such transactions. A substantial portion of the transactions in equity securities for each Fund will occur on foreign stock exchanges. Transactions on stock exchanges involve the payment of 21 brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated, whereas on many foreign stock exchanges these commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Over-the-counter transactions will generally be placed directly with a principal market maker, although the Fund may place an over-the-counter order with a broker-dealer if a better price (including commission) and execution are available. It is anticipated that most purchase and sale transactions involving fixed income securities will be with the issuer or an underwriter or with major dealers in such securities acting as principals. Such transactions are normally on a net basis and generally do not involve payment of brokerage commissions. However, the cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriter. Purchases or sales from dealers will normally reflect the spread between bid and ask prices. In selecting firms to effect securities transactions, the primary consideration of each Fund shall be prompt execution at the most favorable price. A Fund will also consider such factors as the price of the securities and the size and difficulty of execution of the order. If these objectives may be met with more than one firm, the Fund will also consider the availability of statistical and investment data and economic facts and opinions helpful to the Fund. To the extent that receipt of these services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. No Fund, other than Global, allocated brokerage commissions to firms in exchange for research during the most recent fiscal year. Of the total brokerage commissions paid by Global for its fiscal year ended September 30, 1994, $738,237 or 80% were allocated in exchange for best execution and research. Under Section 11(a) of the Securities Exchange Act of 1934, as amended, and the rules adopted thereunder by the Securities and Exchange Commission, Lieber may be compensated for effecting transactions in portfolio securities for a Fund on a national securities exchange provided the conditions of the rules are met. Each Fund advised by Evergreen Asset has entered into an agreement with Lieber authorizing Lieber to retain compensation for brokerage services. In accordance with such agreement, it is contemplated that Lieber, a member of the New York and American Stock Exchanges, will, to the extent practicable, provide brokerage services to the Fund with respect to substantially all securities transactions effected on the New York and American Stock Exchanges. In such transactions, a Fund will seek the best execution at the most favorable price while paying a commission rate no higher than that offered to other clients of Lieber or that which can be reasonably expected to be offered by an unaffiliated broker-dealer having comparable execution capability in a similar transaction. However, no Fund will engage in transactions in which Lieber would be a principal. While no Fund advised by Evergreen Asset contemplates any ongoing arrangements with other brokerage firms, brokerage business may be given from time to time to other firms. In addition, the Trustees have adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all brokerage transactions with Lieber, as an affiliated broker-dealer, are fair and reasonable. Any profits from brokerage commissions accruing to Lieber as a result of portfolio transactions for the Fund will accrue to FUNB and to its ultimate parent, First Union. The Investment Advisory Agreements does not provide for a reduction of the Adviser's fee with respect to any fund by the amount of any profits earned by Lieber from brokerage commissions generated by portfolio transactions of the Fund. The following chart shows: (1) the brokerage commissions paid by Global during its last three fiscal years; (2) the amount and percentage thereof paid to Lieber; and (3) the percentage of the total dollar amount of all portfolio transactions with respect to which commissions have been paid which were effected by Lieber: GLOBAL Period Ended Year Ended Year Ended 9/30/94 12/31/93 12/31/92 Total Brokerage $917,989 $868,367 $196,719 Commissions 22 Dollar Amount and % $174,137 $154,666 $5,685 paid to Lieber 19% 18% 26% % of Transactions Effected by Lieber 33% 29% 35% Global changed its fiscal year end from December 31 to September 30 during the periods covered by the foregoing table. Accordingly, the commissions reported in the foregoing table reflect for Global the period from January 1, 1994 to September 30, 1994. Emerging Markets and International did not pay any commissions to Lieber. For the period from September 6, 1994 (commencement of operations) to December 31, 1994, Emerging Markets paid $41,532 in commissions on brokerage transactions. For the period from September 2, 1994 (commencement of operations) to December 31, 1994, International paid $16,438 in commissions on brokerage transactions. ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus) Each Fund has qualified and intends to continue to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to 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; (b) derive less than 30% of its gross income from the sale or other disposition of securities, options, futures or forward contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the RIC's principal business of investing in securities (or options and futures with respect thereto) held for less than three months; and (c) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies). By so qualifying, a Fund is not subject to Federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Dividends paid by a Fund from investment company taxable income generally will be taxed to the shareholders as ordinary income. Investment company taxable income includes net investment income and net realized short-term gains (if any). Any dividends received by a Fund from domestic corporations will constitute a portion of the Fund's gross investment income. It is anticipated that this portion of the dividends paid by a Fund (other than distributions of securities profits) will qualify for the 70% dividends-received deduction for corporations. Shareholders will be informed of the amounts of dividends which so qualify. Distributions of the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders (who are not exempt from tax) as long-term capital gain, regardless of the length of time the shares of a Fund have been held by such shareholders. Short-term capital gains distributions are taxable to shareholders who are not exempt from tax as ordinary income. Such distributions are not eligible for the dividends-received deduction. Any loss recognized upon the sale of shares of a Fund held by a shareholder for six months or less will be treated as a long-term capital loss to the extent that the shareholder received a long-term capital gain distribution with respect to such shares. Distributions of investment company taxable income and any net short-term capital gains will be taxable as ordinary income as described above to shareholders (who 23 are not exempt from tax), whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the net asset value of a share of a Fund on the reinvestment date. Distributions by each Fund result in a reduction in the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable as ordinary income or capital gain as described above to shareholders (who are not exempt from tax), even though, from an investment standpoint, it may constitute a return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive what is in effect a return of capital upon the distribution which will nevertheless be taxable to shareholders subject to taxes. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gains or loss will be treated as a capital gain or loss if the shares are capital assets in the investor's hands and will be a long-term capital gain or loss if the shares have been held for more than one year. Generally, any loss realized on a sale or exchange will be disallowed to the extent shares disposed of are replaced within a period of sixty-one days beginning thirty days before and ending thirty days after the shares are disposed of. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares, and will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her Federal income tax return. Each shareholder should consult his or her own tax adviser to determine the state and local tax implications of Fund distributions. Shareholders who fail to furnish their taxpayer identification numbers to a Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% Federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisers regarding specific questions relating to Federal, state and local tax consequences of investing in shares of a Fund. Each shareholder who is not a U.S. person should consult his or her tax adviser regarding the U.S. and foreign tax consequences of ownership of shares of a Fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. Special Tax Considerations Each Fund maintains accounts and calculates income in U.S. dollars. In general, gains or losses on the disposition of debt securities denominated in a foreign currency that are attributable to fluctuations in exchange rates between the date the debt security is acquired and the date of disposition, gains and losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or other receivable or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivable or pays such liabilities, and gains and losses from the disposition of foreign currencies and foreign currency forward contracts will be treated as ordinary income or loss. These gains or losses increase or decrease, respectively, the amount 24 of the Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. Each Fund's transactions in foreign currencies, forward contracts, options and futures contracts (including options and futures contracts on foreign currencies) are subject to special provisions of the Code that, among other things, may affect the character of gains and losses of the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) require the Fund to mark-to-market certain types of positions in its portfolio (i.e., treat them as if they were closed out) and (b) may cause the Fund to recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding U.S. Federal income and excise taxes. Each Fund will monitor its transactions, make appropriate tax elections and make appropriate entries in its books and records when it acquires any foreign currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules. The Funds anticipate that their hedging activities will not adversely affect their regulated investment company status. Income received by a Fund from sources within various foreign countries may be subject to foreign income tax. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of the stock or securities of foreign corporations, the Fund may elect to "pass through" to the Fund's shareholders the amount of foreign income taxes paid by the Fund. Pursuant to such election, shareholders would be required: (i) to treat a proportionate share of dividends paid by the Fund which represent foreign source income received by the Fund plus the foreign taxes paid by the Fund as foreign source income; and (ii) either to deduct their pro-rata share of foreign taxes in computing their taxable income, or to use it as a foreign tax credit against Federal income taxes (but not both). No deduction for foreign taxes could be claimed by a shareholder who does not itemize deductions. Each Fund intends to meet for each taxable year the requirements of the Code to "pass through" to its shareholders foreign income taxes paid if it is determined by its Adviser to be beneficial to do so. There can be no assurance that the Fund will be able to pass through foreign income taxes paid. Each shareholder will be notified within 60 days after the close of each taxable year of the Fund whether the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro-rate share (by country) of (i) the foreign taxes paid and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for Federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. Each Fund may invest in certain entities that may qualify as "passive foreign investment companies." Generally, the income of such companies may become taxable to the Fund prior to the receipt of distributions, or, alternatively, income taxes and interest charges may be imposed on the Fund on "excess distributions" received by the Fund or on gain from the disposition of such investments by the Fund. In addition, gains from the sale of such investments held for less than three months will count toward the 30% of gross income test described above. Each Fund will take steps to minimize income taxes and interest charges arising form such investments, and will monitor such investments to insure that the Fund complies with the 30% of gross income test. Proposed tax regulations, if they become effective, will allow the Funds to mark to market and recognize gains on such investments at each Fund's taxable year end. The Funds would not be subject to income tax on these gains if they are distributed subject to these proposed rules. NET ASSET VALUE The following information supplements that set forth in each Prospectus under the subheading "How to Buy Shares - How the Funds Value Their Shares" in the Section entitled "Purchase and Redemption of Shares". The public offering price of shares of a Fund is its net asset value, plus, in the case of Class A shares, a sales charge which will vary depending on the purchase alternative chosen by the investor, as more fully described in the Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge Alternative. " On each Fund business day on which a purchase or redemption order is received by a Fund and trading in the types of securities in which a Fund invests might materially affect the value of Fund shares, the 25 per share net asset value of each such Fund is computed in accordance with the Declaration of Trust and By-Laws governing each Fund as of the next close of regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's total assets, less its liabilities, by the total number of its shares then outstanding. A Fund business day is any weekday, exclusive of national holidays on which the Exchange is closed and Good Friday. For each Fund, securities for which the primary market is on a domestic or foreign exchange and over-the-counter securities admitted to trading on the NASDAQ National List are valued at the last quoted sale or, if no sale, at the mean of closing bid and asked prices and portfolio bonds are presently valued by a recognized pricing service when such prices are believed to reflect the fair value of the security. Over-the-counter securities not included in the NASDAQ National List for which market quotations are readily available are valued at a price quoted by one or more brokers. If accurate quotations are not available, securities will be valued at fair value determined in good faith by the Board of Trustees. The respective per share net asset values of the Class A, Class B, Class C and Class Y shares are expected to be substantially the same. Under certain circumstances, however, the per share net asset values of the Class B and Class C shares may be lower than the per share net asset value of the Class A shares (and, in turn, that of Class A shares may be lower than Class Y shares) as a result of the greater daily expense accruals, relative to Class A and Class Y shares, of Class B and Class C shares relating to distribution services fees (and, with respect to Emerging Market and International shareholder service fee) and, to the extent applicable, transfer agency fees and the fact that Class Y shares bear no additional distribution, shareholder service or transfer agency related fees. While it is expected that, in the event each Class of shares of a Fund realizes net investment income or does not realize a net operating loss for a period, the per share net asset values of the four classes will tend to converge immediately after the payment of dividends, which dividends will differ by approximately the amount of the expense accrual differential among the Classes, there is no assurance that this will be the case. In the event one or more Classes of a Fund experiences a net operating loss for any fiscal period, the net asset value per share of such Class or Classes will remain lower than that of Classes that incurred lower expenses for the period. To the extent that any Fund invests in non-U.S. dollar denominated securities, the value of all assets and liabilities will be translated into United States dollars at the mean between the buying and selling rates of the currency in which such a security is denominated against United States dollars last quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Fund. The Trustees will monitor, on an ongoing basis, a Fund's method of valuation. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of business on each business day in New York. In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. Such calculation does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange will not be reflected in a Fund's calculation of net asset value unless the Trustees deem that the particular event would materially affect net asset value, in which case an adjustment will be made. Securities transactions are accounted for on the trade date, the date the order to buy or sell is executed. Dividend income and other distributions are recorded on the ex-dividend date, except certain dividends and distributions from foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. PURCHASE OF SHARES The following information supplements that set forth in each Prospectus under the heading "Purchase and Redemption of Shares - How To Buy Shares." General Shares of each Fund will be offered on a continuous basis at a price equal to their net asset value plus an initial sales charge at the time of purchase (the "front-end sales charge alternative"), with a contingent deferred sales charge (the deferred 26 sales charge alternative"), or without any front-end sales charge, but with a contingent deferred sales charge imposed only during the first year after purchase (the "level-load alternative"), as described below. Class Y shares which, as described below, are not offered to the general public, are offered without any front-end or contingent sales charges. Shares of each Fund are offered on a continuous basis through (i) investment dealers that are members of the National Association of Securities Dealers, Inc. and have entered into selected dealer agreements with the Distributor ("selected dealers"), (ii) depository institutions and other financial intermediaries or their affiliates, that have entered into selected agent agreements with the Distributor ("selected agents"), or (iii) the Distributor. The minimum for initial investments is $1,000; there is no minimum for subsequent investments. The subscriber may use the Share Purchase Application available from the Distributor for his or her initial investment. Sales personnel of selected dealers and agents distributing a Fund's shares may receive differing compensation for selling Class A, Class B or Class C shares. Investors may purchase shares of a Fund in the United States either through selected dealers or agents or directly through the Distributor. A Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. Each Fund will accept unconditional orders for its shares to be executed at the public offering price equal to the net asset value next determined (plus for Class A shares, the applicable sales charges), as described below. Orders received by the Distributor prior to the close of regular trading on the Exchange on each day the Exchange is open for trading are priced at the net asset value computed as of the close of regular trading on the Exchange on that day (plus for Class A shares the sales charges). In the case of orders for purchase of shares placed through selected dealers or agents, the applicable public offering price will be the net asset value as so determined, but only if the selected dealer or agent receives the order prior to the close of regular trading on the Exchange and transmits it to the Distributor prior to its close of business that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is responsible for transmitting such orders by 5:00 p.m. If the selected dealer or agent fails to do so, the investor's right to that day's closing price must be settled between the investor and the selected dealer or agent. If the selected dealer or agent receives the order after the close of regular trading on the Exchange, the price will be based on the net asset value determined as of the close of regular trading on the Exchange on the next day it is open for trading. Following the initial purchase of shares of a Fund, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Share Purchase Application. Payment for shares purchased by telephone can be made only by Electronic Funds Transfer from a bank account maintained by the shareholder at a bank that is a member of the National Automated Clearing House Association ("ACH"). If a shareholder's telephone purchase request is received before 3:00 p.m. New York time on a Fund business day, the order to purchase shares is automatically placed the same Fund business day for non-money market funds, and two days following the day the order is received for money market funds, and the applicable public offering price will be the public offering price determined as of the close of business on such business day. Full and fractional shares are credited to a subscriber's account in the amount of his or her subscription. As a convenience to the subscriber, and to avoid unnecessary expense to a Fund, stock certificates representing Class Y shares of a Fund are not issued except upon written request to the Fund by the shareholder or his or her authorized selected dealer or agent. This facilitates later redemption and relieves the shareholder of the responsibility for and inconvenience of lost or stolen certificates. No certificates are issued for fractional shares, although such shares remain in the shareholder's account on the records of a Fund, or for Class A, B or C shares of any Fund. Alternative Purchase Arrangements Each Fund issues four classes of shares: (i) Class A shares, which are sold to investors choosing the front-end sales charge alternative; (ii) Class B shares, which are sold to investors choosing the deferred sales charge alternative; (iii) Class C shares, which are sold to investors choosing the level-load sales charge alternative; and (iv) Class Y shares, which are offered only to (a) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (b) certain investment advisory clients of the Advisers and their affiliates, and (c) institutional investors. The four classes of shares each represent an interest in the same portfolio of 27 investments of the Fund, have the same rights and are identical in all respects, except that (I) Class A, Class B and Class C shares are subject to a Rule 12b-1 distribution fee, (II) Class B and Class C shares of Emerging Markets and International are subject to a shareholder service fee, (III) Class A shares bear the expense of the front-end sales charge and Class B and Class C shares bear the expense of the deferred sales charge, (IV) Class B shares and Class C shares each bear the expense of a higher Rule 12b-1 distribution services fee and shareholder service fee than Class A shares and, in the case of Class B shares, higher transfer agency costs, (V) with the exception of Class Y shares, each Class of each Fund has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution services (and, to the extent applicable, shareholder service) fee is paid which relates to a specific Class and other matters for which separate Class voting is appropriate under applicable law, provided that, if the Fund submits to a simultaneous vote of Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan that would materially increase the amount to be paid thereunder with respect to the Class A shares, the Class A shareholders and the Class B and Class C shareholders will vote separately by Class, and (VI) only the Class B shares are subject to a conversion feature. Each Class has different exchange privileges and certain different shareholder service options available. The alternative purchase arrangements permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares, and other circumstances. Investors should consider whether, during the anticipated life of their investment in the Fund, the accumulated distribution services (and, to the extent applicable, shareholder service) fee and contingent deferred sales charges on Class B shares prior to conversion, or the accumulated distribution services (and, to the extent applicable, shareholder service) fee on Class C shares, would be less than the front-end sales charge and accumulated distribution services fee on Class A shares purchased at the same time, and to what extent such differential would be offset by the higher return of Class A shares. Class B and Class C shares will normally not be suitable for the investor who qualifies to purchase Class A shares at the lowest applicable sales charge. For this reason, the Distributor will reject any order (except orders for Class B shares from certain retirement plans) for more than $2,500,000 for Class B or Class C shares. Class A shares are subject to a lower distribution services fee and no shareholder service fee and, accordingly, pay correspondingly higher dividends per share than Class B shares or Class C shares. However, because front-end sales charges are deducted at the time of purchase, investors purchasing Class A shares would not have all their funds invested initially and, therefore, would initially own fewer shares. Investors not qualifying for reduced front-end sales charges who expect to maintain their investment for an extended period of time might consider purchasing Class A shares because the accumulated continuing distribution (and, to the extent applicable, shareholder service) charges on Class B shares or Class C shares may exceed the front-end sales charge on Class A shares during the life of the investment. Again, however, such investors must weigh this consideration against the fact that, because of such front-end sales charges, not all their funds will be invested initially. Other investors might determine, however, that it would be more advantageous to purchase Class B shares or Class C shares in order to have all their funds invested initially, although remaining subject to higher continuing distribution services (and, to the extent applicable, shareholder service) fees and, in the case of Class B shares, being subject to a contingent deferred sales charge for a seven-year period. For example, based on current fees and expenses, an investor subject to the 4.75% front-end sales charge would have to hold his or her investment approximately seven years for the Class B and Class C distribution services (and, to the extent applicable, shareholders service) fees, to exceed the front-end sales charge plus the accumulated distribution services fee of Class A shares. In this example, an investor intending to maintain his or her investment for a longer period might consider purchasing Class A shares. This example does not take into account the time value of money, which further reduces the impact of the Class B and Class C distribution services (and, to the extent applicable, shareholder service) fees on the investment, fluctuations in net asset value or the effect of different performance assumptions. Those investors who prefer to have all of their funds invested initially but may not wish to retain Fund shares for the seven year period during which Class B 28 shares are subject to a contingent deferred sales charge may find it more advantageous to purchase Class C shares. With respect to each Fund, the Trustees have determined that currently no conflict of interest exists between or among the Class A, Class B, Class C and Class Y shares. On an ongoing basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws, will seek to ensure that no such conflict arises. Front-end Sales Charge Alternative--Class A Shares The public offering price of Class A shares for purchasers choosing the front-end sales charge alternative is the net asset value plus a sales charge as set forth in the Prospectus for each Fund. Shares issued pursuant to the automatic reinvestment of income dividends or capital gains distributions are not subject to any sales charges. The Fund receives the entire net asset value of its Class A shares sold to investors. The Distributor's commission is the sales charge set forth in the Prospectus for each Fund, less any applicable discount or commission "reallowed" to selected dealers and agents. The Distributor will reallow discounts to selected dealers and agents in the amounts indicated in the table in the Prospectus. In this regard, the Distributor may elect to reallow the entire sales charge to selected dealers and agents for all sales with respect to which orders are placed with the Distributor. Set forth below is an example of the method of computing the offering price of the Class A shares of each Fund. The example assumes a purchase of Class A shares of a Fund aggregating less than $100,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of Class A shares of each Fund at the end of each Fund's latest fiscal year. Net Per Share Offering Asset Sales Price Value Charge Date Per Share Emerging Markets $ 8.17 $.41 12/31/94 $ 8.58 International $ 9.50 $.47 12/31/94 $9.97 Global $13.81 $.69 9/30/94 $14.50 Prior to January 3, 1995, shares of Global were offered exclusively on a no-load basis and, accordingly, no underwriting commissions were paid in respect of sales of shares of the Fund or retained by the Distributor. In addition, since Class B and Class C shares were not offered prior to January 3, 1995, contingent deferred sales charges have been paid to the Distributor with respect to Class B or Class C shares only since January 3, 1995. With respect to Emerging Markets, and International for the periods indicated, the following commissions were paid to and amounts were retained by Federated Securities Corp., which, prior to July 7, 1995, was the principal underwriter of portfolios of Evergreen Investment Trust: Period From September 6, 1994 to 12/31/94 Emerging Markets: Commissions Received $11,000 Commissions Retained Period From September 2, 1994 29 International: to December 31, 1994 Commissions Received $6,000 Commissions Retained $1,000 Investors choosing the front-end sales charge alternative may under certain circumstances be entitled to pay reduced sales charges. The circumstances under which such investors may pay reduced sales charges are described below. Combined Purchase Privilege. Certain persons may qualify for the sales charge reductions by combining purchases of shares of one or more Evergreen mutual funds other than money market funds into a single "purchase", if the resulting "purchase" totals at least $100,000. The term "purchase" refers to: (i) a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own account(s); (ii) a single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or (iii) a single purchase for the employee benefit plans of a single employer. The term "purchase" also includes purchases by any "company", as the term is defined in the 1940 Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of a Fund or shares of other registered investment companies at a discount. The term "purchase" does not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit card holders of a company, policy holders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. A "purchase" may also include shares, purchased at the same time through a single selected dealer or agent, of any Evergreen mutual fund. Currently, the Evergreen mutual funds include: Evergreen Fund Evergreen Global Real Estate Equity Fund Evergreen U.S. Real Estate Equity Fund The Evergreen Limited Market Fund, Inc. Evergreen Growth and Income Fund Evergreen Total Return Fund Evergreen American Retirement Fund Evergreen Small Cap Equity Income Fund Evergreen Tax Strategic Foundation Fund Evergreen Short-Intermediate Municipal Fund Evergreen Short-Intermediate Municipal Fund-CA Evergreen Tax Exempt Money Market Fund Evergreen Money Market Fund Evergreen U.S. Government Fund* Evergreen Foundation Fund Evergreen Florida High Income Fund Evergreen Aggressive Growth Fund Evergreen Balanced Fund* Evergreen Utility Fund* Evergreen Value Fund* Evergreen Fixed Income Fund* Evergreen Managed Bond Fund* Evergreen Emerging Markets Growth Fund* Evergreen International Equity Fund* Evergreen Treasury Money Market Fund* Evergreen Florida Municipal Bond Fund* Evergreen Georgia Municipal Bond Fund* Evergreen North Carolina Municipal Bond Fund* Evergreen South Carolina Municipal Bond Fund* Evergreen Virginia Municipal Bond Fund* Evergreen High Grade Tax Free Fund* * Prior to July 7, 1995, each Fund was named "First Union" instead of "Evergreen." 30 Prospectuses for the Evergreen mutual funds may be obtained without charge by contacting the Distributor or the Advisers at the address or telephone number shown on the front cover of this Statement of Additional Information. Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of additional Class A shares of a Fund may qualify for a Cumulative Quantity Discount. The applicable sales charge will be based on the total of: (i) the investor's current purchase; (ii) the net asset value (at the close of business on the previous day) of (a) all Class A, Class B and Class C shares of the Fund held by the investor and (b) all such shares of any other Evergreen mutual fund held by the investor; and (iii) the net asset value of all shares described in paragraph (ii) owned by another shareholder eligible to combine his or her purchase with that of the investor into a single "purchase" (see above). For example, if an investor owned Class A, B or C shares of an Evergreen mutual fund worth $200,000 at their then current net asset value and, subsequently, purchased Class A shares of a Fund worth an additional $100,000, the sales charge for the $100,000 purchase would be at the 3.00% rate applicable to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate. To qualify for the Combined Purchase Privilege or to obtain the Cumulative Quantity Discount on a purchase through a selected dealer or agent, the investor or selected dealer or agent must provide the Distributor with sufficient information to verify that each purchase qualifies for the privilege or discount. Statement of Intention. Class A investors may also obtain the reduced sales charges shown in the Prospectus by means of a written Statement of Intention, which expresses the investor's intention to invest not less than $100,000 within a period of 13 months in Class A shares (or Class A, Class B and/or Class C shares) of the Fund or any other Evergreen mutual fund. Each purchase of shares under a Statement of Intention will be made at the public offering price or prices applicable at the time of such purchase to a single transaction of the dollar amount indicated in the Statement of Intention. At the investor's option, a Statement of Intention may include purchases of Class A, B or C shares of the Fund or any other Evergreen mutual fund made not more than 90 days prior to the date that the investor signs a Statement of Intention; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included. Investors qualifying for the Combined Purchase Privilege described above may purchase shares of the Evergreen mutual funds under a single Statement of Intention. For example, if at the time an investor signs a Statement of Intention to invest at least $100,000 in Class A shares of the Fund, the investor and the investor's spouse each purchase shares of the Fund worth $20,000 (for a total of $40,000), it will only be necessary to invest a total of $60,000 during the following 13 months in shares of the Fund or any other Evergreen mutual fund, to qualify for the 3.75% sales charge on the total amount being invested (the sales charge applicable to an investment of $100,000). The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount. Shares purchased with the first 5% of such amount will be held in escrow (while remaining registered in the name of the investor) to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased, and such escrowed shares will be involuntarily redeemed to pay the additional sales charge, if necessary. Dividends on escrowed shares, whether paid in cash or reinvested in additional Fund shares, are not subject to escrow. When the full amount indicated has been purchased, the escrow will be released. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period. The 31 difference in sales charge will be used to purchase additional shares of the Fund subject to the rate of sales charge applicable to the actual amount of the aggregate purchases. Investors wishing to enter into a Statement of Intention in conjunction with their initial investment in Class A shares of the Fund should complete the appropriate portion of the Subscription Application found in the Prospectus while current Class A shareholders desiring to do so can obtain a form of Statement of Intention by contacting a Fund at the address or telephone number shown on the cover of this Statement of Additional Information. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from any applicable front-end sales charges if they meet the criteria set forth in the Prospectus under "Class A Shares-Front End Sales Charge Alternative". The Advisers may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Reinstatement Privilege. A Class A shareholder who has caused any or all of his or her shares of the Fund to be redeemed or repurchased may reinvest all or any portion of the redemption or repurchase proceeds in Class A shares of the Fund at net asset value without any sales charge, provided that such reinvestment is made within 30 calendar days after the redemption or repurchase date. Shares are sold to a reinvesting shareholder at the net asset value next determined as described above. A reinstatement pursuant to this privilege will not cancel the redemption or repurchase transaction; therefore, any gain or loss so realized will be recognized for Federal tax purposes except that no loss will be recognized to the extent that the proceeds are reinvested in shares of the Fund. The reinstatement privilege may be used by the shareholder only once, irrespective of the number of shares redeemed or repurchased, except that the privilege may be used without limit in connection with transactions whose sole purpose is to transfer a shareholder's interest in the Fund to his or her individual retirement account or other qualified retirement plan account. Investors may exercise the reinstatement privilege by written request sent to the Fund at the address shown on the cover of this Statement of Additional Information. Sales at Net Asset Value. In addition to the categories of investors set forth in the Prospectus, each Fund may sell its Class A shares at net asset value, i.e., without any sales charge, to: (i) certain investment advisory clients of the Advisers or their affiliates; (ii) officers and present or former Trustees of the Trust; present or former trustees of other investment companies managed by the Advisers; present or retired full-time employees of the Adviser; officers, directors and present or retired full-time employees of the Adviser, the Distributor, and their affiliates; officers, directors and present and full-time employees of selected dealers or agents; or the spouse, sibling, direct ancestor or direct descendant (collectively "relatives") of any such person; or any trust, individual retirement account or retirement plan account for the benefit of any such person or relative; or the estate of any such person or relative, if such shares are purchased for investment purposes (such shares may not be resold except to the Fund); (iii) certain employee benefit plans for employees of the Adviser, the Distributor and their affiliates; (iv) persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer and approved by the Distributor, pursuant to which such persons pay an asset-based fee to such broker-dealer, or its affiliate or agent, for service in the nature of investment advisory or administrative services. These provisions are intended to provide additional job-related incentives to persons who serve the Funds or work for companies associated with the Funds and selected dealers and agents of the Funds. Since these persons are in a position to have a basic understanding of the nature of an investment company as well as a general familiarity with the Fund, sales to these persons, as compared to sales in the normal channels of distribution, require substantially less sales effort. Similarly, these provisions extend the privilege of purchasing shares at net asset value to certain classes of institutional investors who, because of their investment sophistication, can be expected to require significantly less than normal sales effort on the part of the Funds and the Distributor. Deferred Sales Charge Alternative--Class B Shares Investors choosing the deferred sales charge alternative purchase Class B shares at the public offering price equal to the net asset value per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The 32 Class B shares are sold without a front-end sales charge so that the full amount of the investor's purchase payment is invested in the Fund initially. Proceeds from the contingent deferred sales charge are paid to the Distributor and are used by the Distributor to defray the expenses of the Distributor related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to selected dealers and agents for selling Class B shares. The combination of the contingent deferred sales charge and the distribution services fee (and, with respect to Emerging Markets and International, the shareholder service fee) enables the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. The higher distribution services fee (and, with respect to Emerging Markets and International, the shareholder service fee) incurred by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than those related to Class A shares. Contingent Deferred Sales Charge. Class B shares which are redeemed within seven years of purchase will be subject to a contingent deferred sales charge at the rates set forth in the Prospectus charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no contingent deferred sales charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the contingent deferred sales charge, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. In determining the contingent deferred sales charge applicable to a redemption, it will be assumed, that the redemption is first of any Class A shares or Class C shares in the shareholder's Fund account, second of Class B shares held for over eight years or Class B shares acquired pursuant to reinvestment of dividends or distributions and third of Class B shares held longest during the eight-year period. To illustrate, assume that an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional Class B shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 Class B shares, 10 Class B shares will not be subject to charge because of dividend reinvestment. With respect to the remaining 40 Class B shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, of the $600 of the shares redeemed $400 of the redemption proceeds (40 shares x $10 original purchase price) will be charged at a rate of 4.0% (the applicable rate in the second year after purchase for a contingent deferred sales charge of $16). The contingent deferred sales charge is waived on redemptions of shares (i) following the death or disability, as defined in the Code, of a shareholder, or (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70-1/2. Conversion Feature. At the end of the period ending seven years after the end of the calendar month in which the shareholder's purchase order was accepted, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher distribution services fee (and, with respect to Emering Markets and International, the shareholder service fee) imposed on Class B shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to reduce the distribution services fee paid by holders of Class B shares that have been outstanding long enough for the Distributor to have been compensated for the expenses associated with the sale of such shares. For purposes of conversion to Class A, Class B shares purchased through the reinvestment of dividends and distributions paid in respect of Class B shares in a shareholder's account will be considered to be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A, an equal pro-rata portion of the Class B shares in the sub-account will also convert to Class A. 33 The conversion of Class B shares to Class A shares is subject to the continuing availability of an opinion of counsel to the effect that (i) the assessment of the higher distribution services fee (and, with respect to Emerging Markets and International, shareholder service fee) and transfer agency costs with respect to Class B shares does not result in the dividends or distributions payable with respect to other Classes of a Fund's shares being deemed "preferential dividends" under the Code, and (ii) the conversion of Class B shares to Class A shares does not constitute a taxable event under Federal income tax law. The conversion of Class B shares to Class A shares may be suspended if such an opinion is no longer available at the time such conversion is to occur. In that event, no further conversions of Class B shares would occur, and shares might continue to be subject to the higher distribution services fee for an indefinite period which may extend beyond the period ending eight years after the end of the calendar month in which the shareholder's purchase order was accepted. Level-Load Alternative--Class C Shares Investors choosing the level load sales charge alternative purchase Class C shares at the public offering price equal to the net asset value per share of the Class C shares on the date of purchase without the imposition of a front-end sales charge. However, you will pay a 1.0% contingent deferred sales charge if you redeem shares during the first year after purchase. No charge is imposed in connection with redemptions made more than one year from the date of purchase. Class C shares are sold without a front-end sales charge so that the Fund will receive the full amount of the investor's purchase payment and after the first year without a contingent deferred sales charge so that the investor will receive as proceeds upon redemption the entire net asset value of his or her Class C shares. The Class C distribution services fee (and, with respect to Emerging Markets and International, shareholder service fee) enables the Fund to sell Class C shares without either a front-end or contingent deferred sales charge. However, unlike Class B shares, Class C shares do not convert to any other class shares of the Fund. Class C shares incur higher distribution services fees (and, with respect to Emerging Markets and International, shareholder service fees) than Class A shares, and will thus have a higher expense ratio and pay correspondingly lower dividends than Class A shares. Class Y Shares Class Y shares are not offered to the general public and are available only to (i) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients of the Advisers and their affiliates, and (iii) institutional investors. Class Y shares do not bear any Rule 12b-1 distribution expenses and are not subject to any front-end or contingent deferred sales charges. GENERAL INFORMATION ABOUT THE FUNDS (See also "Other Information - General Information" in each Fund's Prospectus) Capitalization and Organization The Evergreen Emerging Markets Growth Fund and Evergreen International Equity Fund, which prior to July 7, 1995 were known as the First Union Emerging Markets Growth Portfolio, and First Union International Equity Portfolio, respectively, are each separate series of Evergreen Investment Trust, a Massachusetts business trust. On July 7, 1995, First Union Funds changed its name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds changed its name to First Union Funds. The Evergreen Global Real Estate Equity Fund is a separate series of Evergreen Real Estate Equity Trust, a Massachusetts business trust. The above-named Trusts are individually referred to in this Statement of Additional Information as the "Trust" and collectively as the "Trusts." Each Trust is governed by a board of trustees. Unless otherwise stated, references to the "Board of Trustees" or "Trustees" in this Statement of Additional Information refer to the Trustees of all the Trusts. Global may issue an unlimited number of shares of beneficial interest with a $0.0001 par value. Emerging Markets and International may issue an unlimited number of shares of beneficial interest without par value. All shares of these Funds have equal rights and privileges. Each share is entitled to one vote, to participate equally in dividends and distributions declared by the Funds and on liquidation to their proportionate share of the 34 assets remaining after satisfaction of outstanding liabilities. Shares of these Funds are fully paid, nonassessable and fully transferable when issued and have no pre-emptive, conversion or exchange rights. Fractional shares have proportionally the same rights, including voting rights, as are provided for a full share. Under each Trust's Declaration of Trust, each Trustee will continue in office until the termination of the Fund or his or her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee upon a vote of two-thirds of the outstanding shares of beneficial interest of the Trust. Vacancies will be filled by a majority of the remaining Trustees, subject to the 1940 Act. As a result, normally no annual or regular meetings of shareholders will be held, unless otherwise required by the Declaration of Trust of each Trust or the 1940 Act. Shares have noncumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so and in such event the holders of the remaining shares so voting will not be able to elect any Trustees. The Trustees of each Trust are authorized to reclassify and issue any unissued shares to any number of additional series without shareholder approval. Accordingly, in the future, for reasons such as the desire to establish one or more additional portfolios of a Trust with different investment objectives, policies or restrictions, additional series of shares may be created by one or more Funds. Any issuance of shares of another series or class would be governed by the 1940 Act and the law of the State of Massachusetts. If shares of another series of a Trust were issued in connection with the creation of additional investment portfolios, each share of the newly created portfolio would normally be entitled to one vote for all purposes. Generally, shares of all portfolios would vote as a single series on matters, such as the election of Trustees, that affected all portfolios in substantially the same manner. As to matters affecting each portfolio differently, such as approval of the Investment Advisory Agreement and changes in investment policy, shares of each portfolio would vote separately. In addition any Fund may, in the future, create additional classes of shares which represent an interest in the same investment portfolio. Except for the different distribution related an other specific costs borne by such additional classes, they will have the same voting and other rights described for the existing classes of each Fund. Procedures for calling a shareholders' meeting for the removal of the Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940 Act will be available to shareholders of each Fund. The rights of the holders of shares of a series of a Fund may not be modified except by the vote of a majority of the outstanding shares of such series. An order has been received from the Securities and Exchange Commission permitting the issuance and sale of multiple classes of shares representing interests in each Fund. In the event a Fund were to issue additional Classes of shares other than those described herein, no further relief from the Securities and Exchange Commission would be required. Distributor Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York 10169, serves as each Fund's principal underwriter, and as such may solicit orders from the public to purchase shares of any Fund. The Distributor is not obligated to sell any specific amount of shares and will purchase shares for resale only against orders for shares. Under the Agreement between the Fund and the Distributor, the Fund has agreed to indemnify the Distributor, in the absence of its willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Counsel Sullivan & Worcester, Washington, D.C., serves as counsel to the Funds. Independent Auditors Price Waterhouse LLP has been selected to be the independent auditors of Global. 35 KPMG Peat Marwick LLP has been selected to be the independent auditors of Emerging Markets and International. PERFORMANCE INFORMATION Total Return From time to time a Fund may advertise its "total return." Computed separately for each class, the Fund's "total return" is its average annual compounded total return for recent one, five, and ten-year periods (or the period since the Fund's inception). The Fund's total return for such a period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of such investment at the end of the period. For purposes of computing total return, income dividends and capital gains distributions paid on shares of the Fund are assumed to have been reinvested when paid and the maximum sales charge applicable to purchases of Fund shares is assumed to have been paid. The Fund will include performance data for Class A, Class B, Class C and Class Y shares in any advertisement or information including performance data of the Fund. With respect to Global, the shares of the Fund outstanding prior to January 3, 1995 have been reclassified as Class Y shares. The average annual compounded total return for each Class of shares offered by the Funds for the most recently completed one, five and ten year fiscal periods is set forth in the table below. From GLOBAL 1 Year 5 Years 2/1/89 Ended Ended (inception) 9/30/94 9/30/94 to 9/30/94 Class A -1.74% 6.28% 5.92% Class B -1.84% 7.01% 5.70% Class C 2.16% 7.32% 6.83% Class Y 3.16% 7.32% 6.83% From EMERGING 9/6/94 MARKETS (inception) to 12/31/94 Class A -22.19% Class B -22.50% Class C -19.20% Class Y -18.30% INTERNATIONAL From 9/2/94 (Inception) to 12/31/94 Class A -9.60% Class B -9.89% Class C -6.09% Class Y -5.02% The performance numbers for Global for the Class A, Class B and Class C shares are hypothetical numbers based on the performance for Class Y shares as adjusted for any applicable front-end sales charge or contingent deferred sales charge. A Fund's total return is not fixed and will fluctuate in response to prevailing market conditions or as a function of the type and quality of the securities in a Fund's portfolio and its expenses. Total return information is useful in reviewing a Fund's performance but such information may not provide a basis for comparison with bank deposits or other investments which pay a fixed yield for a stated period of time. An investor's 36 principal invested in a Fund is not fixed and will fluctuate in response to prevailing market conditions. YIELD CALCULATIONS From time to time, a Fund may quote its yield in advertisements or in reports or other communications to shareholders. Yield quotations are expressed in annualized terms and may be quoted on a compounded basis. Yields are computed by dividing the Fund's interest income (as defined in the SEC yield formula) for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive distributions during the period, dividing this figure by the Fund's net asset value per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. The formula for calculating yield is as follows: YIELD = 2[(a-b+1)6-1] cd Where a = Interest earned during the period b = Expenses accrued for the period (net of reimbursements) c = The average daily number of shares outstanding during the period that were entitled to receive dividends d = The maximum offering price per share on the last day of the period Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Gains and losses generally are excluded from the calculation. Income calculated for purposes of determining a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for a Fund may differ from the rate of distributions a Fund paid over the same period, or the net investment income reported in a Fund's financial statements. Yield information is useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' investment portfolios, portfolio maturity, operating expenses and market conditions. It should be recognized that in periods of declining interest rates the yields will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the yields will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the Fund's investments, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. The yield of each Fund for the thirty-day period ended December 31, 1994 (May 31, 1995 with respect to Global) for each Class of shares offered by the Funds is set forth in the table below: Global Class A 1.05% Class B .41% Class C .43% Class Y 1.13% Emerging Markets Class A N/A Class B N/A Class C N/A Class Y N/A International Class A N/A Class B N/A 37 Class C N/A Class Y N/A Non-Standardized Performance In addition to the performance information described above, a Fund may provide total return information for designated periods, such as for the most recent six months or most recent twelve months. This total return information is computed as described under "Total Return" above except that no annualization is made. GENERAL From time to time, a Fund may quote its performance in advertising and other types of literature as compared to the performance of the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Russell 2000 Index, Europe, Australia and Far East index, Morgan Stanley Capital International Emerging Markets Free Index or any other commonly quoted index of common stock prices, which are unmanaged indices of selected common stock prices. A Fund's performance may also be compared to those of other mutual funds having similar objectives. This comparative performance would be expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar independent services monitoring mutual fund performance. A Fund's performance will be calculated by assuming, to the extent applicable, reinvestment of all capital gains distributions and income dividends paid. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. Additional Information Any shareholder inquiries may be directed to the shareholder's broker or to each Adviser at the address or telephone number shown on the front cover of this Statement of Additional Information. This Statement of Additional Information does not contain all the information set forth in the Registration Statement filed by the Trusts with the Securities and Exchange Commission under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the Securities and Exchange Commission or may be examined, without charge, at the offices of the Securities and Exchange Commission in Washington, D.C. FINANCIAL STATEMENTS Each Fund's financial statements appearing in their most current fiscal year Annual Report to shareholders and the report thereon of the independent auditors appearing therein, namely Price Waterhouse LLP (in the case of Global) or KPMG Peat Marwick LLP (in the case of Emerging Markets and International) are incorporated by reference in this Statement of Additional Information. The Annual Reports to Shareholders for each Fund, which contain the referenced statements, are available upon request and without charge. 38 APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS NOTE RATINGS Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high quality, with margins of protection ample though not so large as in the preceding group. MIG-3 -- favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay principal and interest. BOND RATINGS Moody's Investors Service: Aaa -- judged to be the best quality, carry the smallest degree of investment risk; Aa -- judged to be of high quality by all standards; A -- possess many favorable investment attributes and are to be considered as higher medium grade obligations; Baa -- considered as medium grade obligations which are neither highly protected nor poorly secured. Moody's Investors Service also applies numerical indicators, 1, 2 and 3, to rating categories Aa through Baa. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group: AAA -- highest grade obligations, possesses the ultimate degree of protection as to principal and interest; AA -- also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree; A -- regarded as upper medium grade, have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions, interest and principal are regarded as safe; BBB -- regarded as having adequate capacity to pay interest and repay principal but are more susceptible than higher rated obligations to the adverse effects of changes in economic and trade conditions. Standard & Poor's Ratings Group applies indicators "+", no character, and "-" to the above rating categories AA through BBB. The indicators show relative standing within the major rating categories. Duff & Phelps: AAA - highest credit quality, with negligible risk factors; AA -- high credit quality, with strong protection factors and modest risk, which may vary very slightly from time to time because of economic conditions; A -- average credit quality with adequate protection factors, but with greater and more variable risk factors in periods of economic stress. The indicators "+" and "-" to the AA and A categories indicate the relative position of a credit within those rating categories. Fitch: AAA -- highest credit quality, with an exceptionally strong ability to pay interest and repay principal; AA -- very high credit quality, with a very strong ability to pay interest and repay principal; A -- high credit quality, considered strong as regards principal and interest protection, but may be more vulnerable to adverse changes in economic conditions; and BBB -- satisfactory credit quality with adequate ability with regard to interest and principal, and likely to be affected by adverse changes in economic conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB categories indicate the relative position of a credit within those rating categories. COMMERCIAL PAPER RATINGS Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote relative strength within this highest classification. Standard & Poor's Ratings Group: "A" is the highest commercial paper rating category utilized by Standard & Poor's Ratings Group which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A" classification. Duff & Phelps: Duff 1 is the highest commercial paper rating category utilized by Duff & Phelps which uses + or - to denote relative strength within this classification. Duff 2 represents good certainty of timely payment, with minimal risk factors. Duff 3 39 represents satisfactory protection factors, with risk factors larger and subject to more variation. Fitch: F-1+ -- denotes exceptionally strong credit quality given to issues regarded as having strongest degree of assurance for timely payment; F-1 - -- very strong credit quality, with only slightly less degree of assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory degree of assurance for timely payment. PROSPECTUS July 7, 1995 EVERGREEN(SM) MONEY MARKET FUNDS (Evergreen logo appears here) EVERGREEN MONEY MARKET FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND EVERGREEN TREASURY MONEY MARKET FUND CLASS A SHARES CLASS B SHARES The EVERGREEN MONEY MARKET FUNDS (the "Funds") are designed to provide investors with current income, stability of principal and liquidity. This Prospectus provides information regarding the Class A offered by the Funds and the Class B shares offered by the EVERGREEN MONEY MARKET FUND. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 10 Investment Practices and Restrictions 13 MANAGEMENT OF THE FUNDS Investment Advisers 14 Sub-Adviser 15 Distribution Plans and Agreements 16 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 16 How to Redeem Shares 18 Exchange Privilege 19 Shareholder Services 20 Effect of Banking Laws 21 OTHER INFORMATION Dividends, Distributions and Taxes 21 General Information 22
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN TREASURY MONEY MARKET FUND. EVERGREEN MONEY MARKET FUND seeks as high a level of current income as is consistent with preserving capital and providing liquidity. The Fund will invest only in high quality money market instruments. EVERGREEN TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from Federal income tax as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short-term municipal securities, the interest from which is exempt from Federal income tax. EVERGREEN TREASURY MONEY MARKET FUND (formerly First Union Treasury Money Market Portfolio) seeks to achieve stability of principal and current income consistent with stability of principal. Each Fund seeks to maintain a stable net asset value of $1.00 per share although no assurances can be given that such a stable net asset value will be maintained. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in Class A shares of each Fund, and in the case of EVERGREEN MONEY MARKET FUND, Class B Shares. For further information see "Purchase and Redemption of Fund Shares" and "General Information -- Other Classes of Shares".
Class B Shares SHAREHOLDER TRANSACTION EXPENSES Class A Shares (Evergreen Money Market Fund only) Maximum Sales Charge Imposed on Purchases None None Sales Charge on Dividend Reinvestments None None Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the original purchase price or redemption second year, 3% during the third and fourth proceeds, whichever is lower) years, 2% during the fifth year, 1% during the sixth and seventh years and 0% after the seventh year Redemption Fee None None Exchange Fee None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return, and (ii) redemption at the end of each period and, additionally for Class B shares, no redemption at the end of each period. In the following examples (i) the expenses for Class B Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period and (ii) the expenses for Class B Shares reflect the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN MONEY MARKET FUND (A)
EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES* at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 10 $ 67 $ 17 12b-1 Fees ** .30% 1.00% After 3 Years $ 32 $ 84 $ 54 Other Expenses .21% .21% After 5 Years $ 56 $ 113 $ 93 After 10 Years $ 123 $ 175 $175 Total 1.01% 1.71%
EVERGREEN TAX EXEMPT MONEY MARKET FUND (B)
EXAMPLES ANNUAL OPERATING Assuming Redemption EXPENSES* at End of Period Class A Class A Advisory Fees .50% After 1 Year $ 9 12b-1 Fees ** .30% After 3 Years $ 27 Other Expenses .05% After 5 Years $ 47 After 10 Years $105 Total .85%
EVERGREEN TREASURY MONEY MARKET FUND
EXAMPLES ANNUAL OPERATING Assuming Redemption EXPENSES* at End of Period Class A Class A Advisory Fees .35% After 1 Year $ 7 Administrative Fees .06% After 3 Years $ 23 12b-1 Fees** .30% After 5 Years $ 40 Other Expenses .05% After 10 Years $ 90 Total .76%
3 (a) Estimated annual operating expenses reflect the combination of EVERGREEN MONEY MARKET FUND and FIRST UNION MONEY MARKET PORTFOLIO. (b) Estimated annual operating expenses reflect the combination of EVERGREEN TAX EXEMPT MONEY MARKET FUND and FIRST UNION TAX EXEMPT MONEY MARKET PORTFOLIO. Evergreen Asset has agreed to reimburse EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND to the extent that the Fund's aggregate annual operating expenses (including the Adviser's fee, but excluding taxes, interest, brokerage commissions, Rule 12b-1 distribution fees and shareholder services fees and extraordinary expenses) exceed 1% of the average net assets for any fiscal year. *The annual operating expenses and examples do not reflect the voluntary fee waivers of .39 of 1% of average net assets for EVERGREEN MONEY MARKET FUND and .30 of 1% of average net assets for EVERGREEN TAX EXEMPT MONEY MARKET FUND for the fiscal period ended August 31, 1994, and .28 of 1% of average net assets for EVERGREEN TREASURY MONEY MARKET FUND for the fiscal period ended December 31, 1994. **Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1 Fee. For the foreseeable future, the Class A Share's 12b-1 Fees will be limited to .30 of 1% of average net assets. For Class B Shares of EVERGREEN MONEY MARKET FUND, a portion of the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder servicing related. Distribution related 12b-1 fees will be limited to .75 of 1% of average net assets as permitted under the rules of the National Association of Securities Dealers, Inc. From time to time, each Fund's investment adviser may, at its discretion, waive its fee or reimburse a Fund for certain of its expenses in order to reduce a Fund's expense ratio. The investment adviser may cease these voluntary waivers or reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the fund if shorter for EVERGREEN TREASURY MONEY MARKET FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND has, except as noted otherwise, been audited by Price Waterhouse LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN MONEY MARKET FUND -- Y SHARES
NOVEMBER 2, TEN MONTHS 1987* SIX MONTHS ENDED ENDED THROUGH FEBRUARY 28, 1995 AUGUST 31, YEAR ENDED OCTOBER 31, OCTOBER 31, (UNAUDITED) 1994 # 1993 1992 1991 1990 1989 1988 PER SHARE DATA Net asset value, beginning of period............... $1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income.............................. .02 .03 .03 .04 .07 .08 .09 .07 Total from investment operations................. .02 .03 .03 .04 .07 .08 .09 .07 Less distributions to shareholders from net investment income................................ (.02) (.03) (.03) (.04) (.07) (.08) (.09) (.07) Net asset value, end of period..................... $1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN+...................................... 2.4% 2.9% 3.2% 4.2% 6.7% 8.4% 9.4% 7.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)............ $244 $273 $299 $358 $438 $458 $408 $161 Ratios to average net assets: Expenses (a)..................................... .54%++ .32%++ .39% .36% .30% .35% .38% .43%++ Net investment income (a)........................ 4.88%++ 3.46%++ 3.19% 4.18% 6.53% 8.08% 9.42% 7.26%++
# On September 21, 1994, the Fund changed its fiscal year end from October 31 to August 31. * Commencement of operations. + Total return is calculated for the periods indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED TEN MONTHS FEBRUARY 28, ENDED NOVEMBER 2, 1987 1995 AUGUST 31, YEAR ENDED OCTOBER 31, THROUGH (UNAUDITED) 1994 1993 1992 1991 1990 1989 OCTOBER 31, 1988 Expenses.............................. .74% .71% .71% .72% .70% .69% .75% .93% Net investment income................. 4.68% 3.07% 2.87% 3.82% 6.13% 7.74% 9.05% 6.76%
5 EVERGREEN MONEY MARKET FUND -- CLASS A AND B SHARES
CLASS A SHARES CLASS B SHARES JANUARY 4, 1995* JANUARY 26, 1995* THROUGH THROUGH FEBRUARY 28, 1995 FEBRUARY 28, 1995 (UNAUDITED) (UNAUDITED) PER SHARE DATA Net asset value, beginning of period.................................................. $ 1.000 $ 1.000 Income from investment operations: Net investment income............................................................... .008 .004 Total income from investment operations............................................. .008 .004 Less distributions to shareholders from net investment income......................... (.008) (.004) Net asset value, end of period........................................................ $ 1.000 $ 1.000 TOTAL RETURN+......................................................................... .8% .4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................................. $668 $35 Ratios to average net assets: Expenses (a)........................................................................ .85%++ 1.56%++ Net investment income (a)........................................................... 5.40%++ 5.03%++
* Commencement of class operations. + Total return is calculated on net asset value. Contingent deferred sales charge is not reflected. Total return is calculated for the periods indicated and is not annualized. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A and Class B shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 4, 1995 JANUARY 26, 1995 THROUGH THROUGH FEBRUARY 28, 1995 FEBRUARY 28, 1995 (UNAUDITED) (UNAUDITED) Expenses................................................... 1.30% 2.00% Net investment income...................................... 4.95% 4.59%
6 EVERGREEN TAX EXEMPT MONEY MARKET FUND -- CLASS Y SHARES
SIX MONTHS ENDED FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 1990 PER SHARE DATA Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income................ .02 .02 .03 .04 .05 .06 Total from investment operations... .02 .02 .03 .04 .05 .06 Less distributions to shareholders from net investment income................ (.02 ) (.02) (.03) (.04) (.05) (.06) Net asset value, end of period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN+.......................... 1.7% 2.5% 2.6% 3.7% 5.5% 6.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)............................ $387 $402 $401 $417 $510 $311 Ratios to average net assets: Expenses (a)......................... .51% ++ .34% .34% .32% .28% .31% Net investment income (a)............ 3.34% ++ 2.47% 2.58% 3.72% 5.23% 5.94% NOVEMBER 2, 1988* THROUGH AUGUST 31, 1989 PER SHARE DATA Net asset value, beginning of period $1.00 Income from investment operations: Net investment income................ .05 Total from investment operations... .05 Less distributions to shareholders from net investment income................ (.05) Net asset value, end of period......... $1.00 TOTAL RETURN+.......................... 5.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)............................ $109 Ratios to average net assets: Expenses (a)......................... .24%++ Net investment income (a)............ 6.77%++
* Commencement of operations. + Total return is calculated for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED NOVEMBER 2, 1988 FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 1990 1989 Expenses............................... .64% .64% .63% .63% .66% .71% .79% Net investment income.................. 3.21% 2.17% 2.29% 3.41% 4.85% 5.54% 6.22%
7 EVERGREEN TAX EXEMPT MONEY MARKET FUND -- CLASS A SHARES
JANUARY 5, 1995* THROUGH FEBRUARY 28, 1995 (UNAUDITED) PER SHARE DATA Net asset value, beginning of period...................................................................... $ 1.000 Income from investment operations: Net investment income................................................................................... .005 Total from investment operations........................................................................ .005 Distributions to shareholders from net investment income.................................................. (.005) Net asset value, end of period............................................................................ $ 1.000 TOTAL RETURN+............................................................................................. .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................................................. $144 Ratios to average net assets: Expenses (a)............................................................................................ .83%++ Net investment income (a)............................................................................... 3.53%++
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. Due to the recent commencement of its offering, the ratios for Class A shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 5, 1995 THROUGH FEBRUARY 28, 1995 (UNAUDITED) Expenses................................................................ 1.30% Net investment income................................................... 3.06%
8 EVERGREEN TREASURY MONEY MARKET FUND
CLASS A SHARES CLASS Y SHARES MARCH 6, 1991* MARCH 6, 1991* THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, 1994 1993 1992 1991 1994 1993 1992 1991 PER SHARE DATA Net asset value, beginning of period................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income...... .04 .03 .03 .04 .04 .03 .04 .05 Less distributions to shareholders from net investment income........ (.04) (.03) (.03) (.04) (.04) (.03) (.04) (.05) Net asset value, end of period................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN+.............. 3.8% 2.7% 3.4% 4.5% 4.1% 3.0% 3.7% 4.7% Net assets, end of period (000's omitted).......... $755,050 $261,475 $208,792 $ 99,549 $162,921 $366,109 $286,230 $265,109 Ratios to average net assets: Expenses (a)............. .50% .48% .48% .47%++ .20% .18% .17% 0.20%++ Net investment income (a)............. 3.91% 2.70% 3.22% 4.95%++ 3.78% 3.00% 3.61% 5.53%++
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS Y SHARES YEAR ENDED MARCH 6, 1991 YEAR ENDED MARCH 6, 1991 DECEMBER 31, THROUGH DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, 1994 1993 1992 1991 1994 1993 1992 1991 Expenses................ .78% .82% .82% 1.08% .48% .52% .52% .52% Net investment income... 3.63% 2.36% 2.88% 4.34% 3.50% 2.66% 3.26% 5.21%
10 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Money Market Fund The investment objective of Evergreen Money Market Fund is to achieve as high a level of current income as is consistent with preserving capital and providing liquidity. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund invests in high quality money market instruments, which are determined to be of eligible quality under Securities and Exchange Commission ("SEC") rules and to present minimal credit risk. Under SEC rules, eligible securities include First Tier Securities (i.e., securities rated in the highest short-term rating category) and Second Tier Securities (i.e., securities which are not in the First Tier). The rules prohibit the Fund from holding more than 5% of its value in Second Tier Securities. The Fund's permitted investments include: 1. Marketable obligations of, or guaranteed by, the United States Government, its agencies or instrumentalities, including issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Some of these securities are supported by the full faith and credit of the United States Government, others are supported by the right of the issuer to borrow from the Treasury, and still others are supported only by the credit of the agency or instrumentality. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Examples of agencies or instrumentalities whose securities are supported by the right of the issuer to borrow from the Treasury include, but are not limited to, the Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal National Mortgage Association and Tennessee Valley Authority. Agencies or instrumentalities whose securities are supported only by the credit of the agency or instrumentality include the Interamerican Development Bank and the International Bank for Reconstruction and Development. These obligations are supported by appropriated but unpaid commitments of its member countries. There are no assurances that the commitments will be undertaken in the future. 2. Commercial paper, including variable amount master demand notes, that is rated in one of the two highest short-term rating categories by any two of Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or any other nationally recognized statistical rating organization ("SRO") (or by a single rating agency if only one of these agencies has assigned a rating). The Fund will not invest more than 10% of its total assets, at the time of the investment in question, in variable amount master demand notes. For a description of these ratings see the Statement of Additional Information. 3. Corporate debt securities and bank obligations that are rated in one of the two highest short-term rating categories by any two of S&P, Moody's and any other SRO (or by a single rating agency if only one of these agencies has assigned a rating). 4. Unrated corporate debt securities, commercial paper and bank obligations that are issued by an issuer that has outstanding a class of short-term debt instruments (i.e., instruments having a maturity of 366 days or less) that (A) is comparable in priority and security to the unrated securities and (B) meets the rating requirements of paragraphs 2 or 3 above. 5. Unrated corporate debt securities, commercial paper and bank obligations issued by domestic and foreign companies which have an outstanding long-term debt issue rated in the top two rating categories by a SRO and determined by the Trustees to be of comparable quality. 6. Unrated corporate debt securities, commercial paper and bank obligations otherwise determined by the Trustees to be of comparable quality. 7. Repurchase agreements with respect to the securities described in paragraphs 1 through 6 above. The Fund may invest up to 30% of its total assets 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. These investments involve risks that are different from investments in domestic securities. These risks may include future unfavorable political and economic developments, possible withholding taxes, seizure of foreign deposits, currency controls, interest limitations or other governmental restrictions which might affect the payment of principal or interest on the securities in the Fund's portfolio. Additionally, there may be less publicly available information about foreign issuers. The Fund may invest in commercial paper and other short-term corporate obligations which meet the rating criteria specified in paragraphs 3 and 4 above which are issued in private placements pursuant to Section 4(2) of the Securities Act of 1933 (the "Act"). Such securities are not registered for purchase and sale by the public under the Act. The Fund has been informed that the staff of the SEC does not consider such securities to be readily marketable. The Fund will not invest more than 10% of its total assets in securities which are not readily marketable (including private placement securities) and in repurchase agreements maturing in more than seven days. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Tax Exempt Money Market Fund The investment objective of Evergreen Tax Exempt Money Market Fund is to achieve as high a level of current income exempt from Federal income tax, as is consistent with preserving capital and providing liquidity. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund will seek to achieve its objective by investing substantially all of its assets in a diversified portfolio of short-term (i.e., with remaining maturities not exceeding 397 days) debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax. Such securities are generally known as Municipal Securities (see "Municipal Securities" below.) The Fund will invest in Municipal Securities only if they are determined to be of eligible quality under SEC rules and to present minimum credit risk. Municipal Securities in which the Fund may invest include: (i) municipal securities that are rated in one of the top two short-term rating categories by any two of S&P, Moody's or any other nationally recognized SRO (or by a single rating agency if only one of these agencies has assigned a rating); (ii) municipal securities that are issued by an issuer that has outstanding a class of short-term debt instruments (i.e., having a maturity of 366 days or less) that (A) is comparable in priority and security to such instruments and (B) meets the rating requirements above; and (iii) bonds with a remaining maturity of 397 days or less that are rated no lower than one of the top two long-term rating categories by any SRO and determined by the Trustees to be of comparable quality. For a description of such ratings see the Statement of Additional Information. The Fund may also purchase Municipal Securities which are unrated at the time of purchase up to a maximum of 20% of its total assets, if such securities are determined by the Fund's Trustees to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks or other financial institutions and, in such instances, the Trustees will take into account the obligation of the bank in assessing the quality of such security. The ability of the Fund to meet its investment objective is necessarily subject to the ability of municipal issuers to meet their payment obligations. Interest income on certain types of bonds issued after August 7, 1986 to finance nongovernmental activities is an item of "tax-preference" subject to the Federal alternative minimum tax for individuals and corporations. To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to the alternative minimum tax on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will invest at least 80% of its net assets in Municipal Securities, the interest from which is not subject to the Federal alternative minimum tax. Municipal Securities. As noted above, the Fund will invest substantially all of its assets in Municipal Securities. These include municipal bonds, short-term municipal notes and tax exempt commercial paper. "Municipal bonds" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "municipal bonds" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in municipal bonds, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Floating Rate and Variable Rate Obligations. Municipal Securities also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Such securities must comply with conditions established by the SEC under which they may be considered to have remaining maturities of 397 days or less. Certain of these obligations may carry a demand feature that gives the Fund the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will limit the value of its investments in any floating or variable rate securities which are not readily marketable and in all other not readily marketable securities to 10% or less of its total assets. Stand-by Commitments. The Fund may also acquire "stand-by commitments" with respect to Municipal Securities held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase, at the Fund's option, specified Municipal Securities at a specified price. The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Investments. The Fund may temporarily invest up to 20% of the Fund's net assets in taxable securities under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, the Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. The Fund may invest for defensive purposes during periods when the Fund's assets available for investment exceed the available Municipal Securities that meet the Fund's quality and other investment criteria. Taxable securities in which the Fund may invest on a short-term basis include obligations of the United States Government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by an SRO; commercial paper rated in the highest grade by Moody's or S&P; and certificates of deposit issued by United States branches of United States banks with assets of $1 billion or more. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Treasury Money Market Fund The investment objective of Evergreen Treasury Money Market Fund, which is a matter of fundamental policy that may not be changed without shareholder approval, is to maintain stability of principal while earning current income. However, the Fund will only attempt to seek income to the extent consistent with stability of principal and, therefore, investments will only be made in short-term United States Treasury obligations with an average dollar-weighted maturity of 90 days or less. As a matter of investment strategy, the Fund's investment adviser intends to maintain a dollar-weighted average maturity for the Fund of 60 days or less. Evergreen Treasury Money Market Fund is suitable for conservative investors seeking high current yields plus relative safety. The Fund provides a reasonable means of maximizing opportunities and minimizing risks resulting from changing interest rates. The short-term United States Treasury obligations in which the Fund invests are issued by the U.S. Government and are fully guaranteed as to principal and interest by the United States. Such securities will have a maturity date that is 397 days or less from the date of acquisition unless they are purchased under an agreement that provides for repurchase of the securities from the Fund within 397 days from the date of acquisition. The Fund may also retain Fund assets in cash. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS General. The Funds invest only in securities that have remaining maturities of 397 days (thirteen months) or less at the date of purchase. For this purpose, floating rate or variable rate obligations (described under Evergreen Tax Exempt Money Market Fund, above), which are payable on demand, but which may otherwise have a stated maturity in excess of this period, will be deemed to have remaining maturities of less than 397 days pursuant to conditions established by the SEC. The Funds maintain a dollar-weighted average portfolio maturity of ninety days or less. The Funds follow these policies to maintain a stable net asset value of $1.00 per share, although there is no assurance they can do so on a continuing basis. The market value of the obligations in a Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. If a portfolio security is no longer of eligible quality, a Fund shall dispose of such security in an orderly fashion as soon as reasonably practicable, unless the Trustees determine, in light of market conditions or other factors, that disposal of the instrument would not be in the best interests of the Fund and its shareholders. The ability of each Fund to meet its investment objective is necessarily subject to the ability of the issuers of securities in which the Funds invest to meet their payment obligations. In addition, the portfolio of each Fund will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Fund. Investors should recognize that, in periods of declining interest rates, the yield of a Fund will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates, the yield of a Fund will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in portfolio instruments producing lower yields than the balance of the Fund's portfolio, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. Repurchase Agreements. The Funds may enter into repurchase agreements. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during a Fund's holding period. Repurchase agreements may be entered into with member banks of the Federal Reserve System, including, the Fund's custodian or "primary dealers" (as designated by the Federal Reserve Bank of New York) in United States Government securities. Each Fund will require continued maintenance of collateral with its Custodian in an amount equal to, or in excess of, the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. Each Fund's investment adviser will review and continually monitor the creditworthiness of each institution with which the Fund enters into a repurchase agreement to evaluate these risks. A Fund may not enter into repurchase agreements if, as a result, more than 10% of a Fund's total assets would be invested in repurchase agreements maturing in more than seven days and in other securities that are not readily marketable. Securities Lending. In order to generate income and to offset expenses, Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund may lend portfolio securities to brokers, dealers and other financial organizations. Each Fund's investment adviser will monitor the creditworthiness of such borrowers. Loans of securities by Evergreen Tax Exempt Money Market Fund or Evergreen Money Market Fund, if and when made, may not exceed 30% of a Fund's total assets and will be collateralized by cash, letters of credit or United States Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. A Fund will have the right to call any such loan and obtain the securities loaned at any time on five days' notice. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund may pay reasonable fees in connection with such loans. When-Issued Securities. Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). A Fund generally would not pay for such securities or start earning interest on them until they are received. However, when a Fund purchases securities on a when-issued basis, it assumes the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Evergreen Tax Exempt Money Market Fund does not expect that commitments to purchase when-issued securities will normally exceed 25% of its total assets and Evergreen Treasury Money Market Fund does not expect that such commitments will exceed 20% of its total assets. The Funds do not intend to purchase when-issued securities for speculative purposes but only in furtherance of their investment objective. Illiquid Securities. The Funds may invest up to 10% of their net assets in illiquid securities and other securities which are not readily marketable, including repurchase agreements with maturities longer than seven days. In the case of Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund, securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by each Fund's investment adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 10% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 10% of its assets invested in illiquid or not readily marketable securities. Other Investment Policies. The Funds may borrow money for temporary or emergency purposes in amounts not in excess of 10% of the value of a Fund's total assets in the case of Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund and one-third of the value of Evergreen Treasury Money Market Fund's total assets, including the amount borrowed. As another means of borrowing both Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund may agree to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed upon date and price (a "reverse repurchase agreement") at the time of such borrowing in amounts up to 5% of the value of their total assets. A Fund will not purchase any securities whenever any borrowings (including reverse repurchase agreements) are outstanding. If either Evergreen Tax Exempt Money Market Fund or Evergreen Money Market Fund enter into a reverse repurchase agreement, they will place in a segregated custodial account cash, United States Government securities or liquid high grade debt obligations having a value equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). Evergreen Asset Management Corp. ("Evergreen Asset") has been retained to serve as investment adviser to Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen Group of Mutual Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the aforementioned Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Treasury Money Market Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, and had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. Evergreen Asset manages investments, provides various administrative services and supervises the daily business affairs of Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund, subject to the authority of the Trustees. Evergreen Asset is entitled to receive from each Fund an annual fee equal to .50 of 1% of average daily net assets of each Fund on the first $1 billion in assets and .45 of 1% of average daily net assets in excess of $1 billion. However, Evergreen Asset has in the past, and may in the future, voluntarily waive all or a portion of its fee for the purpose of reducing each Fund's expense ratio. For the fiscal period ended August 31, 1994 Evergreen Asset waived a portion of the advisory fee payable by the Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund as set forth in the section entitled "Financial Highlights". The total expenses as a percentage of average daily net assets on an annualized basis for Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund for the fiscal period ended August 31, 1994 are also set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen Treasury Money Market Fund and, as compensation therefor, is entitled to receive an annual fee equal to .35 of 1% of average daily net assets of Evergreen Treasury Money Market Fund. For the fiscal period ended December 31, 1994 CMG waived a portion of the advisory fee payable by the Evergreen Treasury Money Market Fund as set forth in the section entitled "Financial Highlights". The total annualized operating expenses of Evergreen Treasury Money Market Fund for its most recent fiscal year ended December 31, 1994 are also set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Treasury Money Market Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Treasury Money Market Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for its Class A shares and Evergreen Money Market Fund for its Class B shares, a "Rule 12b-1 plan" (each, a "Plan" or collectively the "Plans"). Pursuant to each Plan, a Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the Fund's aggregate average daily net assets attributable to Class A shares and 1.00% of the Fund's aggregate average daily net assets attributable to the Class B shares. Payments with respect to Class A shares under the Plan are currently voluntarily limited to .30 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Service fee payments to financial intermediaries for such purposes will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with, Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as EFD at a rate which may not exceed an annual rate of .30 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares and .75 of 1% of aggregate average daily net assets attributable to the Class B shares of the Evergreen Money Market Fund. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Evergreen Money Market Fund may also make payments under its Class B Plan, in amounts up to .25 of 1% of the Fund's aggregate average daily net assets on an annual basis attributable to Class B shares, to compensate organizations, which may include EFD and Evergreen Asset or its affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts or for engaging other to render such services. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Share certificates are not issued. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A shares of Evergreen Money Market Fund, Evergreen Treasury Money Market Fund and Evergreen Tax Exempt Money Market Fund, and Class B shares of Evergreen Money Market Fund are offered through this Prospectus (See "General Information" - Other Classes of Shares). Class A Shares. Class A shares of the Evergreen Money Market Funds can be purchased at net asset value without an initial sales charge. Certain broker-dealers or other financial institutions may impose a fee in connection with purchases at net asset value. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares of the Evergreen Money Market Fund at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan, and may be waived in other situations. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which they convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. With respect to Class B shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Fund's shares for purposes of both purchases and redemptions is determined twice daily, at 12 noon (Eastern time) and promptly after the regular close of the New York Stock Exchange (the "Exchange") (usually 4 p.m. Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street is closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share is calculated by taking the sum of the values of a Fund's investments and any cash and other assets, subtracting liabilities, and dividing by the total number of shares outstanding. All expenses, including the fees payable to each Fund's investment adviser, are accrued daily. The securities in a Fund's portfolio are valued on an amortized cost basis. Under this method of valuation, a security is initially valued at its acquisition cost, and thereafter, a constant straight-line amortization of any discount or premium is assumed each day regardless of the impact of fluctuating interest rates on the market value of the security. The market value of the obligations in a Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. As a result, the market value of the obligations in a Fund's portfolio may vary from the value determined using the amortized cost method. Securities which are not rated are normally valued on the basis of valuations provided by a pricing service when such prices are believed to reflect the fair value of such securities. Other assets and securities for which no quotations are readily available are valued at the fair value as determined in good faith by the Trustees. Each Fund attempts to maintain its net asset value at $1.00 per share. Under most conditions, management believes this will be possible, although there can be no assurance that this will be achieved. Calculations are periodically made to compare the value of a Fund's portfolio valued at amortized cost with market values. If a deviation of 1/2 of 1% or more were to occur between the net asset value calculated by reference to market values and a Fund's $1.00 per share net asset value, or if there were other deviations which the Trustees believed would result in a material dilution to shareholders or purchasers, the Trustees would promptly consider what action, if any, should be initiated. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or its investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from his or her account to reimburse a Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. Shares of the Funds are sold at the net asset value per share next determined after a shareholder's investment has been received. Investments by federal funds wire will be effective upon receipt. Qualified institutions may telephone orders for the purchase of Fund shares. Shares purchased by institutions via telephone will receive the dividend declared on that day if the telephone order is placed by 12 noon (Eastern time), and federal funds are received the same day by 4 p.m. (Eastern time). Institutions should telephone the Fund at the phone number on the front page of this Prospectus for additional information on same day purchases by telephone. Investment checks received at State Street will be invested on the date of receipt. Shareholders will begin earning dividends the following business day. General. The decision as to which Class of shares of Evergreen Money Market Fund is more beneficial to you depends primarily on whether or not you wish to exchange all or part of any Class B shares you purchase for Class B shares of another Evergreen Fund at some future date. If you are not contemplating such an exchange, it would probably be in your best interest to purchase Class A shares. Consult your financial intermediary for further information. The compensation received by dealers and agents may differ depending on whether they sell Class A or Class B shares. There is no size limit on purchases of Class A shares. In addition to any discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the enclosed Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5.00 wire charge from all redemption proceeds wired. This charge is subject to change without notice. Redemption proceeds will be wired on the same day if the request is made prior to 12 noon (Eastern time). Such shares, however, will not earn dividends for that day. Redemption requests received after 12 noon will earn dividends for that day, and the proceeds will be wired on the following business day. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately 10 days for such form to be processed. The Funds will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of telephone instructions. If a Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Funds will not be liable for following telephone instructions reasonably believed to be genuine. The Funds reserve the right to refuse a telephone redemption if it is believed advisable to do so. Procedures for redeeming Fund shares by telephone may be modified or terminated without notice at any time. Redemptions by Check. Upon request, each Fund will provide holders of Class A shares, without charge, with checks drawn on the Fund that will clear through State Street. Class B shares cannot be redeemed by check. Shareholders will be subject to State Street's rules and regulations governing such checking accounts. Checks will be sent usually within ten business days following the date the account is established. Checks may be made payable to the order of any payee in an amount of $250 or more. The payee of the check may cash or deposit it like a check drawn on a bank. (Investors should be aware that, as in the case with regular bank checks, certain banks may not provide cash at the time of deposit, but will wait until they have received payment from State Street.) When such a check is presented to State Street for payment, State Street, as the shareholder's agent, causes the Fund to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. Checks will be returned by State Street if there are insufficient or uncollectable shares to meet the withdrawal amount. The check writing procedure for withdrawal enables shareholders to continue earning income on the shares to be redeemed up to but not including the date the redemption check is presented to State Street for payment. Shareholders wishing to use this method of redemption, should fill out the appropriate part of the Share Purchase Application (including the Signature Card) and mail the completed form to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service after an account has been opened must contact State Street since additional documentation will be required. Currently, there is no charge either for checks or for the clearance of any checks. This service may be terminated or altered at any time. General. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds has different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be materially modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B shares of the Evergreen Money Market Fund are exchanged for Class B shares of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B shares of the Evergreen Mutual Fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares. An exchange of Class A shares of the Funds for Class A shares of other Evergreen mutual funds not offered in this Prospectus would, to the extent a waiver or reduction were not available, require the payment of the applicable front-end sales charge. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the enclosed Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact EFD or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $25,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account two business days after the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Funds and the other Evergreen mutual funds available to their participants. Each Fund's investment adviser may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES The Funds declare substantially all of their net income as dividends on each business day. Such dividends are paid monthly. Net income, for dividend purposes, includes accrued interest and any market discount or premium that day, less the estimated expenses of a Fund. Gains or losses realized upon the sale of portfolio securities are not included in net income, but are reflected in the net asset value of a Fund's shares. Distributions of any net realized capital gains will be made annually or more frequently as required by the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The amount of dividends may fluctuate from day to day, and the dividend may be omitted on a day where Fund expenses exceed net investment income. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in the immediately preceding December. Such dividends will be automatically reinvested in full and fractional shares of a Fund on the last business day of each month. However, shareholders who so inform the transfer agent in writing may have their dividends paid out in cash monthly. Shareholders who invest by check will be credited with a dividend on the business day following initial investment. Shareholders will receive dividends on investments made by federal funds bank wire the same day the wire is received provided that wire purchases are received by State Street by 12 noon (Eastern time). Shares purchased by qualified institutions via telephone as described in "How to Purchase Shares" will receive the dividend declared on that day if the telephone order is placed by 12 noon (Eastern time), and federal funds are received by 4 p.m. (Eastern time). All other wire purchases received after 12 noon (Eastern time) will earn dividends beginning the following business day. Dividends accruing on the day of redemption will be paid to redeeming shareholders except for redemptions by check and where proceeds are wired the same day. (See "How to Redeem Shares".) Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The excise tax generally does not apply to the tax exempt income of a regulated investment company (such as Evergreen Tax Exempt Money Market Fund) that pays exempt interest dividends. Except as noted below with respect to Evergreen Tax Exempt Money Market Fund, most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund. Evergreen Tax Exempt Money Market Fund will designate and pay exempt-interest dividends derived from interest earned on qualifying tax exempt obligations. Such exempt-interest dividends may be excluded by shareholders of the Fund from their gross income for Federal income tax purposes, however, (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income, even though received in additional Fund shares. Market discount recognized on taxable and tax-free bonds is taxable as ordinary income, not as excludable income. Following the end of each calendar year, every shareholder of the Funds will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since the Funds' gross income is ordinarily expected to be interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Money Market Fund (formerly Evergreen Money Market Trust) is a Massachusetts business trust organized in 1987, the Evergreen Tax Exempt Money Market Fund is a separate investment series of the Evergreen Municipal Trust, which is a Massachusetts business trust organized in 1988, and the Evergreen Treasury Money Market Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. The Trusts are empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent And Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Treasury Money Market Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Evergreen Money Market Fund offers three classes of shares, Class A, Class B, and Class Y. Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund each offer two classes of shares, Class A and Class Y. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, a Fund may quote its yield in advertisements or in reports to shareholders. Yield information may be useful in reviewing the performance of a Fund and for providing a basis for comparison with other investment alternatives. However, since net investment income of a Fund changes in response to fluctuations in interest rates and Fund expenses, any given yield quotation should not be considered representative of a Fund's yields for any future period. The method of calculating each Fund's yield is set forth in the Statement of Additional Information. Before investing in the Evergreen Tax Exempt Money Market Fund, the investor may want to determine which investment -- tax-free or taxable -- will result in a higher after-tax return. To do this, the yield on the tax-free investment should be divided by the decimal determined by subtracting from 1 the highest Federal tax rate to which the investor currently is subject. For example, if the tax-free yield is 6% and the investor's maximum tax bracket is 36%, the computation is: 6% Tax-Free Yield /(1 - .36 Tax Rate) = 6/.64 = 9.38% Taxable Yield. In this example, the investor's after-tax return will be higher from the 6% tax-free investment if available taxable yields are below 9.38%. Conversely, the taxable investment will provide a higher return when taxable yields exceed 9.38%. This is only an example and is not necessarily reflective of a Fund's yield. The tax equivalent yield will be lower for investors in the lower income brackets. Comparative performance information may also be used from time to time in advertising or marketing the Fund's shares, including data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report, Bank Rate Monitor and other industry publications. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which Funds operate provide that no trustee or shareholder will be personally liable for the obligations of the trust and that every written contract made by the trust contain a provision to that effect. If any trustee or shareholder were required to pay any liability of the trust, that person would be entitled to reimbursement from the general assets of the trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. 9 INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN MONEY MARKET FUND, EVERGREEN TAX EXEMPT MONEY MARKET FUND Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN TREASURY MONEY MARKET FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN MONEY MARKET FUND, EVERGREEN TAX EXEMPT MONEY MARKET FUND KPMG Peat Marwick, LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 EVERGREEN TREASURY MONEY MARKET FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536120 PROSPECTUS July 7, 1995 EVERGREEN(SM) MONEY MARKET FUNDS (Evergreen logo appears here) EVERGREEN MONEY MARKET FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND EVERGREEN TREASURY MONEY MARKET FUND CLASS Y SHARES The Evergreen Money Market Funds (the "Funds") are designed to provide investors with current income, stability of principal and liquidity. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 10 Investment Practices and Restrictions 13 MANAGEMENT OF THE FUNDS Investment Advisers 14 Sub-Adviser 15 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 16 How to Redeem Shares 17 Exchange Privilege 18 Shareholder Services 19 Effect of Banking Laws 19 OTHER INFORMATION Dividends, Distributions and Taxes 20 General Information 21
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN TREASURY MONEY MARKET FUND. EVERGREEN MONEY MARKET FUND seeks as high a level of current income as is consistent with preserving capital and providing liquidity. The Fund will invest only in high quality money market instruments. EVERGREEN TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from Federal income tax as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short-term municipal securities, the interest from which is exempt from Federal income tax. EVERGREEN TREASURY MONEY MARKET FUND (formerly First Union Treasury Money Market Portfolio) seeks to achieve stability of principal and current income consistent with stability of principal. Each Fund seeks to maintain a stable net asset value of $1.00 per share although no assurances can be given that such a stable net asset value will be maintained. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $ 5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN MONEY MARKET FUND (A)
ANNUAL OPERATING EXAMPLE EXPENSES Class Y Advisory Fees .50% After 1 Year $ 7 12b-1 Fees -- After 3 Years After 3 Years $23 Other Expenses .21% After 5 Years $40 After 10 Years $88 Total .71%
EVERGREEN TAX EXEMPT MONEY MARKET FUND (B)
ANNUAL OPERATING EXAMPLE EXPENSES Class Y Advisory Fees .50% After 1 Year $ 6 12b-1 Fees -- After 3 Years $18 Other Expenses .05% After 5 Years $31 After 10 Years $69 Total .55%
EVERGREEN TREASURY MONEY MARKET FUND
ANNUAL OPERATING EXAMPLE EXPENSES Class Y Advisory Fees .35% After 1 Year $ 5 Administrative Fees .06% After 3 Years $15 12b-1 Fees -- After 5 Years $26 Other Expenses .05% After 10 Years $58 Total .46%
(a) Estimated annual operating expenses reflect the combination of EVERGREEN MONEY MARKET FUND and First Union Money Market Portfolio. (b) Estimated annual operating expenses reflect the combination of EVERGREEN TAX EXEMPT MONEY MARKET FUND and First Union Tax Free Money Market Portfolio. 3 Evergreen Asset has agreed to reimburse EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND to the extent that the Fund's aggregate annual operating expenses (including the Adviser's fee, but excluding interest, taxes, brokerage commissions, Rule 12b-1 distribution fees and shareholder services fees, and extraordinary expenses) exceed 1% of the Fund's average net assets. The estimated operating expenses and examples do not reflect fee waivers and expense reimbursements for the most recent fiscal year. Actual expenses, net of fee waivers and expense reimbursements for the fiscal year ended December 31, 1994 or August 31, 1994, as applicable for Class Y Shares were as follows: EVERGREEN MONEY MARKET FUND .32% EVERGREEN TAX EXEMPT MONEY MARKET FUND .34% EVERGREEN TREASURY MONEY MARKET FUND .20%
From time to time, each Fund's investment adviser may, at its discretion, waive its fee or reimburse a Fund for certain of its expenses in order to reduce a Fund's expense ratio. The Adviser may cease these voluntary waivers or reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in Class Y Shares of the Funds will bear directly or indirectly. The amounts set forth under "Other Expenses" as well as the amounts set forth in the examples are estimated amounts based on historical experience for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the fund if shorter for EVERGREEN TREASURY MONEY MARKET FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN MONEY MARKET FUND and EVERGREEN TAX EXEMPT MONEY MARKET FUND has, except as noted otherwise, been audited by Price Waterhouse LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN MONEY MARKET FUND -- Y SHARES
SIX MONTHS ENDED TEN MONTHS FEBRUARY 28, ENDED 1995 AUGUST 31, YEAR ENDED OCTOBER 31, (UNAUDITED) 1994# 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income.............. .02 .03 .03 .04 .07 .08 .09 Total from investment operations..................... .02 .03 .03 .04 .07 .08 .09 Less distributions to shareholders from net investment income....... (.02) (.03) (.03) (.04) (.07) (.08) (.09) Net asset value, end of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN+...................... 2.4% 2.9% 3.2% 4.2% 6.7% 8.4% 9.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions).................... $244 $273 $299 $358 $438 $458 $408 Ratios to average net assets: Expenses (a)..................... .54%++ .32%++ .39% .36% .30% .35% .38% Net investment income (a)........ 4.88%++ 3.46%++ 3.19% 4.18% 6.53% 8.08% 9.42% NOVEMBER 2, 1987* THROUGH OCTOBER 31, 1988 PER SHARE DATA Net asset value, beginning of period........................... $1.00 Income from investment operations: Net investment income.............. .07 Total from investment operations..................... .07 Less distributions to shareholders from net investment income....... (.07) Net asset value, end of period..... $1.00 TOTAL RETURN+...................... 7.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions).................... $161 Ratios to average net assets: Expenses (a)..................... .43%++ Net investment income (a)........ 7.26%++
# On September 21, 1994, the Fund changed its fiscal year end from October 31 to August 31. * Commencement of operations. + Total return is calculated for the periods indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED TEN MONTHS FEBRUARY 28, ENDED YEAR ENDED NOVEMBER 2, 1987 1995 AUGUST 31, OCTOBER 31, THROUGH (UNAUDITED) 1994 1993 1992 1991 1990 1989 OCTOBER 31, 1988 Expenses........................ .74% .71% .71% .72% .70% .69% .75% .93% Net investment income........... 4.68% 3.07% 2.87% 3.82% 6.13% 7.74% 9.05% 6.76%
5 EVERGREEN MONEY MARKET FUND -- CLASS A AND B SHARES
CLASS A SHARES CLASS B SHARES JANUARY 4, 1995* JANUARY 26, 1995* THROUGH THROUGH FEBRUARY 28, 1995 FEBRUARY 28, 1995 (UNAUDITED) (UNAUDITED) PER SHARE DATA Net asset value, beginning of period.................................................. $ 1.000 $ 1.000 Income from investment operations: Net investment income................................................................. .008 .004 Total income from investment operations............................................. .008 .004 Less distributions to shareholders from net investment income......................... (.008) (.004) Net asset value, end of period........................................................ $ 1.000 $ 1.000 TOTAL RETURN+......................................................................... .8% .4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................................. $668 $35 Ratios to average net assets: Expenses (a)........................................................................ .85%++ 1.56%++ Net investment income (a)........................................................... 5.40%++ 5.03%++
* Commencement of class operations. + Total return is calculated on net asset value. Contingent deferred sales charge is not reflected. Total return is calculated for the periods indicated and is not annualized. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A and Class B shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 4, 1995 JANUARY 26, 1995 THROUGH THROUGH FEBRUARY 28, 1995 FEBRUARY 28, 1995 (UNAUDITED) (UNAUDITED) Expenses...................................................... 1.30% 2.00% Net investment income......................................... 4.95% 4.59%
6 EVERGREEN TAX EXEMPT MONEY MARKET FUND -- CLASS Y SHARES
SIX MONTHS ENDED NOVEMBER 2, FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, 1988* THROUGH (UNAUDITED) 1994 1993 1992 1991 1990 AUGUST 31, 1989 PER SHARE DATA Net asset value, beginning of period... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income................ .02 .02 .03 .04 .05 .06 .05 Total from investment operations... .02 .02 .03 .04 .05 .06 .05 Less distributions to shareholders from net investment income................ (.02) (.02) (.03) (.04) (.05) (.06) (.05) Net asset value, end of period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN........................... 1.7% 2.5% 2.6% 3.7% 5.5% 6.2% 5.5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (in millions)............................ $387 $402 $401 $417 $510 $311 $109 Ratios to average net assets: Expenses (a)......................... .51++ .34% .34% .32% .28% .31% .24%++ Net investment income (a)............ 3.34++ 2.47% 2.58% 3.72% 5.23% 5.94% 6.77%++
* Commencement of operations. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED FEBRUARY 28, NOVEMBER 2, 1988 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 1990 1989 Expenses.............................. .64% .64% .63% .63% .66% .71% .79% Net investment income................. 3.21% 2.17% 2.29% 3.41% 4.85% 5.54% 6.22%
7 EVERGREEN TAX EXEMPT MONEY MARKET FUND -- CLASS A SHARES
JANUARY 5, 1995* THROUGH FEBRUARY 28, 1995 (UNAUDITED) PER SHARE DATA Net asset value, beginning of period...................................................................... $ 1.000 Income from investment operations: Net investment income..................................................................................... .005 Total from investment operations........................................................................ .005 Distributions to shareholders from net investment income.................................................. (.005) Net asset value, end of period............................................................................ $ 1.000 TOTAL RETURN+............................................................................................. .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................................................. $144 Ratios to average net assets: Expenses (a)............................................................................................ .83%++ Net investment income (a)............................................................................... 3.53%++
* Commencement of class operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. Due to the recent commencement of its offering, the ratios for Class A shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 5, 1995 THROUGH FEBRUARY 28, 1995 (UNAUDITED) Expenses.......................................................................... 1.30% Net investment income............................................................. 3.06%
8 EVERGREEN TREASURY MONEY MARKET FUND
CLASS A SHARES CLASS Y SHARES MARCH 6, MARCH 6, 1991* 1991* THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, 1994 1993 1992 1991 1994 1993 1992 1991 PER SHARE DATA Net asset value, beginning of period............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income..... .04 .03 .03 .04 .04 .03 .04 .05 Less distributions to shareholders from net investment income....... (.04) (.03) (.03) (.04) (.04) (.03) (.04) (.05) Net asset value, end of period.................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN+............. 3.8% 2.7% 3.4% 4.5% 4.1% 3.0% 3.7% 4.7% Net assets, end of period (000's omitted)......... $755,050 $261,475 $208,792 $ 99,549 $162,921 $366,109 $286,230 $265,109 Ratios to average net assets: Expenses (a)............ .50% .48% .48% .47%++ .20% .18% .17% .20%++ Net investment income (a)............ 3.91% 2.70% 3.22% 4.95%++ 3.78% 3.00% 3.61% 5.53%++
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS Y SHARES YEAR ENDED MARCH 6, 1991 YEAR ENDED MARCH 6, 1991 DECEMBER 31, THROUGH DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, 1994 1993 1992 1991 1994 1993 1992 1991 Expenses................ .78% .82% .82% 1.08% .48% .52% .52% .52% Net investment income... 3.63% 2.36% 2.88% 4.34% 3.50% 2.66% 3.26% 5.21%
9 10 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Money Market Fund The investment objective of Evergreen Money Market Fund is to achieve as high a level of current income as is consistent with preserving capital and providing liquidity. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund invests in high quality money market instruments, which are determined to be of eligible quality under Securities and Exchange Commission ("SEC") rules and to present minimal credit risk. Under SEC rules, eligible securities include First Tier Securities (i.e., securities rated in the highest short-term rating category) and Second Tier Securities (i.e., securities which are not in the First Tier). The rules prohibit the Fund from holding more than 5% of its value in Second Tier Securities. The Fund's permitted investments include: 1. Marketable obligations of, or guaranteed by, the United States Government, its agencies or instrumentalities, including issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Some of these securities are supported by the full faith and credit of the United States Government, others are supported by the right of the issuer to borrow from the Treasury, and still others are supported only by the credit of the agency or instrumentality. Agencies or instrumentalities whose securities are supported by the full faith and credit of the United States include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association. Examples of agencies or instrumentalities whose securities are supported by the right of the issuer to borrow from the Treasury include, but are not limited to, the Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal National Mortgage Association and Tennessee Valley Authority. Agencies or instrumentalities whose securities are supported only by the credit of the agency or instrumentality include the Interamerican Development Bank and the International Bank for Reconstruction and Development. These obligations are supported by appropriated but unpaid commitments of its member countries. There are no assurances that the commitments will be undertaken in the future. 2. Commercial paper, including variable amount master demand notes, that is rated in one of the two highest short-term rating categories by any two of Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or any other nationally recognized statistical rating organization ("SRO") (or by a single rating agency if only one of these agencies has assigned a rating). The Fund will not invest more than 10% of its total assets, at the time of the investment in question, in variable amount master demand notes. For a description of these ratings see the Statement of Additional Information. 3. Corporate debt securities and bank obligations that are rated in one of the two highest short-term rating categories by any two of S&P, Moody's and any other SRO (or by a single rating agency if only one of these agencies has assigned a rating). 4. Unrated corporate debt securities, commercial paper and bank obligations that are issued by an issuer that has outstanding a class of short-term debt instruments (i.e., instruments having a maturity of 366 days or less) that (A) is comparable in priority and security to the unrated securities and (B) meets the rating requirements of paragraphs 2 or 3 above. 5. Unrated corporate debt securities, commercial paper and bank obligations issued by domestic and foreign companies which have an outstanding long-term debt issue rated in the top two rating categories by a SRO and determined by the Trustees to be of comparable quality. 6. Unrated corporate debt securities, commercial paper and bank obligations otherwise determined by the Trustees to be of comparable quality. 7. Repurchase agreements with respect to the securities described in paragraphs 1 through 6 above. The Fund may invest up to 30% of its total assets 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. These investments involve risks that are different from investments in domestic securities. These risks may include future unfavorable political and economic developments, possible withholding taxes, seizure of foreign deposits, currency controls, interest limitations or other governmental restrictions which might affect the payment of principal or interest on the securities in the Fund's portfolio. Additionally, there may be less publicly available information about foreign issuers. The Fund may invest in commercial paper and other short-term corporate obligations which meet the rating criteria specified in paragraphs 3 and 4 above which are issued in private placements pursuant to Section 4(2) of the Securities Act of 1933 (the "Act"). Such securities are not registered for purchase and sale by the public under the Act. The Fund has been informed that the staff of the SEC does not consider such securities to be readily marketable. The Fund will not invest more than 10% of its total assets in securities which are not readily marketable (including private placement securities) and in repurchase agreements maturing in more than seven days. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Tax Exempt Money Market Fund The investment objective of Evergreen Tax Exempt Money Market Fund is to achieve as high a level of current income exempt from Federal income tax, as is consistent with preserving capital and providing liquidity. This objective is a fundamental policy and may not be changed without shareholder approval. The Fund will seek to achieve its objective by investing substantially all of its assets in a diversified portfolio of short-term (i.e., with remaining maturities not exceeding 397 days) debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax. Such securities are generally known as Municipal Securities (see "Municipal Securities" below.) The Fund will invest in Municipal Securities only if they are determined to be of eligible quality under SEC rules and to present minimum credit risk. Municipal Securities in which the Fund may invest include: (i) municipal securities that are rated in one of the top two short-term rating categories by any two of S&P, Moody's or any other nationally recognized SRO (or by a single rating agency if only one of these agencies has assigned a rating); (ii) municipal securities that are issued by an issuer that has outstanding a class of short-term debt instruments (i.e., having a maturity of 366 days or less) that (A) is comparable in priority and security to such instruments and (B) meets the rating requirements above; and (iii) bonds with a remaining maturity of 397 days or less that are rated no lower than one of the top two long-term rating categories by any SRO and determined by the Trustees to be of comparable quality. For a description of such ratings see the Statement of Additional Information. The Fund may also purchase Municipal Securities which are unrated at the time of purchase up to a maximum of 20% of its total assets, if such securities are determined by the Fund's Trustees to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks or other financial institutions and, in such instances, the Trustees will take into account the obligation of the bank in assessing the quality of such security. The ability of the Fund to meet its investment objective is necessarily subject to the ability of municipal issuers to meet their payment obligations. Interest income on certain types of bonds issued after August 7, 1986 to finance nongovernmental activities is an item of "tax-preference" subject to the Federal alternative minimum tax for individuals and corporations. To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to the alternative minimum tax on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will invest at least 80% of its net assets in Municipal Securities, the interest from which is not subject to the Federal alternative minimum tax. Municipal Securities. As noted above, the Fund will invest substantially all of its assets in Municipal Securities. These include municipal bonds, short-term municipal notes and tax exempt commercial paper. "Municipal bonds" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "municipal bonds" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in municipal bonds, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Floating Rate and Variable Rate Obligations. Municipal Securities also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Such securities must comply with conditions established by the SEC under which they may be considered to have remaining maturities of 397 days or less. Certain of these obligations may carry a demand feature that gives the Fund the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will limit the value of its investments in any floating or variable rate securities which are not readily marketable and in all other not readily marketable securities to 10% or less of its total assets. Stand-by Commitments. The Fund may also acquire "stand-by commitments" with respect to Municipal Securities held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase, at the Fund's option, specified Municipal Securities at a specified price. The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Investments. The Fund may temporarily invest up to 20% of the Fund's net assets in taxable securities under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, the Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. The Fund may invest for defensive purposes during periods when the Fund's assets available for investment exceed the available Municipal Securities that meet the Fund's quality and other investment criteria. Taxable securities in which the Fund may invest on a short-term basis include obligations of the United States Government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by an SRO; commercial paper rated in the highest grade by Moody's or S&P; and certificates of deposit issued by United States branches of United States banks with assets of $1 billion or more. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Treasury Money Market Fund The investment objective of Evergreen Treasury Money Market Fund, which is a matter of fundamental policy that may not be changed without shareholder approval, is to maintain stability of principal while earning current income. However, the Fund will only attempt to seek income to the extent consistent with stability of principal and, therefore, investments will only be made in short-term United States Treasury obligations with an average dollar-weighted maturity of 90 days or less. As a matter of investment strategy, the Fund's investment adviser intends to maintain a dollar-weighted average maturity for the Fund of 60 days or less. Evergreen Treasury Money Market Fund is suitable for conservative investors seeking high current yields plus relative safety. The Fund provides a reasonable means of maximizing opportunities and minimizing risks resulting from changing interest rates. The short-term United States Treasury obligations in which the Fund invests are issued by the U.S. Government and are fully guaranteed as to principal and interest by the United States. Such securities will have a maturity date that is 397 days or less from the date of acquisition unless they are purchased under an agreement that provides for repurchase of the securities from the Fund within 397 days from the date of acquisition. The Fund may also retain Fund assets in cash. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS General. The Funds invest only in securities that have remaining maturities of 397 days (thirteen months) or less at the date of purchase. For this purpose, floating rate or variable rate obligations (described under Evergreen Tax Exempt Money Market Fund, above), which are payable on demand, but which may otherwise have a stated maturity in excess of this period, will be deemed to have remaining maturities of less than 397 days pursuant to conditions established by the SEC. The Funds maintain a dollar-weighted average portfolio maturity of ninety days or less. The Funds follow these policies to maintain a stable net asset value of $1.00 per share, although there is no assurance they can do so on a continuing basis. The market value of the obligations in a Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. If a portfolio security is no longer of eligible quality, a Fund shall dispose of such security in an orderly fashion as soon as reasonably practicable, unless the Trustees determine, in light of market conditions or other factors, that disposal of the instrument would not be in the best interests of the Fund and its shareholders. The ability of each Fund to meet its investment objective is necessarily subject to the ability of the issuers of securities in which the Funds invest to meet their payment obligations. In addition, the portfolio of each Fund will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Fund. Investors should recognize that, in periods of declining interest rates, the yield of a Fund will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates, the yield of a Fund will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in portfolio instruments producing lower yields than the balance of the Fund's portfolio, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. Repurchase Agreements. The Funds may enter into repurchase agreements. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during a Fund's holding period. Repurchase agreements may be entered into with member banks of the Federal Reserve System, including, the Fund's custodian or "primary dealers" (as designated by the Federal Reserve Bank of New York) in United States Government securities. Each Fund will require continued maintenance of collateral with its Custodian in an amount equal to, or in excess of, the repurchase price (including accrued interest). In the event a vendor defaults on its repurchase obligation, a Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. Each Fund's investment adviser will review and continually monitor the creditworthiness of each institution with which the Fund enters into a repurchase agreement to evaluate these risks. A Fund may not enter into repurchase agreements if, as a result, more than 10% of a Fund's total assets would be invested in repurchase agreements maturing in more than seven days and in other securities that are not readily marketable. Securities Lending. In order to generate income and to offset expenses, Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund may lend portfolio securities to brokers, dealers and other financial organizations. Each Fund's investment adviser will monitor the creditworthiness of such borrowers. Loans of securities by Evergreen Tax Exempt Money Market Fund or Evergreen Money Market Fund, if and when made, may not exceed 30% of a Fund's total assets and will be collateralized by cash, letters of credit or United States Government securities that are maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral in portfolio securities, thereby increasing its return. A Fund will have the right to call any such loan and obtain the securities loaned at any time on five days' notice. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund may pay reasonable fees in connection with such loans. When-Issued Securities. Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). A Fund generally would not pay for such securities or start earning interest on them until they are received. However, when a Fund purchases securities on a when-issued basis, it assumes the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Evergreen Tax Exempt Money Market Fund does not expect that commitments to purchase when-issued securities will normally exceed 25% of its total assets and Evergreen Treasury Money Market Fund does not expect that such commitments will exceed 20% of its total assets. The Funds do not intend to purchase when-issued securities for speculative purposes but only in furtherance of their investment objective. Illiquid Securities. The Funds may invest up to 10% of their net assets in illiquid securities and other securities which are not readily marketable, including repurchase agreements with maturities longer than seven days. In the case of Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund, securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by each Fund's investment adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 10% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 10% of its assets invested in illiquid or not readily marketable securities. Other Investment Policies. The Funds may borrow money for temporary or emergency purposes in amounts not in excess of 10% of the value of a Fund's total assets in the case of Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund and one-third of the value of Evergreen Treasury Money Market Fund's total assets, including the amount borrowed. As another means of borrowing both Evergreen Tax Exempt Money Market Fund and Evergreen Money Market Fund may agree to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed upon date and price (a "reverse repurchase agreement") at the time of such borrowing in amounts up to 5% of the value of their total assets. A Fund will not purchase any securities whenever any borrowings (including reverse repurchase agreements) are outstanding. If either Evergreen Tax Exempt Money Market Fund or Evergreen Money Market Fund enter into a reverse repurchase agreement, they will place in a segregated custodial account cash, United States Government securities or liquid high grade debt obligations having a value equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. Other Investment Restrictions. Each Fund has adopted additional investment restrictions that are set forth in the Statement of Additional Information. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). Evergreen Asset Management Corp. ("Evergreen Asset") has been retained to serve as investment adviser to Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen Group of Mutual Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the aforementioned Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen Treasury Money Market Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, and had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. Evergreen Asset manages investments, provides various administrative services and supervises the daily business affairs of Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund, subject to the authority of the Trustees. Evergreen Asset is entitled to receive from each Fund an annual fee equal to .50 of 1% of average daily net assets of each Fund on the first $1 billion in assets and .45 of 1% of average daily net assets in excess of $1 billion. However, Evergreen Asset has in the past, and may in the future, voluntarily waive all or a portion of its fee for the purpose of reducing each Fund's expense ratio. For the fiscal period ended August 31, 1994 Evergreen Asset waived a portion of the advisory fee payable by the Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund as set forth in the section entitled "Financial Highlights". The total expenses as a percentage of average daily net assets on an annualized basis for Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund for the fiscal period ended August 31, 1994 are also set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen Treasury Money Market Fund and, as compensation therefor, is entitled to receive an annual fee equal to .35 of 1% of average daily net assets of Evergreen Treasury Money Market Fund. For the fiscal period ended December 31, 1994 CMG waived a portion of the advisory fee payable by the Evergreen Treasury Money Market Fund as set forth in the section entitled "Financial Highlights". The total annualized operating expenses of Evergreen Treasury Money Market Fund for its most recent fiscal year ended December 31, 1994 are also set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen Treasury Money Market Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen Treasury Money Market Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Money Market Fund and Evergreen Tax Exempt Money Market Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at (800) 423-2615 and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Fund's shares for purposes of both purchases and redemptions is determined twice daily, at 12 noon (Eastern time) and promptly after the regular close of the New York Stock Exchange (usually 4 p.m. New York time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street is closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share is calculated by taking the sum of the values of a Fund's investments and any cash and other assets, subtracting liabilities, and dividing by the total number of shares outstanding. All expenses, including the fees payable to the Adviser, are accrued daily. The securities in a Fund's portfolio are valued on an amortized cost basis. Under this method of valuation, a security is initially valued at its acquisition cost, and thereafter, a constant straight-line amortization of any discount or premium is assumed each day regardless of the impact of fluctuating interest rates on the market value of the security. The market value of the obligations in a Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. As a result, the market value of the obligations in a Fund's portfolio may vary from the value determined using the amortized cost method. Securities which are not rated are normally valued on the basis of valuations provided by a pricing service when such prices are believed to reflect the fair value of such securities. Other assets and securities for which no quotations are readily available are valued at the fair value as determined in good faith by the Trustees. Each Fund attempts to maintain its net asset value at $1.00 per share. Under most conditions, management believes this will be possible, although there can be no assurance that this will be achieved. Calculations are periodically made to compare the value of a Fund's portfolio valued at amortized cost with market values. If a deviation of 1/2 of 1% or more were to occur between the net asset value calculated by reference to market values and a Fund's $1.00 per share net asset value, or if there were other deviations which the Trustees believed would result in a material dilution to shareholders or purchasers, the Trustees would promptly consider what action, if any, should be initiated. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because a investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from his or her account to reimburse a Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. Shares of the Funds are sold at the net asset value per share next determined after a shareholder's investment has been converted to federal funds. Investments by federal funds wire will be effective upon receipt. Qualified institutions may telephone orders for the purchase of Fund shares. Shares purchased by institutions via telephone will receive the dividend declared on that day if the telephone order is placed by 12 noon (Eastern time), and federal funds are received the same day by 4 p.m. (Eastern time). Institutions should telephone the Fund at the number on the front page of this Prospectus for additional information on same day purchases by telephone. Investment checks received at State Street will be invested on the date of receipt. Shareholders will begin earning dividends the following business day. The Share Purchase Application may not be used to invest in any of the prototype retirement plans for which the Evergreen Money Market Fund is an available investment. For information about the requirements to make such investments, including copies of the necessary application forms, please call the telephone number set forth on the cover page of this Prospectus. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 10 days). Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street at (800) 423-2615 between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the enclosed Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5.00 wire charge from all redemption proceeds wired. This charge is subject to change without notice. Redemption proceeds will be wired on the same day if the request is made prior to 12 noon (Eastern time). Such shares, however, will not earn dividends for that day. Redemption requests received after 12 noon will earn dividends for that day, and the proceeds will be wired on the following business day. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately 10 days for such form to be processed. The Funds will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of telephone instructions. If a Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Funds will not be liable for following telephone instructions reasonably believed to be genuine. The Funds reserve the right to refuse a telephone redemption if it is believed advisable to do so. Procedures for redeeming Fund shares by telephone may be modified or terminated without notice at any time. Redemptions by Check. Upon request, each Fund will provide holders of Class Y shares, without charge, with checks drawn on the Fund that will clear through State Street. Shareholders will be subject to State Street's rules and regulations governing such checking accounts. Checks will be sent usually within ten business days following the date the account is established. Checks may be made payable to the order of any payee in an amount of $250 or more. The payee of the check may cash or deposit it like a check drawn on a bank. (Investors should be aware that, as in the case with regular bank checks, certain banks may not provide cash at the time of deposit, but will wait until they have received payment from State Street.) When such a check is presented to State Street for payment, State Street, as the shareholder's agent, causes the Fund to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. Checks will be returned by State Street if there are insufficient or uncollectable shares to meet the withdrawal amount. The check writing procedure for withdrawal enables shareholders to continue earning income on the shares to be redeemed up to but not including the date the redemption check is presented to State Street for payment. Shareholders wishing to use this method of redemption, should fill out the appropriate part of the Share Purchase Application (including the Signature Card) and mail the completed form to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service after an account has been opened must contact State Street since additional documentation will be required. Currently, there is no charge either for checks or for the clearance of any checks. This service may be terminated or altered at any time. General. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be materially modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares by telephone by calling State Street at (800) 423-2615. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the enclosed Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required.. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $25,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account two business days after the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Retirement Plans. Eligible investors may invest in Evergreen Money Market Fund under the following prototype retirement plans: (i) Individual Retirement Account (IRA); (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of the Fund at the net asset value per share at the close of business on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. Tax Sheltered Retirement Plans. You may open a pension and profit sharing account in any Evergreen mutual fund (except those funds having an objective of providing tax free income), including: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for corporations and their employees. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES The Funds declare substantially all of their net income as dividends on each business day. Such dividends are paid monthly. Net income, for dividend purposes, includes accrued interest and any market discount or premium that day, less the estimated expenses of a Fund. Gains or losses realized upon the sale of portfolio securities are not included in net income, but are reflected in the net asset value of a Fund's shares. Distributions of any net realized capital gains will be made annually or more frequently as required by the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The amount of dividends may fluctuate from day to day, and the dividend may be omitted on a day where Fund expenses exceed net investment income. Dividends and distributions generally are taxable in the year in which they are paid, except any dividends paid in January that were declared in the previous calendar quarter may be treated as paid in the immediately preceding December. Such dividends will be automatically reinvested in full and fractional shares of a Fund on the last business day of each month. However, shareholders who so inform the transfer agent in writing may have their dividends paid out in cash monthly. Shareholders who invest by check will be credited with a dividend on the business day following initial investment. Shareholders will receive dividends on investments made by federal funds bank wire the same day the wire is received provided that wire purchases are received by State Street by 12 noon (Eastern time). Shares purchased by qualified institutions via telephone as described in "How to Purchase Shares" will receive the dividend declared on that day if the telephone order is placed by 12 noon (Eastern time), and federal funds are received by 4 p.m. (Eastern time). All other wire purchases received after 12 noon (Eastern time) will earn dividends beginning the following business day. Dividends accruing on the day of redemption will be paid to redeeming shareholders except for redemptions by check and where proceeds are wired the same day. (See "How to Redeem Shares".) Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, it is expected that each Fund will not be required to pay any Federal income taxes on that portion of its investment company taxable income and any net realized capital gains it distributes to shareholders. The Code imposes a 4% nondeductible excise tax on regulated investment companies, such as the Funds, to the extent they do not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The excise tax generally does not apply to the tax exempt income of a regulated investment company (such as Evergreen Tax Exempt Money Market Fund) that pays exempt interest dividends. Except as noted below with respect to Evergreen Tax Exempt Money Market Fund, most shareholders of the Funds normally will have to pay Federal income taxes and any state or local taxes on the dividends and distributions they receive from a Fund. Evergreen Tax Exempt Money Market Fund will designate and pay exempt-interest dividends derived from interest earned on qualifying tax exempt obligations. Such exempt-interest dividends may be excluded by shareholders of the Fund from their gross income for Federal income tax purposes, however, (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income, even though received in additional Fund shares. Market discount recognized on taxable and tax-free bonds is taxable as ordinary income, not as excludable income. Following the end of each calendar year, every shareholder of the Funds will be sent applicable tax information and information regarding the dividends and capital gain distributions made during the calendar year. Under current law, the highest Federal income tax rate applicable to net long-term capital gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since the Funds' gross income is ordinarily expected to be interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gain distributions and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, you must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. The Evergreen Money Market Fund (formerly Evergreen Money Market Trust) is a Massachusetts business trust organized in 1987, the Evergreen Tax Exempt Money Market Fund is a separate investment series of the Evergreen Municipal Trust, which is a Massachusetts business trust organized in 1988, and the Evergreen Treasury Money Market Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. The Trusts are empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Trustees, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent And Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen Treasury Money Market Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Evergreen Money Market Fund offers three classes of shares, Class A, Class B, and Class Y. Evergreen Tax Exempt Money Market Fund and Evergreen Treasury Money Market Fund each offer two classes of shares, Class A and Class Y. Class Y shares are the only Class offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution and shareholder servicing related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. From time to time, a Fund may quote its yield in advertisements or in reports to shareholders. Yield information may be useful in reviewing the performance of a Fund and for providing a basis for comparison with other investment alternatives. However, since net investment income of a Fund changes in response to fluctuations in interest rates and Fund expenses, any given yield quotation should not be considered representative of a Fund's yields for any future period. The method of calculating each Fund's yield is set forth in the Statement of Additional Information. Before investing in the Evergreen Tax Exempt Money Market Fund, the investor may want to determine which investment -- tax-free or taxable -- will result in a higher after-tax return. To do this, the yield on the tax-free investment should be divided by the decimal determined by subtracting from 1 the highest Federal tax rate to which the investor currently is subject. For example, if the tax-free yield is 6% and the investor's maximum tax bracket is 36%, the computation is: 6% Tax-Free Yield /(1 - .36 Tax Rate) = 6/.64 = 9.38% Taxable Yield. In this example, the investor's after-tax return will be higher from the 6% tax-free investment if available taxable yields are below 9.38%. Conversely, the taxable investment will provide a higher return when taxable yields exceed 9.38%. This is only an example and is not necessarily reflective of a Fund's yield. The tax equivalent yield will be lower for investors in the lower income brackets. Comparative performance information may also be used from time to time in advertising or marketing the Fund's shares, including data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report, Bank Rate Monitor and other industry publications. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declarations of Trust under which Funds operate provide that no trustee or shareholder will be personally liable for the obligations of the trust and that every written contract made by the trust contain a provision to that effect. If any trustee or shareholder were required to pay any liability of the trust, that person would be entitled to reimbursement from the general assets of the trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN MONEY MARKET FUND, EVERGREEN TAX EXEMPT MONEY MARKET FUND Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN TREASURY MONEY MARKET FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN MONEY MARKET FUND, EVERGREEN TAX EXEMPT MONEY MARKET FUND KPMG Peat Marwick, LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 EVERGREEN TREASURY MONEY MARKET FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536128 STATEMENT OF ADDITIONAL INFORMATION July 7, 1995 THE EVERGREEN MONEY MARKET FUNDS 2500 Westchester Avenue, Purchase, New York 10577 800-807-2940 The Evergreen Money Market Trust ("Money Market") Evergreen Tax Exempt Money Market Fund ("Tax Exempt") Evergreen Treasury Money Market Fund (formerly First Union Treasury Money Market Portfolio)("Treasury") This Statement of Additional Information pertains to all classes of shares of the Funds listed below. It is not a prospectus and should be read in conjunction with the Prospectus dated July 7, 1995 for the Fund in which you are making or contemplating an investment. The Evergreen Money Market Funds are offered through two separate prospectuses: one offering Class A and Class B shares of Money Market and Class A shares of Tax Exempt and Treasury and a separate prospectus offering Class Y shares of each Fund. Copies of each Prospectus may be obtained without charge by calling the number listed above. TABLE OF CONTENTS Page Investment Objectives and Policies................................ Investment Restrictions........................................... Non-Fundamental Operating Policies................................ Certain Risk Considerations....................................... Management........................................................ Investment Adviser................................................ Distribution Plans................................................ Allocation of Brokerage........................................... Additional Tax Information........................................ Net Asset Value................................................... Purchase of Shares................................................ Performance Information........................................... Financial Statements.............................................. Appendix A - Note, Bond And Commercial Paper Ratings INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the Funds - Investment Objective and Policies" in each Fund's Prospectus) The investment objective of each Fund and a description of the securities in which each Fund may invest is set forth under "Description of the Funds - Investment Objective and Policies" in the relevant Prospectus. The following expands upon the discussion in the Prospectus regarding certain investments of each Fund. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS .........Except as noted, the investment restrictions set forth below are fundamental and may not be changed with respect to each Fund without the affirmative vote of a majority of the outstanding voting securities of the Fund. Where an asterisk (*) appears after a Fund's name, the relevant policy is non-fundamental with respect to that Fund and may be changed by the Fund's investment adviser without shareholder approval, subject to review and approval by the Trustees. As used in this Statement of Additional Information and in the Prospectus, "a majority of the outstanding voting securities of the Fund" means the lesser of (1) the holders of more than 50% of the outstanding shares of beneficial interest of the Fund or (2) 67% of the shares present if more than 50% of the shares are present at a meeting in person or by proxy. 1........Concentration of Assets in Any One Issuer .........Tax Exempt and Money Market may not invest more than 5% of their total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities, except that up to 25% of the value of each Fund's total assets may be invested without regard to such 5% limitation. For this purpose each political subdivision, agency, or instrumentality and each multi-state agency of which a state is a member, and each public authority which issues industrial development bonds on behalf of a private entity, will be regarded as a separate issuer for determining the diversification of each Fund's portfolio. 2........Ten Percent Limitation on Securities of Any One Issuer .........Neither Money Market nor Tax-Exempt may purchase more than 10% of any class of securities of any one issuer other than the U.S. government and its agencies or instrumentalities. 3........Investment for Purposes of Control or Management .........Neither Money Market nor Tax-Exempt may invest in companies for the purpose of exercising control or management. 4........Purchase of Securities on Margin .........No Fund may purchase securities on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of transactions. A deposit or payment by a Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 5........Unseasoned Issuers .........Money Market may not invest more than 5% of its total assets in securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors. .........Tax-Exempt may not invest more than 5% of its total assets in taxable securities of unseasoned issuers that have been in continuous operation for less than three years, including operating periods of their predecessors, except that (i) the Fund may invest in obligations issued or guaranteed by the U.S. government and its agencies or instrumentalities, and (ii) the Fund may invest in municipal securities. 6........Underwriting .........Money Market and Tax-Exempt may not engage in the business of underwriting the securities of other issuers; provided that the purchase by Tax-Exempt of municipal securities or other permitted investments, directly from the issuer thereof (or from an underwriter for an issuer) and the later disposition of such securities in accordance with the Fund's investment program shall not be deemed to be an underwriting. 7........Interests in Oil, Gas or Other Mineral Exploration or Development Programs .........Neither Money Market nor Tax-Exempt may purchase, sell or invest in interests in oil, gas or other mineral exploration or development programs. 8........Concentration in Any One Industry .........Neither Money Market nor Tax-Exempt may invest 25% or more of its total assets in the securities of issuers conducting their principal business activities in any one industry; provided, that this limitation shall not apply to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, or with respect to Tax-Exempt, to municipal securities and certificates of deposit and bankers' acceptances issued by domestic branches of U.S. banks. 9........Warrants .........Tax-Exempt may not invest more than 5% of its total net assets in warrants, and, of this amount, no more than 2% of the Fund's total net assets may be invested in warrants that are listed on neither the New York nor the American Stock Exchange. 10.......Ownership by Trustees/Officers .........Neither Money Market nor Tax-Exempt may purchase or retain the securities of any issuer if (i) one or more officers or Trustees of a Fund or its investment adviser individually owns or would own, directly or beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such persons own or would own, directly or beneficially, more than 5% of such securities. 11.......Short Sales .........None of the Funds may make short sales of securities or maintain a short position; except that, in the case of Treasury, 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. 12.......Lending of Funds and Securities .........Tax-Exempt and Money Market may not lend their funds to other persons; however, they may purchase issues of debt securities, enter into repurchase agreements and, in the case of Tax-Exempt, acquire privately negotiated loans made to municipal borrowers. .........Money Market may not lend its funds to other persons, provided that it may purchase money market securities or enter into repurchase agreements. .........Treasury will not lend any of its assets, except that it may purchase or hold U.S. Treasury obligations, including repurchase agreements. .........Neither Money Market nor Tax-Exempt may lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash, letters of credit or securities issued or guaranteed by the United States Government having a value at all times not less than 100% of the current market value of the loaned securities, including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's total assets. 13.......Commodities .........Tax-Exempt and Money Market may not purchase, sell or invest in commodities, commodity contracts or financial futures contracts. 14.......Real Estate .........The Funds may not purchase, sell or invest in real estate or interests in real estate, except that Money Market may purchase, sell or invest in marketable securities of companies holding real estate or interests in real estate, including real estate investment trusts, and Tax-Exempt may purchase municipal securities and other debt securities secured by real estate or interests therein. 15.......Borrowing, Senior Securities, Reverse Repurchase Agreements .........Tax-Exempt and Money Market may not borrow money, issue senior securities or enter into reverse repurchase agreements, except for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 10% of the value of the Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Fund's total assets at the time of such borrowing, provided that the Fund will not purchase any securities at times when any borrowings (including reverse repurchase agreements) are outstanding. The Funds will not enter into reverse repurchase agreements exceeding 5% of the value of their total assets. .........Treasury will not issue senior securities except that the Fund may borrow money directly, as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 5% of the value of its total assets, or in an amount up to one- third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio instruments. Any such borrowings need not be collateralized. The Fund will not purchase any securities while borrowings in excess of 5% of the total value of its total assets are outstanding. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage purposes. Treasury will not mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In these cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. 16.......Options .........Money Market and Tax-Exempt may not write, purchase or sell put or call options, or combinations thereof, except Money Market may do so as permitted under "Description of the Funds - Investment Objective and Policies" in the Prospectus and Tax- Exempt may purchase securities with rights to put securities to the seller in accordance with its investment program. 17.......Investment in Municipal Securities .........Tax-Exempt may not invest more than 20% of its total assets in securities other than municipal securities (as described under "Description of Funds - Investment Objective and Policies" in the Fund's Prospectus), unless extraordinary circumstances dictate a more defensive posture. 18.......Investment in Money Market Securities .........Money Market may not purchase any securities other than money market instruments (as described under "Description of Funds - Investment Objectives and Policies" in the Fund's Prospectus). 19.......Investing in Securities of Other Investment Companies .........Treasury*, Money Market* and Tax-Exempt* will purchase securities of investment companies only in open-market transactions involving customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees and therefore any investment by the Funds in shares of another investment company would be subject to such duplicate expenses. 4 20........Other. In order to comply with certain state blue sky limitations: ----- ...........Money Market and Tax-Exempt interpret fundamental investment restriction 7 to prohibit investments in oil, gas and mineral leases. ...........Money Market and Tax-Exempt interpret fundamental investment restriction 14 to prohibit investment in real estate limited partnerships which are not readily marketable. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. CERTAIN RISK CONSIDERATIONS ...........There can be no assurance that a Fund will achieve its investment objective and an investment in the Fund involves certain risks which are described under "Description of the Funds - Investment Objective and Policies" in the Prospectus. MANAGEMENT The Trustees and executive officers of the Trusts, their ages, addresses and principal occupations during the past five years are set forth below: Laurence B. Ashkin (67), 180 East Pearson Street, Chicago, IL-Trustee. Real estate developer and construction consultant since 1980; President of Centrum Equities since 1987 and Centrum Properties, Inc. since 1980. Foster Bam*(68), Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law firm of Cummings and Lockwood since 1968. James S. Howell (70), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee. Retired Vice President of Lance Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the Carolinas from 1989 to 1993. Robert J. Jeffries (72), 2118 New Bedford Drive, Sun City Center, FL-Trustee. Corporate consultant since 1967. Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC-Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since 1988. Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham Corporation from 1979 to 1990. William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since 1990; Attorney, Clontz and Clontz from 1980 to 1990. Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990. Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee. Attorney, Law Offices of Michael S. Scofield since prior to 1989. John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY-President and Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992, Managing Director from 1984 to 1992. Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney, Securities and Exchange Commission from 1986 to 1991. 5 Except for Messrs. Ashkin, Bam and Jeffries, who are not Trustees of Evergreen Investment Trust, the Trustees and officers listed above hold the same positions with a total of ten registered investment companies offering a total of thirty-one investment funds within the Evergreen mutual fund complex. - -------- * Mr. Bam and Mr. Pettit may each be deemed to be an "interested person" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). The officers of the Trusts are all officers and/or employees of Furman Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds Distributor, Inc., the distributor of each Class of shares of each Fund. The Funds do not pay any direct remuneration to any officer or Trustee who is an "affiliated person" of either First Union National Bank of North Carolina or Evergreen Asset Management Corp. or their affiliates. See "Investment Adviser." Currently, none of the Trustees is an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee who is not an "affiliated person" an annual retainer and a fee per meeting attended, plus expenses (and $50 for each telephone conference meeting) as follows: Name of Trust/Fund Annual Retainer Meeting Fee Money Market $4,000* $300 Evergreen Municipal Trust $4,000* $300 Tax Exempt Evergreen Investment Trust $9,000** $1,500** Treasury * Allocated among the Evergreen Money Market Fund, which is not a series fund, and Evergreen Municipal Trust which offers four investment series, the Evergreen Tax Exempt Money Market Fund, Evergreen Short-Intermediate Municipal Fund, Evergreen Short-Intermediate Fund-CA, and Evergreen National Tax-Free Fund. ** Evergreen Investment Trust pays an annual retainer to each trustee and a per-meeting fee that are allocated among its fifteen series. Additionally, each member of the Audit Committee receives $200 for attendance at each meeting of the of the Audit Committee and an additional fee is paid to the Chairman of the Board of $2,000. Set forth below for each of the Trustees is the aggregate compensation paid to such Trustees by each Trust for the fiscal year ended August 31, 1994 (fiscal year ended December 31, 1994 for Treasury) 6 Total Compensation Aggregate Compensation From Trust From Trusts & Fund Name of Money Municipal Investment Complex Paid Person Market Trust Trust* to Trustees Laurence Ashkin 3,031 2,443 --- 29,800 Foster Bam 3,031 2,493 --- 29,850 James S. Howell 1,090 1,098 14,900 26,900 Robert J. Jeffries 3,031 2,443 26,800 Gerald M. McDonnell 1,390 1,198 11,900 26,100 Thomas L. McVerry 1,390 1,248 11,900 26,150 William Walt Pettit 1,390 1,198 11,900 26,100 Russell A. Salton, III, M.D. 1,390 1,198 11,900 26,100 Michael S. Scofield 1,390 1,198 11,700 25,650 * Formerly known as First Union Funds. No officer or Trustee of the Trusts owned Class B shares of any Fund as of the date hereof. The number and percent of outstanding shares of each Fund owned by officers and Trustees as a group on June 15, 1995, is as follows: No. of Shares Owned By Officers and Ownership by Officers and Trustees Trustees as a % of Name of Fund as a Group Shares Outstanding Money Market 7,557,274 2.53% Tax Exempt 607,888 .14% Treasury -0- -0- Set forth below is information with respect to each person, who, to each Fund's knowledge, owned beneficially or of record more than 5% of a class of each Fund's total outstanding shares and their aggregate ownership of the Fund's total outstanding shares as of June 15, 1995. Name of % of Name and Address* Fund/Class No. of Shares Class/Fund - ---------------- ---------- ------------- ---------- First Union National Bank of FL Money Market/A 211,909,336 39.51%/25.07% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 First Union National Bank of NC Money Market/A 75,313,128 14.04%/8.91% Cap Account Attn: Shelia Bryendon CMG 1164 One First Union Center 301 S. College Street Charlotte, NC 28202-6000 7 First Union National Bank of VA Money Market/A 43,639,682 8.14%/5.16% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 Estate of Catherine Ken Doyle Money Market/A 207,475 11.59%/.02% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. FBO Money Market/B 1,009 8.99%/0% Kevin T. Lonergan C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank of VA Money Market/B 10,008 89.21%/0% C/F Clifton L. McDonald IRA C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Money Market/Y 55,236,710 93.75%/6.53% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank of FL Tax-Exempt/A 187,277,537 36.59%/19.82% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 First Union National Bank of NC Tax-Exempt/A 131,293,365 25.65%/13.90% Cap Account Attn: Shelia Bryendon CMG 1164 One First Union Cneter 301 S. College Street Charlotte, NC 28288-0001 First Union National Bank of GA Tax-Exempt/A 32,907,348 6.43%/3.48% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 First Union National Bank of VA Tax-Exempt/A 30,618,267 5.98%/3.24% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 Kent S. Hathaway Tax Exempt/A 101,048 28.29%/.01% Martha M. Hathaway 2727 Inverness Road Charlotte, NC 28209-3601 Fubs & Co. Febo Tax Exempt/A 170,589 47.76%/1.02% Feldman & Koenig PA Escrow Agent F/B/O Robert J. F. Brobyn and Margaret M. Brobyn C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Tax Exempt/A 25,330 7.09%/0% Estate of Chavalit Patrachai Ralph M. McBride Executor C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Tax-Exempt/Y 76,935,104 100%/8.14% Trust Accounts Attn: Ginny Batten 11th Floor CMG-151 301 S. Tyron Street Charlotte, NC 28288 First Union National Bank of FL Treasury/A 324,451,247 32.48%/23.99% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 8 First Union National Bank of NC Treasury/A 204,205,682 20.44%/15.10% Attn: Cap Account Dept. One First Union Center 301 S. College Street Charlotte, NC 28202-6000 First Union National Bank of VA Treasury/A 107,586,389 10.77%/7.95% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 First Union National Bank of GA Treasury/A 82,114,367 8.22%/6.07% Attn: Cap Account Dept. One First Union Center Charlotte, NC 28288 First Union National Bank Treasury/Y 353,847,491 100%/26.12% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 - --------------------------------- *First Union National Bank of North Carolina and its affiliates act in various capacities for numerous accounts. As a result of its ownership of 79.23% of Treasury, 45.67% of Money Market and 48.67% of Tax Exempt on June 15, 1995, First Union National Bank of North Carolina and its affiliated banks may be deemed to "control" each Fund as that term is defined in the 1940 Act. INVESTMENT ADVISER (See also "Management of the Fund" in each Fund's Prospectus) The investment adviser of Money Market and Tax Exempt is Evergreen Asset Management Corp., a New York corporation, with offices at 2500 Westchester Avenue, Purchase, New York or ("Evergreen Asset" or the "Adviser."). Evergreen Asset is owned by First Union National Bank of North Carolina ("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union Corporation ("First Union"), a bank holding company headquartered in Charlotte, North Carolina. The investment adviser of Treasury is FUNB which provides investment advisory services through its Capital Management Group. The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief Executive Officer, Theodore J. Israel, Jr., Executive Vice President, Joseph J. McBrien, Senior Vice President and General Counsel, and George R. Gaspari, Senior Vice President and Chief Financial Officer. On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were acquired by First Union through certain of its subsidiaries. Evergreen Asset was acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with the succession of EAMC to the business of Evergreen Asset and its assumption of the name "Evergreen Asset Management Corp.", Money Market and Tax Exempt entered into a new investment advisory agreement with EAMC and into 9 a distribution agreement with Evergreen Funds Distributor, Inc. (the "Distributor"), a subsidiary of Furman Selz Incorporated. At that time, EAMC also entered into a new sub-advisory agreement with Lieber pursuant to which Lieber provides certain services to Evergreen Asset in connection with its duties as investment adviser. The partnership interests in Lieber, a New York general partnership, were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned subsidiaries of FUNB. The business of Lieber is being continued. The new advisory and sub-advisory agreements were approved by the shareholders of Money Market and Tax Exempt at their meeting held on June 23, 1994, and became effective on June 30, 1994. Under its Investment Advisory Agreement with each Fund, each Adviser has agreed to furnish reports, statistical and research services and recommendations with respect to each Fund's portfolio of investments. In addition, each Adviser provides office facilities to the Funds and performs a variety of administrative services. Each Fund pays the cost of all of its other expenses and liabilities, including expenses and liabilities incurred in connection with maintaining their registration under the Securities Act of 1933, as amended, and the 1940 Act, printing prospectuses (for existing shareholders) as they are updated, state qualifications, share certificates, mailings, brokerage, custodian and stock transfer charges, printing, legal and auditing expenses, expenses of shareholder meetings and reports to shareholders. Notwithstanding the foregoing, each Adviser will pay the costs of printing and distributing prospectuses used for prospective shareholders. The method of computing the investment advisory fee for each Fund is described in such Fund's Prospectus. The advisory fees paid by each Fund for the three most recent fiscal periods reflected in its registration statement are set forth below: TAX EXEMPT Year Ended Year Ended Year Ended 8/31/94 8/31/93 8/31/92 Advisory Fee $2,126,246 $2,028,966 $2,272,890 --------- --------- --------- Waiver ($1,256,653) ($1,168,131) ($1,411,094) Net Advisory Fee $869,593 $860,835 $861,796 MONEY MARKET Year Ended Year Ended Year Ended 8/31/94 8/31/93 8/31/92 Advisory Fee $1,245,513 $1,637,123 $2,089,939 ---------- --------- --------- Waiver ($974,438) ($1,047,935) ($1,507,506) Net Advisory Fee $271,075 $589,188 $582,433 TREASURY Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $2,549,955 $1,977,645 $1,723,873 --------- --------- --------- Waiver ($1,948,237) ($1,712,975) ($1,492,021) Net Advisory Fee $601,718 $264,670 $231,852 ========= ========= ========= Expense Limitations Each Adviser's fee will be reduced by, or the Adviser will reimburse the Funds (except Money Market and Tax Exempt which have specific percentage limitations described below) for any amount necessary to prevent such expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses, but inclusive of the Adviser's fee) from exceeding the most restrictive of the expense limitations imposed by state securities commissions of the states in which the Funds' shares are then registered or qualified for sale. Reimbursement, when necessary, will be made monthly in the same manner in which the advisory fee is paid. Currently the most restrictive state expense limitation is 2.5% of the first $30,000,000 of the Fund's average daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in excess of $100,000,000. With respect to Money Market and Tax Exempt, Evergreen Asset has voluntarily agreed to reimburse each Fund to the extent that any of these Funds' aggregate operating expenses (including the Adviser's fee but excluding interest, taxes, brokerage commissions, and extraordinary expenses, and for Class A and Class B shares Rule 12b-1 distribution fees and shareholder servicing fees payable exceed 1.00% of their daily average net assets for any fiscal year. 10 The Investment Advisory Agreements are terminable, without the payment of any penalty, on sixty days' written notice, by a vote of the holders of a majority of each Fund's outstanding shares, or by a vote of a majority of each Trust's Trustees or by the respective Adviser. The Investment Advisory Agreements will automatically terminate in the event of their assignment. Each Investment Advisory Agreement provides in substance that the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser or of reckless disregard of its obligations thereunder. The Investment Advisory Agreements with respect to Money Market and Tax Exempt were approved by each Fund's shareholders on June 23, 1994, became effective on June 30, 1994, and will continue in effect until June 30, 1996, and thereafter from year to year provided that their continuance is approved annually by a vote of a majority of the Trustees of each Trust including a majority of those Trustees who are not parties thereto or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting duly called for the purpose of voting on such approval or a majority of the outstanding voting shares of each Fund. With respect to Treasury, the Investment Advisory Agreement dated February 28, 1985 and amended from time to time thereafter was last approved by the Trustees of Evergreen Investment Trust (formerly, First Union Funds) on April 20, 1995 and it will continue from year to year with respect to each Fund provided that such continuance is approved annually by a vote of a majority of the Trustees of Evergreen Investment Trust including a majority of those Trustees who are not parties thereto or "interested persons" of any such party cast in person at a meeting duly called for the purpose of voting on such approval or by a vote of a majority of the outstanding voting securities of each Fund. Certain other clients of each Adviser may have investment objectives and policies similar to those of the Funds. Each Adviser (including the sub-adviser) may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of each Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the Funds. When two or more of the clients of the Adviser (including one or more of the Funds) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. Although the investment objectives of the Funds are not the same, and their investment decisions are made independently of each other, they rely upon the same resources for investment advice and recommendations. Therefore, on occasion, when a particular security meets the different investment objectives of the various Funds, they may simultaneously purchase or sell the same security. This could have a detrimental effect on the price and quantity of the security available to each Fund. If simultaneous transactions occur, the Adviser attempts to allocate the securities, both as to price and quantity, in accordance with a method deemed equitable to each Fund and consistent with their different investment objectives. In some cases, simultaneous purchases or sales could have a beneficial effect, in that the ability of one Fund to participate in volume transactions may produce better executions for that Fund. Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between each Fund and the other registered investment companies for which either Evergreen Asset or FUNB acts as investment adviser or between the Fund and any advisory clients of Evergreen Asset, FUNB or Lieber & Company. Each Fund may from time to time engage in such transactions but only in accordance with these procedures and if they are equitable to each participant and consistent with each participant's investment objectives. Prior to July 1, 1995, Federated Administrative Services, a subsidiary of Federated Investors, provided legal, accounting and other administrative personnel and support services to each of the portfolios of Evergreen Investment Trust. The Trust paid a fee for such services at the following annual rate: .15% on the first $250 million average daily net assets of the Trust; .125% on the next $250 million; .10% on the next $250 million and .075% on assets in excess of $250 million. For the fiscal years ended December 31, 1994, 1993 and 1992, Treasury incurred $613,889, $490,126 and $175,540 in administrative service costs, of which $111,107, $198,476 and $208,794 were waived, respectively. 11 Commencing July 1, 1995, Evergreen Asset will provide administrative services to each of the portfolios of Evergreen Investment Trust for a fee based on the average daily net assets of each fund administered by Evergreen Asset for which Evergreen Asset or FUNB calculated daily and payable monthly at the following annual rates: .050% on the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of the Distributor, serves as sub-administrator to Treasury and is entitled to receive a fee based on the average daily net assets of Treasury at a rate from the Fund calculated on the total assets of the mutual funds administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; .0040% on assets in excess of $25 billion. The total assets of mutual funds administered by Evergreen Asset for which Evergreen Asset or FUNB serves as investment adviser as of March 31, 1995 were approximately $7.95 billion. DISTRIBUTION PLANS Reference is made to "Management of the Fund - Distribution Plans and Agreements" in the Prospectus of each Fund for additional disclosure regarding the Funds' distribution arrangements. Distribution fees are accrued daily and paid monthly on the Class A, and for Money Market its Class B shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class B shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, while at the same time permitting the Distributor to compensate broker-dealers in connection with the sale of such shares. Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with respect to each of its Class A, and Class B shares (to the extent that each Fund offers such classes) (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the amounts expended under the Plan and the purposes for which such expenditures were made to the Trustees of each Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of Trustees who are not "interested persons" of each Trust (as defined in the 1940 Act) are committed to the discretion of such disinterested Trustees then in office. Each Adviser may from time to time and from its own funds or such other resources as may be permitted by rules of the Securities and Exchange Commission make payments for distribution services to the Distributor; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Money Market commenced offering Class A or B shares and Tax Exempt commenced offering Class A shares, on January 3, 1995. Each Plan with respect to such Funds became effective on December 30, 1994 and was initially approved by the sole shareholder of each Class of shares of each Fund with respect to which a Plan was adopted on that date and by the unanimous vote of the Trustees of each Trust, including the disinterested Trustees voting separately, at a meeting called for that purpose and held on December 13, 1994. The Distribution Agreements between each Fund and the Distributor, pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A and Class B shares were also approved at the December 13, 1994 meeting by the unanimous vote of the Trustees, including the disinterested Trustees voting separately. Each Plan and Distribution Agreement will continue in effect for successive twelve-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of each Trust or by vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Class, and, in either case, by a majority of the Trustees of the Trust who are not parties to the Agreement or interested persons, as defined in the 1940 Act, of any such party (other than as Trustees of the Trust) and who have no direct or indirect financial interest in the operation of the Plan or any agreement related thereto. Prior to July 7, 1995, Federated Securities Corp., a subsidiary of Federated Investors, served as the distributor for Treasury as well as other portfolios of Evergreen Investment Trust. The Distribution Agreement between Treasury and the Distributor pursuant to which distribution fees are paid under the Plans by Treasury with respect to its Class A shares was approved on April 20, 1995 by the unanimous vote of the Trustees including the disinterested Trustees voting separately. 12 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 A and Class B shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to each Fund and holders of Class A and Class B shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class A and Class B shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class A and Class B shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class A and Class B shares. In the event that a Plan or Distribution Agreement is terminated or not continued with respect to one or more Classes of a Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund would not be obligated to pay the Distributor for any amounts expended under the Distribution Agreement not previously recovered by the Distributor from distribution services fees in respect of shares of such Class or Classes through deferred sales charges. All material amendments to any Plan or Distribution Agreement must be approved by a vote of the Trustees of a Trust or the holders of the Fund's outstanding voting securities, voting separately by Class, and in either case, by a majority of the disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular Class of shares of a Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the Class affected. Any Plan or Distribution Agreement may be terminated (a) by a Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by Class or by a majority vote of the Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by the Distributor. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to the Distributor. Any Distribution Agreement will terminate automatically in the event of its assignment. For the fiscal year ended December 31, 1994, Treasury incurred $1,451,396 in distribution services fees on behalf of Class A shares. ALLOCATION OF BROKERAGE Decisions regarding each Fund's portfolio are made by its Adviser, subject to the supervision and control of the Trustees. Orders for the purchase and sale of securities and other investments are placed by employees of the Adviser, all of whom, in the case of Evergreen Asset, are associated with Lieber. In general, the same individuals perform the same functions for the other funds managed by the Adviser. A Fund will not effect any brokerage transactions with any broker or dealer affiliated directly or indirectly with the Adviser unless such transactions are fair and reasonable, under the circumstances, to the Fund's shareholders. Circumstances that may indicate that such transactions are fair or reasonable include the frequency of such transactions, the selection process and the commissions payable in connection with such transactions. It is anticipated that most purchase and sale transactions involving fixed income securities will be with the issuer or an underwriter or with major dealers in such securities acting as principals. Such transactions are normally on a net basis and generally do not involve payment of brokerage commissions. However, the cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriter. Purchases or sales from dealers will normally reflect the spread between bid and ask prices. In selecting firms to effect securities transactions, the primary consideration of each Fund shall be prompt execution at the most favorable price. A Fund will also consider such factors as the price of the securities and the size and difficulty of execution of the order. If these objectives may be met with more than one firm, the Fund will also 13 consider the availability of statistical and investment data and economic facts and opinions helpful to the Fund. To the extent that receipt of these services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. Under Section 11(a) of the Securities Exchange Act of 1934, as amended, and the rules adopted thereunder by the Securities and Exchange Commission, Lieber may be compensated for effecting transactions in portfolio securities for a Fund on a national securities exchange provided the conditions of the rules are met. Each Fund advised by Evergreen Asset has entered into an agreement with Lieber authorizing Lieber to retain compensation for brokerage services. In accordance with such agreement, it is contemplated that Lieber, a member of the New York and American Stock Exchanges, will, to the extent practicable, provide brokerage services to the Fund with respect to substantially all securities transactions effected on the New York and American Stock Exchanges. In such transactions, a Fund will seek the best execution at the most favorable price while paying a commission rate no higher than that offered to other clients of Lieber or that which can be reasonably expected to be offered by an unaffiliated broker-dealer having comparable execution capability in a similar transaction. However, no Fund will engage in transactions in which Lieber would be a principal. While no Fund advised by Evergreen Asset contemplates any ongoing arrangements with other brokerage firms, brokerage business may be given from time to time to other firms. In addition, the Trustees have adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all brokerage transactions with Lieber, as an affiliated broker-dealer, are fair and reasonable. Any profits from brokerage commissions accruing to Lieber as a result of portfolio transactions for the Fund will accrue to FUNB and to its ultimate parent, First Union. The Investment Advisory Agreements does not provide for a reduction of the Adviser's fee with respect to any Fund by the amount of any profits earned by Lieber from brokerage commissions generated by portfolio transactions of the Fund. ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus) Each Fund has qualified and intends to continue to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to proceeds from securities loans, gains from the sale or other disposition of securities or foreign currencies and other income (including gains from options, futures or forward foreign contracts) derived with respect to its business of investing in such securities; (b) derive less than 30% of its gross income from the sale or other disposition of securities, options, futures or forward contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the RIC's principal business of investing in securities (or options and futures with respect thereto) held for less than three months; and (c) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies). By so qualifying, a Fund is not subject to Federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Dividends paid by a Fund from investment company taxable income generally will be taxed to the shareholders as ordinary income. Investment company taxable income includes net investment income and net realized short-term gains (if any). Any dividends received by a Fund from domestic corporations will constitute a portion of the Fund's gross investment income. It is anticipated that this portion of the dividends paid by a Fund (other than distributions of securities profits) will qualify for the 70% dividends-received deduction for corporations. Shareholders will be informed of the amounts of dividends which so qualify. 14 Distributions of the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders (who are not exempt from tax) as long-term capital gain, regardless of the length of time the shares of a Fund have been held by such shareholders. Short-term capital gains distributions are taxable to shareholders who are not exempt from tax as ordinary income. Such distributions are not eligible for the dividends-received deduction. Any loss recognized upon the sale of shares of a Fund held by a shareholder for six months or less will be treated as a long-term capital loss to the extent that the shareholder received a long-term capital gain distribution with respect to such shares. Distributions of investment company taxable income and any net short-term capital gains will be taxable as ordinary income as described above to shareholders (who are not exempt from tax), whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the net asset value of a share of a Fund on the reinvestment date. Distributions by each Fund result in a reduction in the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable as ordinary income or capital gain as described above to shareholders (who are not exempt from tax), even though, from an investment standpoint, it may constitute a return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive what is in effect a return of capital upon the distribution which will nevertheless be taxable to shareholders subject to taxes. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gains or loss will be treated as a capital gain or loss if the shares are capital assets in the investor's hands and will be a long-term capital gain or loss if the shares have been held for more than one year. Generally, any loss realized on a sale or exchange will be disallowed to the extent shares disposed of are replaced within a period of sixty-one days beginning thirty days before and ending thirty days after the shares are disposed of. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares, and will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her Federal income tax return. Each shareholder should consult his or her own tax adviser to determine the state and local tax implications of Fund distributions. Shareholders who fail to furnish their taxpayer identification numbers to a Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% Federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisers regarding specific questions relating to Federal, state and local tax consequences of investing in shares of a Fund. Each shareholder who is not a U.S. person should consult his or her tax adviser regarding the U.S. and foreign tax consequences of ownership of shares of a Fund, including the possibility that such a shareholder may be subject to a U.S. 15 withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. Special Tax Considerations for Tax Exempt With respect to Tax Exempt, to the extent that the Fund distributes exempt interest dividends to a shareholder, interest on indebtedness incurred or continued by such shareholder to purchase or carry shares of the Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or related persons) of facilities financed by "private activity" bonds (some of which were formerly referred to as "industrial development" bonds) should consult their tax advisers before purchasing shares of the Fund. "Substantial user" is defined generally as including a "non-exempt person" who regularly uses in its trade or business a part of a facility financed from the proceeds of industrial development bonds. The percentage of the total dividends paid by a Fund with respect to any taxable year that qualifies as exempt interest dividends will be the same for all shareholders of the Fund receiving dividends with respect to such year. If a shareholder receives an exempt interest dividend with respect to any share and such share has been held for six months or less, any loss on the sale or exchange of such share will be disallowed to the extent of the exempt interest dividend amount. NET ASSET VALUE The following information supplements that set forth in each Prospectus under the subheading "How to Buy Shares - How the Funds Value Their Shares" in the Section entitled "Purchase and Redemption of Shares". The public offering price of shares of a Fund is its net asset value. On each Fund business day on which a purchase or redemption order is received by a Fund and trading in the types of securities in which a Fund invests might materially affect the value of Fund shares, the per share net asset value of each such Fund is computed in accordance with the Declaration of Trust and By-Laws governing each Fund twice daily, at 12 noon Eastern time and as of the next close of regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's total assets, less its liabilities, by the total number of its shares then outstanding. A Fund business day is any weekday, exclusive of national holidays on which the Exchange is closed and Good Friday. Each Fund's securities are valued at amortized cost. Under this method of valuation, a security is initially valued at its acquisition cost and, thereafter, a constant straight line amortization of any discount or premium is assumed each day regardless of the impact of fluctuating interest rates on the market value of the security. If accurate quotations are not available, securities will be valued at fair value determined in good faith by the Board of Trustees. PURCHASE OF SHARES The following information supplements that set forth in each Prospectus under the heading "Purchase and Redemption of Shares - How To Buy Shares." General Shares of each Fund will be offered on a continuous basis at a price equal to their net asset value without any front-end or contingent deferred sales charges or with a contingent deferred sales charge (the "deferred sales charge alternative") as described below. Class Y shares which, as described below, are not offered to the general public, are offered without any front-end or contingent sales charges. Shares of each Fund are offered on a continuous basis through (i) investment dealers that are members of the National Association of Securities Dealers, Inc. and have entered into selected dealer agreements with the Distributor ("selected dealers"), (ii) depository institutions and other financial intermediaries or their affiliates, that have entered into selected agent agreements with the Distributor ("selected agents"), or (iii) the Distributor. The minimum for initial investments is $1,000; there is no minimum for subsequent investments. The subscriber may use the Share 16 Purchase Application available from the Distributor for his or her initial investment. Sales personnel of selected dealers and agents distributing a Fund's shares may receive differing compensation for selling Class A or Class B shares. Investors may purchase shares of a Fund in the United States either through selected dealers or agents or directly through the Distributor. A Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. Each Fund will accept unconditional orders for its shares to be executed at the public offering price equal to the net asset value next determined, as described below. Orders received by the Distributor prior to the close of regular trading on the Exchange on each day the Exchange is open for trading are priced at the net asset value computed as of the close of regular trading on the Exchange on that day. In the case of orders for purchase of shares placed through selected dealers or agents, the applicable public offering price will be the net asset value as so determined, but only if the selected dealer or agent receives the order prior to the close of regular trading on the Exchange and transmits it to the Distributor prior to its close of business that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is responsible for transmitting such orders by 5:00 p.m. If the selected dealer or agent fails to do so, the investor's right to that day's closing price must be settled between the investor and the selected dealer or agent. If the selected dealer or agent receives the order after the close of regular trading on the Exchange, the price will be based on the net asset value determined as of the close of regular trading on the Exchange on the next day it is open for trading. Following the initial purchase of shares of a Fund, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Share Purchase Application. Payment for shares purchased by telephone can be made only by Electronic Funds Transfer from a bank account maintained by the shareholder at a bank that is a member of the National Automated Clearing House Association ("ACH"). If a shareholder's telephone purchase request is received before 3:00 p.m. New York time on a Fund business day, the order to purchase shares is automatically placed the same Fund business day for non-money market funds, and two days following the day the order is received for money market funds, and the applicable public offering price will be the public offering price determined as of the close of business on such business day. Full and fractional shares are credited to a subscriber's account in the amount of his or her subscription. As a convenience to the subscriber, and to avoid unnecessary expense to a Fund, stock certificates representing Class Y shares are not issued except upon written request to the Fund by the shareholder or his or her authorized selected dealer or agent. This facilitates later redemption and relieves the shareholder of the responsibility for and inconvenience of lost or stolen certificates. No certificates are issued for fractional shares, although such shares remain in the shareholder's account on the records of a Fund, or for Class A or B shares of any Fund. Alternative Purchase Arrangements Except as noted, each Fund issues three classes of shares: (i) Class A shares, which are sold to investors choosing the no front-end sales charge or contingent deferred sales charge alternative; (ii) Class B shares, which are sold to investors choosing the deferred sales charge alternative and which are not currently offered by Tax Exempt and Treasury; and (iii) Class Y shares, which are offered only to (a) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (b) certain investment advisory clients of the Advisers and their affiliates, and (c) institutional investors. The three classes of shares each represent an interest in the same portfolio of investments of the Fund, have the same rights and are identical in all respects, except that (I) only Class A and Class B shares are subject to a Rule 12b-1 distribution fee, (II) Class B shares bear the expense of the deferred sales charge, (III) Class B shares bear the expense of a higher Rule 12b-1 distribution services fee than Class A shares and higher transfer agency costs, (IV) with the exception of Class Y shares, each Class of each Fund has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution services fee is paid which relates to a specific Class and other matters for which separate Class voting is appropriate under applicable law, provided that, if the Fund submits to a simultaneous vote of Class A and Class B shareholders an amendment to the Rule 12b-1 Plan that would materially increase the amount to be paid thereunder with respect to the Class A shares, the Class A shareholders and the Class B shareholders will vote separately by Class, and (VI) only the 17 Class B shares are subject to a conversion feature. Each Class has different exchange privileges and certain different shareholder service options available. The alternative purchase arrangements permit an investor to choose the method of purchasing shares that is most beneficial. The decision as to which Class of shares of Money Market is more beneficial depends primarily on whether or not the investor wishes to exchange all or part of any Class B shares purchased for Class B shares of another Evergreen mutual fund at some future date. If the investor does not contemplate such an exchange, it is probably in such investor's best interest to purchase Class A shares. Class A shares are subject to a lower distribution services fee and, accordingly, pay correspondingly higher dividends per share than Class B shares. With respect to each Fund, the Trustees have determined that currently no conflict of interest exists between or among the Class A, Class B and Class Y shares. On an ongoing basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws, will seek to ensure that no such conflict arises. Deferred Sales Charge Alternative--Class B Shares Investors choosing the deferred sales charge alternative purchase Class B shares at the public offering price equal to the net asset value per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The Class B shares are sold without a front-end sales charge so that the full amount of the investor's purchase payment is invested in the Fund initially. Proceeds from the contingent deferred sales charge are paid to the Distributor and are used by the Distributor to defray the expenses of the Distributor related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to selected dealers and agents for selling Class B shares. The combination of the contingent deferred sales charge and the distribution services fee enables the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. The higher distribution services fee incurred by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than those related to Class A shares. Contingent Deferred Sales Charge. Class B shares which are redeemed within seven years of purchase will be subject to a contingent deferred sales charge at the rates set forth in the Prospectus charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no contingent deferred sales charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the contingent deferred sales charge, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. In determining the contingent deferred sales charge applicable to a redemption, it will be assumed, that the redemption is first of any Class A shares in the shareholder's Fund account, second of Class B shares held for over eight years or Class B shares acquired pursuant to reinvestment of dividends or distributions and third of Class B shares held longest during the eight-year period. To illustrate, assume that an investor purchased 1,000 Class B shares at $1 per share (at a cost of $1,000) and, during such time, the investor has acquired 100 additional Class B shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 500 Class B shares, 100 Class B shares will not be subject to charge because of dividend reinvestment. Therefore, of the $500 of the shares redeemed $400 of the redemption proceeds (400 shares x $1 original purchase price) will be charged at a rate of 4.0% (the applicable rate in the second year after purchase for a contingent deferred sales charge of $16). The contingent deferred sales charge is waived on redemptions of shares (i) following the death or disability, as defined in the Code, of a shareholder, or (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70-1/2. 18 Conversion Feature. At the end of the period ending seven years after the end of the calendar month in which the shareholder's purchase order was accepted, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher distribution services fee imposed on Class B shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to reduce the distribution services fee paid by holders of Class B shares that have been outstanding long enough for the Distributor to have been compensated for the expenses associated with the sale of such shares. For purposes of conversion to Class A, Class B shares purchased through the reinvestment of dividends and distributions paid in respect of Class B shares in a shareholder's account will be considered to be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A, an equal pro-rata portion of the Class B shares in the sub-account will also convert to Class A. The conversion of Class B shares to Class A shares is subject to the continuing availability of an opinion of counsel to the effect that (i) the assessment of the higher distribution services fee and transfer agency costs with respect to Class B shares does not result in the dividends or distributions payable with respect to other Classes of a Fund's shares being deemed "preferential dividends" under the Code, and (ii) the conversion of Class B shares to Class A shares does not constitute a taxable event under Federal income tax law. The conversion of Class B shares to Class A shares may be suspended if such an opinion is no longer available at the time such conversion is to occur. In that event, no further conversions of Class B shares would occur, and shares might continue to be subject to the higher distribution services fee for an indefinite period which may extend beyond the period ending eight years after the end of the calendar month in which the shareholder's purchase order was accepted. Class Y Shares Class Y shares are not offered to the general public and are available only to (i) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients of the Advisers and their affiliates, and (iii) institutional investors. Class Y shares do not bear any Rule 12b-1 distribution expenses and are not subject to any front-end or contingent deferred sales charges. GENERAL INFORMATION ABOUT THE FUNDS (See also "Other Information - General Information" in each Fund's Prospectus) Capitalization and Organization Evergreen Money Market Fund is a Massachusetts business trust. The Evergreen Tax Exempt Money Market Fund is a separate series of the Evergreen Municipal Trust, a Massachusetts business trust. The Evergreen Treasury Money Market Fund, which prior to July 7, 1995 was known as the First Union Treasury Money Market Portfolio, is a separate series of Evergreen Investment Trust, a Massachusetts business trust. On July 7, 1995, First Union Funds changed its name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds changed its name to First Union Funds. The above-named Trusts are individually referred to in this Statement of Additional Information as the "Trust" and collectively as the "Trusts." Each Trust is governed by a board of trustees. Unless otherwise stated, references to the "Board of Trustees" or "Trustees" in this Statement of Additional Information refer to the Trustees of all the Trusts. Money Market and Tax Exempt may issue an unlimited number of shares of beneficial interest with a $0.0001 par value. Treasury may issue an unlimited number of shares of beneficial interest without par value. All shares of these Funds have equal rights and privileges. Each share is entitled to one vote, to participate equally in dividends and distributions declared by the Funds and on liquidation to their proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of these Funds are fully paid, nonassessable and fully transferable when issued and have no pre-emptive, 19 conversion or exchange rights. Fractional shares have proportionally the same rights, including voting rights, as are provided for a full share. Under each Trust's Declaration of Trust, each Trustee will continue in office until the termination of the Fund or his or her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee upon a vote of two-thirds of the outstanding shares of beneficial interest of the Trust. Vacancies will be filled by a majority of the remaining Trustees, subject to the 1940 Act. As a result, normally no annual or regular meetings of shareholders will be held, unless otherwise required by the Declaration of Trust of each Trust or the 1940 Act. Shares have noncumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so and in such event the holders of the remaining shares so voting will not be able to elect any Trustees. The Trustees of each Trust are authorized to reclassify and issue any unissued shares to any number of additional series without shareholder approval. Accordingly, in the future, for reasons such as the desire to establish one or more additional portfolios of a Trust with different investment objectives, policies or restrictions, additional series of shares may be created by one or more Funds. Any issuance of shares of another series or class would be governed by the 1940 Act and the law of the State of Massachusetts. If shares of another series of a Trust were issued in connection with the creation of additional investment portfolios, each share of the newly created portfolio would normally be entitled to one vote for all purposes. Generally, shares of all portfolios would vote as a single series on matters, such as the election of Trustees, that affected all portfolios in substantially the same manner. As to matters affecting each portfolio differently, such as approval of the Investment Advisory Agreement and changes in investment policy, shares of each portfolio would vote separately. In addition any Fund may, in the future, create additional classes of shares which represent an interest in the same investment portfolio. Except for the different distribution related an other specific costs borne by such additional classes, they will have the same voting and other rights described for the existing classes of each Fund. Procedures for calling a shareholders' meeting for the removal of the Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940 Act will be available to shareholders of each Fund. The rights of the holders of shares of a series of a Fund may not be modified except by the vote of a majority of the outstanding shares of such series. An order has been received from the Securities and Exchange Commission permitting the issuance and sale of multiple classes of shares representing interests in each Fund. In the event a Fund were to issue additional classes of shares other than those described herein, no further relief from the Securities and Exchange Commission would be required. Distributor Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York 10169, serves as each Fund's principal underwriter, and as such may solicit orders from the public to purchase shares of any Fund. The Distributor is not obligated to sell any specific amount of shares and will purchase shares for resale only against orders for shares. Under the Agreement between the Fund and the Distributor, the Fund has agreed to indemnify the Distributor, in the absence of its willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Counsel Sullivan & Worcester, Washington, D.C., serves as counsel to the Funds. Independent Auditors Price Waterhouse LLP has been selected to be the independent auditors of Money Market and Tax Exempt. KPMG Peat Marwick LLP has been selected to be the independent auditors of Treasury. 20 PERFORMANCE INFORMATION YIELD CALCULATIONS Money Market, Tax Exempt and Treasury may quote a "Current Yield" or "Effective Yield" from time to time. The Current Yield is an annualized yield based on the actual total return for a seven-day period. The Effective Yield is an annualized yield based on a compounding of the Current Yield. These yields are each computed by first determining the "Net Change in Account Value" for a hypothetical account having a share balance of one share at the beginning of a seven-day period ("Beginning Account Value"), excluding capital changes. The Net Change in Account Value will generally equal the total dividends declared with respect to the account. The yields are then computed as follows: Net Change in Account Value Current Yield = Beginning Account Value x 365/7 Effective Yield = (1 + Total Dividend for 7 days) 365/7-1 Yield fluctuations may reflect changes in a Fund's net investment income, and portfolio changes resulting from net purchases or net redemptions of the Fund's shares may affect the yield. Accordingly, a Fund's yield may vary from day to day, and the yield stated for a particular past period is not necessarily representative of its future yield. Since the Funds use the amortized cost method of net asset value computation, it does not anticipate any change in yield resulting from any unrealized gains or losses or unrealized appreciation or depreciation not reflected in the yield computation, or change in net asset value during the period used for computing yield. If any of these conditions should occur, yield quotations would be suspended. A Fund's yield is not guaranteed, and the principal is not insured. Yield information is useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' investment portfolios, portfolio maturity, operating expenses and market conditions. It should be recognized that in periods of declining interest rates the yields will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the yields will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the Fund's investments, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. The current yield and effective yield of each Fund for the seven-day period ended October 31, 1994 (December 31, 1994 with respect to Treasury) for each Class of shares offered by the Funds is set forth in the table below: Current Effective Yield Yield Money Market Class A * * Class B * * Class Y 4.21% 4.30% Tax Exempt Class A * * Class Y 2.87% 2.91% Treasury Class A 4.97% 5.09% Class Y 5.27% 5.41% * Not available. These classes commenced operations on or after January 3, 1995. 21 GENERAL From time to time, a Fund may quote its performance in advertising and other types of literature as compared to the performance of the Bank Rate Monitor National Index which publishes weekly average rates of 50 leading bank and thrift institution money market deposit accounts. A Fund's performance may also be compared to those of other mutual funds having similar objectives. This comparative performance would be expressed as a ranking prepared by Lipper Analytical Services, Inc., Donoghue's Money Fund Report or similar independent services monitoring mutual fund performance. A Fund's performance will be calculated by assuming, to the extent applicable, reinvestment of all capital gains distributions and income dividends paid. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. Additional Information Any shareholder inquiries may be directed to the shareholder's broker or to each Adviser at the address or telephone number shown on the front cover of this Statement of Additional Information. This Statement of Additional Information does not contain all the information set forth in the Registration Statement filed by the Trusts with the Securities and Exchange Commission under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the Securities and Exchange Commission or may be examined, without charge, at the offices of the Securities and Exchange Commission in Washington, D.C. FINANCIAL STATEMENTS Each Fund's financial statements appearing in their most current fiscal year Annual Report to shareholders and the report thereon of the independent auditors appearing therein, namely Price Waterhouse LLP (in the case of Money Market and Tax Exempt) or KPMG Peat Marwick LLP (in the case of Treasury) are incorporated by reference in this Statement of Additional Information. The Annual Reports to Shareholders for each Fund, which contain the referenced statements, are available upon request and without charge. 22 APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS NOTE RATINGS Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high quality, with margins of protection ample though not so large as in the preceding group. MIG-3 -- favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay principal and interest. BOND RATINGS Moody's Investors Service: Aaa -- judged to be the best quality, carry the smallest degree of investment risk; Aa -- judged to be of high quality by all standards; A -- possess many favorable investment attributes and are to be considered as higher medium grade obligations; Baa -- considered as medium grade obligations which are neither highly protected nor poorly secured. Moody's Investors Service also applies numerical indicators, 1, 2 and 3, to rating categories Aa through Baa. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group: AAA -- highest grade obligations, possesses the ultimate degree of protection as to principal and interest; AA -- also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree; A -- regarded as upper medium grade, have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions, interest and principal are regarded as safe; BBB -- regarded as having adequate capacity to pay interest and repay principal but are more susceptible than higher rated obligations to the adverse effects of changes in economic and trade conditions. Standard & Poor's Ratings Group applies indicators "+", no character, and "-" to the above rating categories AA through BBB. The indicators show relative standing within the major rating categories. Duff & Phelps: AAA - highest credit quality, with negligible risk factors; AA -- high credit quality, with strong protection factors and modest risk, which may vary very slightly from time to time because of economic conditions; A -- average credit quality with adequate protection factors, but with greater and more variable risk factors in periods of economic stress. The indicators "+" and "-" to the AA and A categories indicate the relative position of a credit within those rating categories. Fitch: AAA -- highest credit quality, with an exceptionally strong ability to pay interest and repay principal; AA -- very high credit quality, with a very strong ability to pay interest and repay principal; A -- high credit quality, considered strong as regards principal and interest protection, but may be more vulnerable to adverse changes in economic conditions; and BBB -- satisfactory credit quality with adequate ability with regard to interest and principal, and likely to be affected by adverse changes in economic conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB categories indicate the relative position of a credit within those rating categories. COMMERCIAL PAPER RATINGS Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote relative strength within this highest classification. Standard & Poor's Ratings Group: "A" is the highest commercial paper rating category utilized by Standard & Poor's Ratings Group which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A" classification. Duff & Phelps: Duff 1 is the highest commercial paper rating category utilized by Duff & Phelps which uses + or - to denote relative strength within this classification. Duff 2 represents good certainty of timely payment, with 23 minimal risk factors. Duff 3 represents satisfactory protection factors, with risk factors larger and subject to more variation. Fitch: F-1+ -- denotes exceptionally strong credit quality given to issues regarded as having strongest degree of assurance for timely payment; F-1 - -- very strong credit quality, with only slightly less degree of assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory degree of assurance for timely payment. PROSPECTUS July 7, 1995 EVERGREEN(SM) TAX FREE FUNDS (Evergreen Logo appears here) EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA CLASS A SHARES CLASS B SHARES The Evergreen Tax-Free Funds (the "Funds") are designed to provide investors with income exempt from Federal income taxes. This Prospectus provides information regarding the Class A and Class B shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 5 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 9 Investment Practices and Restrictions 10 MANAGEMENT OF THE FUNDS Investment Advisers 13 Sub-Adviser 14 Distribution Plans and Agreements 14 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 15 How to Redeem Shares 17 Exchange Privilege 18 Shareholder Services 19 Effect of Banking Laws 19 OTHER INFORMATION Dividends, Distributions and Taxes 20 Management's Discussion of Fund Performance 21 General Information 22 APPENDIX -- California Risk Considerations 25
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE FUND. EVERGREEN HIGH GRADE TAX FREE FUND (formerly First Union High Grade Tax Free Portfolio) seeks to provide a high level of federally tax-free income that is consistent with preservation of capital. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income, exempt from Federal income tax other than the alternative minimum tax ("AMT"), as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short and intermediate-term municipal securities with a dollar weighted average portfolio maturity of two to five years. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current income exempt from Federal and California income taxes as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short and intermediate-term municipal securities with a dollar weighted average portfolio maturity of two to five years. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in Class A and Class B Shares of a Fund. For further information see "Purchase and Redemption of Fund Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Maximum Sales Charge Imposed on Purchases 4.75% None (as a % of offering price) Sales Charge on Dividend Reinvestments None None Contingent Deferred Sales Charge (as a % of original purchase None 5% during the first year, 4% during the price or redemption proceeds, whichever is lower) second year, 3% during the third and fourth year, 2% during the fifth year, 1% during the sixth and seventh years and 0% after the seventh year Redemption Fee None None Exchange Fee None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period and, additionally for Class B shares, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflect the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses). EVERGREEN HIGH GRADE TAX FREE FUND (A)
EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES** at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .37% .37% After 1 Year $ 56 $ 67 $ 17 Administrative Fees .06% .06% After 3 Years $ 75 $ 82 $ 52 12b-1 Fees* .25% .75% After 5 Years $ 95 $ 110 $ 90 Shareholder Service Fees -- .25% After 10 Years $ 154 $ 167 $167 Other Expenses .23% .23% Total .91% 1.66%
EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND
EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES*** at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 57 $ 69 $ 19 12b-1 Fees* .10% 1.00% After 3 Years $ 76 $ 88 $ 58 Other Expenses .33% .33% After 5 Years $ 97 $ 119 $ 99 After 10 Years $ 156 $ 180 $180 Total .93% 1.83%
EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES*** at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .55% .55% After 1 Year $ 58 $ 70 $ 20 12b-1 Fees* .10% 1.00% After 3 Years $ 79 $ 91 $ 61 Other Expenses .40% .40% After 5 Years $ 103 $ 125 $105 After 10 Years $ 170 $ 193 $193 Total 1.05% 1.95%
3 (a) Estimated annual operating expenses reflect the combination of Evergreen National Tax Free Fund and First Union High Grade Tax Free Portfolio. *Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1 fee. For the forseeable future, the Class A Shares 12b-1 fees will be limited to .25 of 1% of average net assets. For Class B Shares for EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA, a portion of the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1% of average net assets as permitted under the rules of the National Association of Securities Dealers, Inc. **CMG has agreed to limit the expenses (including the Adviser's fee, but excluding taxes, interest, brokerage commissions, Rule 12b-1 distribution fees, shareholder-service fees and extraordinary expenses) of EVERGREEN HIGH GRADE TAX FREE FUND to .66 of 1% for a period of at least one year from the date of this Prospectus and to consult with the Trustees of the Fund prior to discontinuing such limitation after the one year period. ***Estimated annual expenses for EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND do not reflect a fee waiver of .25 of 1% of average net assets for the year ended August 31, 1994. Estimated expenses for EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA do not reflect a fee waiver of .43 of 1% for the year ended August 31, 1994. Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA to the extent that their aggregate operating expenses (including the Adviser's fee, but excluding taxes, interest, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses) exceed 1% of the average net assets. From time to time each Fund's adviser may, at its discretion, reduce or waive its fees or reimburse these Funds for certain of their other expenses in order to reduce their expense ratios. Each Fund's adviser may cease these voluntary waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for its most recent fiscal period. Such expenses have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds." As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or life of the fund if shorter for EVERGREEN HIGH GRADE TAX FREE FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA has, except as noted otherwise, been audited by Price Waterhouse LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No Financial Highlights are shown for Class A or B of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA since these classes did not have any operations prior to February 28, 1995. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN HIGH GRADE TAX FREE FUND
CLASS A SHARES CLASS Y SHARES FEBRUARY 21, CLASS B SHARES FEBRUARY 28, YEAR ENDED 1992* JANUARY 11, 1993* 1994* DECEMBER 31, THROUGH YEAR ENDED THROUGH THROUGH 1994 1993 DECEMBER 31, 1992 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period................. $11.16 $10.42 $10.00 $11.16 $10.42 $10.93 Income (loss) from investment operations: Net investment income....... .52 .54 .51 .46 .47 .46 Net realized and unrealized gain (loss) on investments............... (1.37) .81 .42 (1.37) .81 (1.14) Total from investment operations.............. (.85) 1.35 .93 (.91) 1.28 (.68) Less distributions to shareholders from: Net investment income....... (.52) (.54) (.51) (.46) (.47) (.46) Net realized gains.......... -- (.07) -- -- (.07) -- Total distributions....... (.52) (.61) (.51) (.46) (.54) (.46) Net asset value, end of period.................... $9.79 $11.16 $10.42 $9.79 $11.16 $9.79 TOTAL RETURN+............... (7.71%) 13.25% 9.37% (8.24%) 12.41% (6.31%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........... $57,676 $101,352 $90,738 $32,435 $41,030 $4,318 Ratios to average net assets: Expenses (a).............. 1.01% .85% .49%++ 1.58% 1.35%++ .76%++ Net investment income (a).............. 5.04% 4.99% 5.79%++ 4.47% 4.44%++ 5.46%++ Portfolio turnover rate..... 53% 14% 7% 53% 14% 53%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income, exclusive of any applicable state expense limitations, to average net assets would have been the following:
CLASS A SHARES CLASS B SHARES CLASS Y SHARES FEBRUARY 21, JANUARY 11, FEBRUARY 28, YEAR ENDED 1992 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1992 1994 1993 1994 Expenses............................ 1.02% 1.07% 1.11% 1.59% 1.57% .77% Net investment income............... 5.03% 4.77% 5.17% 4.46% 4.22% 5.45%
5 EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CLASS Y SHARES
SIX MONTHS ENDED FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, (UNAUDITED) 1994 1993 1992** PER SHARE DATA Net asset value, beginning of period............................ $10.21 $10.58 $10.33 $10.00 Income (loss) from investment operations: Net investment income........................................... .23 .47 .49 .51 Net realized and unrealized gain (loss) on investments.......... (.16) (.32) .25 .33 Total from investment operations.............................. .07 .15 .74 .84 Less distributions to shareholders from: Net investment income........................................... (.23) (.47) (.49) (.51) Net realized gains.............................................. -- (.03) -- -- In excess of net realized gains................................. -- (.02)(b) -- -- Total distributions........................................... (.23) (.52) (.49) (.51) Net asset value, end of period.................................. $10.05 $10.21 $10.58 $10.33 TOTAL RETURN+................................................... .7% 1.4% 7.4% 8.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)....................... $44,408 $53,417 $66,607 $54,470 Ratios to average net assets: Expenses (a).................................................. .72%++ .58% .40% .17% Net investment income (a)..................................... 4.54%++ 4.54% 4.73% 4.85% Portfolio turnover rate......................................... 8% 32% 37% 57% JULY 17, 1991* THROUGH AUGUST 31, 1991** PER SHARE DATA Net asset value, beginning of period............................ $10.00 Income (loss) from investment operations: Net investment income........................................... .06 Net realized and unrealized gain (loss) on investments.......... -- Total from investment operations.............................. .06 Less distributions to shareholders from: Net investment income........................................... (.06) Net realized gains.............................................. -- In excess of net realized gains................................. -- Total distributions........................................... (.06) Net asset value, end of period.................................. $10.00 TOTAL RETURN+................................................... .6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)....................... $4,025 Ratios to average net assets: Expenses (a).................................................. 0%++ Net investment income (a)..................................... 4.93%++ Portfolio turnover rate......................................... --
* Commencement of operations. ** On November 18, 1991, the Fund was changed to a diversified municipal bond fund with a fluctuating net asset value per share from a non-diversified money market fund with a stable net asset value per share. The shares outstanding at August 31, 1991 and the related per share data are restated to reflect both a 1 for 2 reverse share split on October 30, 1991 and a 1 for 5 reverse share split on August 19, 1992. Total return calculated after November 18, 1991 reflects the fluctuation in net asset value per share. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED JULY 17, 1991 FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 Expenses......................... .84% .83% .81% .86% 1.40% Net investment income............ 4.42% 4.29% 4.32% 4.16% 3.53%
(b) Distributions in excess of realized gains were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes. 6 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CLASS A AND B SHARES
CLASS A SHARES CLASS B SHARES JANUARY 5, 1995* THROUGH FEBRUARY 28, 1995 (UNAUDITED) PER SHARE DATA Net asset value, beginning of period....................................................... $ 9.97 $ 9.97 Income from investment operations: Net investment income...................................................................... .07 .06 Net realized and unrealized gain on investments............................................ .09 .08 Total from investment operations......................................................... .16 .14 Less distributions to shareholders from net investment income.............................. (.07) (.06) Net asset value, end of period............................................................. $10.06 $10.05 TOTAL RETURN+.............................................................................. 1.6% 1.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................................................. $7,736 $2,564 Ratios to average net assets: Expenses (a)............................................................................. .61%++ 1.41%++ Net investment income (a)................................................................ 3.81%++ 3.30%++ Portfolio turnover rate**.................................................................. 8% 8%
* Commencement of class operations. ** Portfolio turnover rate is calculated for the six months period February 28, 1995. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A and Class B shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 5, 1995 THROUGH FEBRUARY 28, 1995 (UNAUDITED) Expenses......................................................... .88% 1.98% Net investment income............................................ 3.54% 2.73%
7 EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA -- CLASS Y SHARES
SIX MONTHS ENDED NOVEMBER 2, FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, 1988* THROUGH (UNAUDITED) 1994 1993** 1992** 1991** 1990** AUGUST 31, 1989** PER SHARE DATA Net asset value, beginning of period........................... $10.09 $10.34 $10.00 $10.00 $10.00 $10.00 $10.00 Income (loss) from investment operations: Net investment income.............. .20 .43 .41 .33 .47 .55 .51 Net realized and unrealized gain (loss) on investments............ (.15) (.24) .34 -- -- -- -- Total from investment operations..................... .05 .19 .75 .33 .47 .55 .51 Less distributions to shareholders from: Net investment income.............. (.20) (.43) (.41) (.33) (.47) (.55) (.51) Net realized gains................. (.03) (.01) -- -- -- -- -- Total distributions.............. (.23) (.44) (.41) (.33) (.47) (.55) (.51) Net asset value, end of period..... $9.91 $10.09 $10.34 $10.00 $10.00 $10.00 $10.00 TOTAL RETURN+...................... .6% 1.8% 7.6% 3.4% 4.8% 5.7% 5.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)......................... $23,426 $28,433 $30,136 $34,452 $42,022 $37,291 $28,266 Ratios to average net assets: Expenses (a)..................... .79%++ .52% .30% .40% .37% .29% .24%++ Net investment income (a)........ 4.15%++ 4.20% 3.96% 3.36% 4.66% 5.52% 6.40%++ Portfolio turnover rate............ 13% 12% 37% -- -- -- --
* Commencement of operations. ** On October 16, 1992, the Fund was converted to a short-intermediate municipal fund with a fluctuating net asset value per share from a money market fund with a stable net asset value per share. The shares outstanding and the related per share data for the fiscal years ended August 31, 1990 through August 31, 1992 are restated to reflect the 1 for 10 reverse share split on October 21, 1992. Total return calculated after October 16, 1992 reflects the fluctuation in net asset value per share. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED NOVEMBER 2, 1988 FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 1990 1989 Expenses............................... .99% .95% .98% .84% .85% .88% .93% Net investment income.................. 3.95% 3.77% 3.28% 2.92% 4.18% 4.93% 5.71%
8 9 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen High Grade Tax Free Fund The Evergreen High Grade Tax Free Fund seeks a high level of federally tax free income that is consistent with preservation of capital. At least 65% of the value of the total assets of Evergreen High Grade Tax Free Fund will be invested in high grade bonds. High grade bonds mean: bonds insured by a municipal bond insurance company which is rated AAA by Standard & Poor's Ratings Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds rated A or better by S&P or Moody's; or, if unrated, of comparable quality as determined by the Fund's investment adviser. The insurance guarantees the timely payment of principal and interest, but not the value of the municipal bonds or the shares of the Fund. See the section "Investment Practices and Restrictions" - - "Municipal Bond Insurance" for further information. The Evergreen High Grade Tax Free Fund may also purchase instruments having variable rates of interest. One example is variable amount demand master notes. These notes represent a borrowing arrangement between a commercial paper issuer (borrower) and an institutional lender, such as the Fund and are payable upon demand. The underlying amount of the loan may vary during the course of the contract, as may the interest on the outstanding amount, depending on a stated short-term interest rate index. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Short-Intermediate Municipal Fund The investment objective of Evergreen Short-Intermediate Municipal Fund is to achieve as high a level of current income, exempt from Federal income tax other than the Federal alternative minimum tax("AMT") for individuals and corporations, as is consistent with preserving capital and providing liquidity. Under normal circumstances, it is anticipated that the Fund will invest its assets so that at least 80% of its annual interest income is exempt from Federal income tax other than the AMT. The Fund will seek to achieve its objective by investing substantially all of its assets in a diversified portfolio of short and intermediate-term debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax other than the AMT. Such securities are generally known as Municipal Securities (See "Investment Practices and Restrictions" - "Municipal Securities" below). As a matter of policy, the Trustees will not change the Fund's investment objective without shareholder approval. Under current tax law, a distinction is drawn between Municipal Securities issued to finance certain "private activities" and other Municipal Securities. Such private activity bonds include bonds issued to finance such projects as airports, housing projects, resource recovery programs, solid waste disposal facilities, student loan programs, and water and sewage projects. Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes an item of "tax preference" which is subject to the alternative minimum tax when received by a person in a tax year during which he is subject to that tax. Because interest income on AMT-Subject Bonds is taxable to certain investors, it is expected, although there can be no guarantee, that such Municipal Securities generally will provide somewhat higher yields than other Municipal Securities of comparable quality and maturity. The Fund may invest up to 50% of its total assets in AMT-Subject Bonds. The Fund intends to maintain a dollar-weighted average portfolio maturity of two to five years. The Fund may consider an obligation's maturity to be shorter than its stated maturity if the Fund has the right to sell the obligation at a price approximating par value before its stated maturity date. This is a liquidity put and is exercisable to the issuer or some third party. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Short-Intermediate Municipal Fund-California The investment objective of Evergreen Short-Intermediate Municipal Fund-California is to achieve as high a level of current income exempt from Federal and California income taxes, as is consistent with preserving capital and providing liquidity. The Fund will seek to achieve its objective by investing at least 80% of the value of its assets in a diversified portfolio of short and intermediate-term debt obligations issued by the State of California, its political subdivisions and duly constituted authorities, the interest from which is exempt from Federal and California income taxes. Such securities are generally known as Municipal Securities (see "Investment Practices and Restrictions" - "Municipal Securities" below). Interest income on certain types of bonds issued after August 7, 1986, to finance nongovernmental activities is an item of "tax preference" subject to AMT . To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to AMT on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will invest at least 80% of its net assets in Municipal Securities, the interest from which is not subject to AMT . The Fund intends to maintain a dollar-weighted average portfolio maturity of two to five years. The Fund may consider an obligation's maturity to be shorter than its stated maturity if the Fund has the right to sell the obligation at a price approximating par value before its stated maturity date. This is a liquidity put and is exercisable to the issuer or some third party. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Except where noted, each Fund may engage in the investment practices described below. Each Fund is also subject to certain investment restrictions more fully described in the Statement of Additional Information. General. Evergreen High Grade Tax Free Fund, Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California will invest in Municipal Securities so long as they are determined to be of high or upper medium quality. Municipal Securities meeting this criteria include bonds rated A or higher by S&P, Moody's or another nationally recognized statistical rating organization ("SRO"); notes rated SP-1 or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's in the case of variable rate demand notes or having comparable ratings from another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's or having comparable ratings from another SRO. Evergreen High Grade Tax Free Fund may also invest in general obligation bonds which are rated BBB by S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade bonds are more susceptible to adverse economic conditions or changing circumstances than higher grade bonds. However, like the higher rated bonds, these securities are considered to be investment grade. For a description of such ratings see the Statement of Additional Information. The Funds may also purchase Municipal Securities which are unrated at the time of purchase, if such securities are determined by the Fund's investment adviser to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. Investments by Evergreen Short-Intermediate Municipal Fund-California in unrated securities are limited to 20% of total assets. The ability of the Funds to meet their investment objectives is necessarily subject to the ability of municipal issuers to meet their payment obligations. In addition, the portfolios of the Funds will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Funds. Investors should recognize that, in periods of declining interest rates, the yield of the Funds will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates, the yield of the Funds will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to the Funds from the continuous sale of its shares will likely be invested in portfolio instruments producing lower yields than the balance of each Fund's portfolio, thereby reducing the current yield of the Funds. In periods of rising interest rates, the opposite can be expected to occur. In addition since Evergreen Short-Intermediate Municipal Fund-California will invest primarily in California Municipal Securities, there are certain specific factors and considerations concerning California which may affect the credit and market risk of the Municipal Securities that Evergreen Short-Intermediate Municipal Fund-California purchases. These factors are described in the Appendix to this Prospectus. Municipal Securities. As noted above, the Funds will invest substantially all of their assets in Municipal Securities. These include Municipal Securities, short-term municipal notes and tax exempt commercial paper. "Municipal Securities" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "Municipal Securities" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in Municipal Securities, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Municipal Bond Insurance. The Evergreen High Grade Tax Free Fund will require municipal bond insurance when purchasing Municipal Securities which would not otherwise meet the Fund's quality standards. The Evergreen High Grade Tax Free Fund may also require insurance when, in the opinion of the Fund's investment adviser, such insurance would benefit the Fund (for example, through improvement of portfolio quality or increased liquidity of certain securities). The purpose of municipal bond insurance is to guarantee the timely payment of principal at maturity and interest. Securities in the Evergreen High Grade Tax Free Fund's portfolio may be insured in one of two ways: (1) by a policy applicable to a specific security, obtained by the issuer of the security or by a third party ("Issuer-Obtained Insurance") or (2) under master insurance policies issued by municipal bond insurers, purchased by the Fund (the "Policies"). If a security's coverage is Issuer-Obtained, then that security does not need to be covered in the Policies. The Fund may purchase Policies from Municipal Bond Investors Assurance Corp., AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more detailed description of these insurers may be found in the Statement of Additional Information. Annual premiums for these Policies are paid by the Fund and are estimated to range from 0.10% to 0.25% of the value of the municipal securities covered under the Policies, with an average annual premium rate of approximately 0.175%. While the insurance feature reduces financial risk, the cost thereof and the restrictions on investments imposed by the guidelines in the Policies reduce the yield to shareholders. Floating Rate and Variable Rate Obligations. Municipal Securities also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Certain of these obligations may carry a demand feature that gives the Funds the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. The Funds will limit the value of their investments in any floating or variable rate securities which are not readily marketable to 10% or less of their total assets. When-Issued Securities. The Funds may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). A Fund generally would not pay for such securities or start earning interest on them until they are received. However, when a Fund purchases securities on a when-issued basis, it assumes the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund do not expect that commitments to purchase when-issued securities will normally exceed 25% of their total assets and Evergreen High Grade Tax Free Fund does not expect that such commitments will exceed 20% of its assets. The Funds do not intend to purchase when-issued securities for speculative purposes but only in furtherance of their investment objective. Stand-by Commitments. The Funds may also acquire "stand-by commitments" with respect to Municipal Securities held in their portfolio. Under a stand-by commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal Securities at a specified price. Failure of the dealer to purchase such Municipal Securities may result in a Fund incurring a loss or missing an opportunity to make an alternative investment. Each Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, a Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in each Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Funds will maintain cash or liquid high grade debt obligations in a segregated account with its custodian in an amount equal to such commitments. The Funds will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Investments. Evergreen High Grade Tax Free Fund and Evergreen Short-Intermediate Municipal Fund-California may temporarily invest up to 20% of their assets in taxable securities, and Evergreen Short-Intermediate Municipal Fund may temporarily invest its assets so that not more than 20% of its annual interest income will be derived from taxable securities, under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, each such Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. Each Fund may invest for defensive purposes during periods when each Fund's assets available for investment exceed the available Municipal Securities that meet each Fund's quality and other investment criteria. Taxable securities in which the Funds may invest on a short-term basis include obligations of the United States Government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by any major rating service; commercial paper rated in the highest grade by Moody's, S&P or any SRO; and certificates of deposit issued by United States branches of United States banks with assets of $1 billion or more. Repurchase Agreements. The Funds may enter into repurchase agreements with member banks of the Federal Reserve System, including State Street Bank and Trust Company, the Funds' custodian ("State Street" or the "Custodian"), or "primary dealers" (as designated by the Federal Reserve Bank of New York) in United States Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during a Fund's holding period. Each Fund requires continued maintenance of collateral with its Custodian in an amount equal to, or in excess of, the market value of the securities, including accrued interest, which are the subject of a repurchase agreement. In the event a vendor defaults on its repurchase obligation, the Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. Each Fund's investment adviser will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund may not enter into repurchase agreements if, as a result, more than 10% of either Fund's net assets would be invested in repurchase agreements maturing in more than seven days and Evergreen High Grade Tax Free Fund may not so invest more than 15% of its net assets. Illiquid Securities. The Funds may invest up to 15% of their net assets in illiquid securities and other securities which are not readily marketable, except that Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund may only invest up to 10% of their assets in repurchase agreements with maturities longer than seven days. In the case of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Fund's investment adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. Evergreen High Grade Tax Free Fund may invest up to 10% of its assets in securities subject to restrictions on resale under the federal securities laws. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Other Investment Policies. The Funds may borrow funds and agree to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed upon date and price (a "reverse repurchase agreement") for temporary or emergency purposes. In the case of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund borrowings may be in amounts up to 10% of the value of each Fund's total assets at the time of such borrowing. Evergreen High Grade Tax Free Fund may borrow in amounts up to one-third of its net assets. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, United States Government securities or liquid high grade debt obligations having a value equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets and will not purchase any securities whenever any borrowings (including reverse repurchase agreements) are outstanding. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial organizations. Each Fund's investment adviser will monitor the creditworthiness of such borrowers. Loans of securities by a Fund, if and when made, may not exceed 30% of each Fund's total assets, or in the case of Evergreen High Grade Tax Free Fund 15%, and will be collateralized by cash, letters of credit or U.S. government securities that are maintained at all times in an amount equal to at least 100 percent of the current market value of the loaned securities, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral, thereby increasing its return. A Fund will have the right to call any such loan and obtain the securities loaned at any time on five days' notice. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund may pay reasonable fees in connection with such loans. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees").. Evergreen Asset Management Corp. ("Evergreen Asset") has been retained by Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen High Grade Tax Free Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, and had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. Evergreen Asset manages investments, provides various administrative services and supervises the daily business affairs of Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California, subject to the authority of the Trustees. Under its investment advisory agreement with Evergreen Short-Intermediate Municipal Fund-California Evergreen Asset is entitled to receive an annual fee equal to .55 of 1% of the Fund's average daily net assets. Under its investment advisory agreement with Evergreen Short-Intermediate Municipal Fund, Evergreen Asset is entitled to receive an annual fee equal to .50 of 1% of each Fund's average daily net assets. The total expense ratios of Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California for the fiscal period ended August 31, 1994, are set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen High Grade Tax Free Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of Evergreen High Grade Tax Free Fund. The total expense ratios of Evergreen High Grade Tax Free Fund for the fiscal period ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen High Grade Tax Free Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen High Grade Tax Free Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager of Evergreen High Grade Tax Free Fund is James T. Colby, III. Mr. Colby is a Vice President of CMG and has been associated with Evergreen Asset and its predecessor since 1992. He has served as portfolio manager of the Fund since June, 1995 and, since that fund's inception in 1992, was portfolio manager of Evergreen National Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995. Prior to joining Evergreen Asset, Mr. Colby served as Vice President-Investments at American Express Company from 1987 to 1992. The portfolio manager for Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund is Steven C. Shachat. Mr. Shachat has been associated with Evergreen Asset and its predecessor since prior to 1989 and has served as portfolio manager of these Funds since their inception. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A and Class B shares a Rule 12b-1 plan (each a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, 1.00% of the aggregate average daily net assets attributable to the Class B shares of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund, and .75 of 1% of the aggregate average daily net assets attributable to the Class B shares of Evergreen High Grade Municipal Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Evergreen High Grade Tax Free Fund has, in addition to the Plans adopted with respect to its Class B shares, adopted a shareholder service plan ("Service Plan") relating to the Class B shares which permit the Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plan, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans (and in the case of Evergreen High Grade Tax Free Fund, the Service Plan), in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans and Service Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment plan . Share certificates are not issued for Class A and Class B shares. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A and Class B shares are offered through this Prospectus (see "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .10 of 1% of the aggregate average daily net assets attributable to Class A shares of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund held by their clients, and .25 of 1% of aggregate average daily net assets attributable to Class A shares of Evergreen High Grade Tax Free Fund held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee on transactions in shares of the Funds. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which they convert to Class A shares). The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. With respect to Class B Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair market value. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution and/or shareholder service fees, after seven years. The compensation received by Dealers and agents may differ depending on whether they sell Class A or Class B shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Fund's investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m.(Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If a Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. A Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Funds reserve the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B shares are exchanged for Class B shares of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number the phone number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of a Fund at the net asset value per share on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES Income dividends are declared daily and paid monthly. Distributions of any net realized gains of a Fund will be made at least annually. Shareholders will begin to earn dividends on the first business day after shares are purchased unless shares were not paid for, in which case dividends are not earned until the next business day after payment is received. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Internal Revenue Code (the "Code"). While so qualified, so long as each Fund distributes all of its investment company taxable income and any net realized gains to shareholders, it is expected that the Funds will not be required to pay any Federal income taxes. A 4% nondeductible excise tax will be imposed on a Fund if it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The Funds will designate and pay exempt-interest dividends derived from interest earned on qualifying tax-exempt obligations. Such exempt-interest dividends may be excluded by shareholders of a Fund from their gross income for Federal income tax purposes, however (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of the "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income and long-term capital gain distributions are taxable as long-term capital gains, even though received in additional shares of the Fund, and regardless of the investors holding period relating to the shares with respect to which such gains are distributed. Market discount recognized on taxable and tax-exempt bonds is taxable as ordinary income, not as excludable income. Under current law, the highest Federal income tax rate applicable to net long-term gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since each Fund's gross income is ordinarily expected to be tax exempt interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gains distributions (if any) and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, each investor must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. For Evergreen Short-Intermediate Municipal Fund-California, so long as the Fund remains qualified under Subchapter M of the Code for federal purposes and qualified as a diversified management investment company, then under current California law, the Fund is entitled to pass through to its shareholders the tax-exempt income it earns. To the extent that Fund dividends are derived from earnings on California Municipal Securities, such dividends will be exempt from California personal income taxes when received by the Fund's shareholders, provided the Fund has complied with the requirement that at least 50% of its assets be invested in California Municipal Securities. For California income tax purposes, long-term capital gains distributions are taxable as ordinary income. Statements describing the tax status of shareholders' dividends and distributions will be mailed annually by the Funds. These statements will set forth the amount of income exempt from Federal and, if applicable, state taxation (including California), and the amount, if any, subject to Federal and state taxation. Moreover, to the extent necessary, these statements will indicate the amount of exempt-interest dividends which are a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes. The exemption of interest income for Federal income tax purposes does not necessarily result in exemption under the income or other tax law of any state or local taxing authority. Investors should consult their own tax advisers about the status of distributions from the Funds in their states and localities. Each Fund notifies shareholders annually as to the interest exempt from Federal taxes earned by the Fund. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen High Grade Municipal Fund is contained in the annual report of such Fund for the fiscal year ended December 31, 1994. Evergreen Short-Intermediate Municipal Fund. The Fund's total return for the fiscal year ending August 31, 1994 was +1.42%, versus the Lehman Brothers 3-Year Municipal Bond Index, which rose + 2.38%, and the Lehman Brothers 5-Year Municipal Bond Index, which increased + 2.01%. As the economy picked up momentum and the Federal Reserve started tightening, interest rates in the fixed-income markets climbed in every maturity range. As a result, the Fund moved to a more defensive position during the last half of the fiscal year in order to moderate price volatility. The Fund's investment adviser reduced the Fund's weighted average maturities and durations, and adjusted the holdings by selling securities most sensitive to price declines in a rising environment such as bonds trading at a discount. Proceeds were reinvested in premium-based, high quality bonds. The strategy of the Fund as of August 31, 1994 was to remain relatively short in the one to three-year range as we look to purchase investment grade, non-callable bonds. [CHART] Evergreen Short-Intermediate Municipal Fund - California. The Fund's total return for the fiscal year ending August 31, 1994 was 1.84%, versus the Lehman Brothers 3-Year California Municipal Bond Index, which rose +2.38% and the Lehman Brothers California Municipal Bond Index, which increased + 2.21%. As the economy picked up momentum and the Federal Reserve started tightening, interest rates in the fixed-income markets climbed in every maturity range. As a result, the Fund moved to a more defensive position during the last half of the fiscal year in order to moderate price volatility. The investment adviser reduced the Fund's weighted average maturities and durations, and adjusted the holdings by selling securities most sensitive to price declines in a rising environment such as bonds trading at a discount. Proceeds were reinvested in premium-based, high quality bonds. The strategy of the Fund strategy as of August 31, 1994, is to remain relatively short in the one to three-year range as we look to purchase investment grade, non callable bonds. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund - California are separate investment series of Evergreen Municipal Trust, a Massachusetts business trust organized in 1988. Evergreen High Grade Tax Free Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Directors, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen High Grade Tax Free Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund - California, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers three classes of shares, Class A, Class B and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen mutual funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. A Fund's performance may be quoted in advertising in terms of yield or total return. Both types of performance are based on Securities and Exchange Commission ("SEC") formulas and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of the Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the income reported in a Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on a Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. A Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated Federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all a Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in a Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc., Morningstar and other industry publications. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. APPENDIX -- CALIFORNIA RISK CONSIDERATIONS The following information as to certain California risk factors is given to investors in view of the policy of Evergreen Short-Intermediate Municipal Fund-California of investing primarily in California state and municipal issuers. The information is based primarily upon information derived from public documents relating to securities offerings of California state and municipal issuers, from independent municipal credit reports and historically reliable sources but has not been independently verified by the Fund. Changes in California constitutional and other laws during the last several years have raised questions about the ability of California state and municipal issuers to obtain sufficient revenue to pay their bond obligations. In 1978, California voters approved an amendment to the California Constitution known as Proposition 13. Proposition 13 limits ad valorem taxes on real property and restricts the ability of taxing entities to increase real property taxes. Legislation passed subsequent to Proposition 13, however, provided for the redistribution of California's General Fund surplus to local agencies, the reallocation of revenues to local agencies, and the assumption of certain local obligations by the state so as to help California municipal issuers to raise revenue to pay their bond obligations. It is unknown, however, whether additional revenue redistribution legislation will be enacted in the future and whether, if enacted, such legislation would provide sufficient revenue for such California issuers to pay their obligations. The state is also subject to another constitutional amendment, Article XIIIB, which may have an adverse impact on California state and municipal issuers. Article XIIIB restricts the state from spending certain appropriations in excess of an appropriations limit imposed for each state and local government entity. If revenues exceed such appropriations limit, such revenues must be returned either as revisions in the tax rates or fee schedules. Because of the uncertain impact of the aforementioned statutes and cases, the possible inconsistencies in the respective terms of the statutes and the impossibility of predicting the level of future appropriations and applicability of related statutes to such questions, it is not currently possible to assess the impact of such legislation, cases and policies on the long-term ability of California state and municipal issuers to pay interest or repay principal on their obligations. California's economy is larger than many sovereign nations. During the 1980s, California experienced growth rates well in excess of the rest of the nation. The state's major employment sectors are services, trade, and manufacturing. Industrial concentration is in electronics, aerospace, and non-electrical equipment. Also significant are agriculture and oil production. Key sectors of California's economy have been severely affected by the recession. Since May of 1990, job losses total over 850,000. Declines in the aerospace and high technology sectors have been especially severe. The continuing drive in population and labor force growth has produced higher unemployment rates in the state. Although total job loss has declined, weakness continues in key areas of California's economy, including government, real estate and aerospace. Wealth levels still remain high in the state, although the difference between state and national levels continues to narrow. In July of 1994, both S&P and Moody's lowered the general obligation bond ratings of the state of California. These revisions reflect the state's heavy reliance on the short-term note market to finance its cash imbalance and the likelihood that this exposure will persist for at least another two years. For more information on these ratings revisions and the state's current budget, please refer to the Statement of Additional Information. Orange County Bankruptcy. On December 6, 1994, Orange County, California, petitioned for bankruptcy based on losses in the Orange County Investment Fund which at the time were estimated to be approximately $2 billion. At the time of the petition, the Orange County Investment Fund held monies belonging to Orange County as well as other municipal issuers located in Orange County and other parts of California. Although the ultimate resolution of this matter is uncertain, one possible result is that the ability of municipal issuers investing in the Orange County Investment Fund to service some or all of their outstanding debt obligations may be severely impaired. As of December 6, 1994, Evergreen Short-Intermediate Municipal Fund - California did not hold debt obligations of Orange County or other issuers that the Fund is aware had invested in the Orange County Investment Fund. Although it has no current intention to do so, if it deems it advisable, the Fund reserves the right from time to time to make investments in municipal issuers who maintain assets in the Orange County Investment Fund. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA Capital Mangement Group of First Union Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN HIGH GRADE TAX FREE FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN HIGH GRADE TAX FREE FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536119 PROSPECTUS July 7, 1995 EVERGREEN(SM) TAX FREE FUNDS EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND-CALIFORNIA CLASS Y SHARES The Evergreen Tax-Free Funds (the "Funds") are designed to provide investors with income exempt from Federal income taxes. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, diversified, management investment company. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Advisers Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information APPENDIX -- California Risk Considerations
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Investment Adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its predecessors, has served as an investment adviser to the Evergreen Funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. The Capital Management Group of FUNB ("CMG") serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE FUND. EVERGREEN HIGH GRADE TAX FREE FUND (formerly First Union High Grade Tax Free Portfolio) seeks to provide a high level of federally tax-free income that is consistent with preservation of capital. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income, exempt from Federal income tax other than the alternative minimum tax ("AMT"), as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short and intermediate-term municipal securities with a dollar weighted average portfolio maturity of two to five years. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current income exempt from Federal and California income taxes as is consistent with preserving capital and providing liquidity. The Fund invests substantially all of its assets in short and intermediate-term municipal securities with a dollar weighted average portfolio maturity of two to five years. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $ 5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN HIGH GRADE TAX FREE FUND (A)
ANNUAL OPERATING EXPENSES* EXAMPLE Advisory Fees .37% After 1 Year $ 7 Administrative Fees .06% After 3 Years $ 21 12b-1 Fees -- After 5 Years $ 37 Other Expenses .23% After 10 Years $ 82 Total .66%
EVERGREEN SHORT INTERMEDIATE FUND
ANNUAL OPERATING EXPENSES** EXAMPLE Advisory Fees .50% After 1 Year $ 8 12b-1 Fees -- After 3 Years $ 26 Other Expenses .33% After 5 Years $ 46 After 10 Years $ 103 Total .83%
EVERGREEN SHORT INTERMEDIATE FUND -- CALIFORNIA
ANNUAL OPERATING EXPENSES** EXAMPLE Advisory Fees .55% After 1 Year $ 10 12b-1 Fees -- After 3 Years $ 30 Other Expenses .40% After 5 Years $ 53 After 10 Years $ 117 Total .95%
3 (a) Estimated annual operating expenses reflect the combination of Evergreen National Tax Free Fund and First Union High Grade Tax Free Portfolio. * CMG has agreed to limit the expenses (including the Advisor's fee, but excluding taxes, interest, brokerage commissions, Rule 12b-1 distribution fees, shareholder services fees and extraordinary expenses) of EVERGREEN HIGH GRADE TAX FREE FUND to .66 of 1% for a period of at least one year from the date of this Prospectus and to consult with the Trustees of the Funds prior to discontinuing such limitation after the one year period. ** The annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the most recent fiscal period. Actual expenses for Class Y Shares net of fee waivers and expense reimbursements for the fiscal period ended August 31, 1994, were as follows: EVERGREEN SHORT INTERMEDIATE FUND............................................... .58% EVERGREEN SHORT INTERMEDIATE FUND -- CALIFORNIA................................. .52%
Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA to the extent that their aggregate operating expenses (including the Adviser's fee, but excluding taxes, interest, brokerage commissions, Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary expenses) exceed 1% of the average net assets. From time to time, each Fund's investment adviser may, at its descretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in Class Y will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such expenses have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN HIGH GRADE TAX FREE FUND has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors, for EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND and EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA has, except as noted otherwise, been audited by Price Waterhouse LLP, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. No financial highlights are shown for Class A or B of EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA since these classes did not have any operations prior to February 28, 1995. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN HIGH GRADE TAX FREE FUND
CLASS A SHARES CLASS B CLASS Y SHARES SHARES FEBRUARY 21, JANUARY 11, FEBRUARY 28, YEAR ENDED DECEMBER 1992* THROUGH YEAR ENDED 1993* THROUGH 1994* THROUGH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1992 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period.............................. $11.16 $10.42 $10.00 $11.16 $10.42 $10.93 Income (loss) from investment operations: Net investment income................. .52 .54 .51 .46 .47 .46 Net realized and unrealized gain (loss) on investments............... (1.37) .81 .42 (1.37) .81 (1.14) Total from investment operations.... (.85) 1.35 .93 (.91) 1.28 (.68) Less distributions to shareholders from: Net investment income................. (.52) (.54) (.51) (.46) (.47) (.46) Net realized gains.................... -- (.07) -- -- (.07) -- Total distributions................. (.52) (.61) (.51) (.46) (.54) (.46) Net asset value, end of period........ $9.79 $11.16 $10.42 $9.79 $11.16 $9.79 TOTAL RETURN+......................... (7.7%) 13.3% 9.4% (8.2%) 12.4% (6.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..................... $57,676 $101,352 $ 90,738 $ 32,435 $ 41,030 $4,318 Ratios to average net assets: Expenses (a)........................ 1.01% .85% .49%++ 1.58% 1.35%++ .76%++ Net investment income (a)........... 5.04% 4.99% 5.79%++ 4.47% 4.44%++ 5.46%++ Portfolio turnover rate............... 53% 14% 7% 53% 14% 53%
* Commencement of operations + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS CLASS B SHARES Y SHARES FEBRUARY 21, JANUARY 11, FEBRUARY 28, YEAR ENDED 1992 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1992 1994 1993 1994 Expenses.................................. 1.02% 1.07% 1.11% 1.59% 1.57% .77% Net investment income..................... 5.03% 4.77% 5.17% 4.46% 4.22% 5.45%
5 EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CLASS Y SHARES
SIX MONTHS ENDED FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, (UNAUDITED) 1994 1993 1992** PER SHARE DATA Net asset value, beginning of period......................... $10.21 $10.58 $10.33 $10.00 Income (loss) from investment operations: Net investment income........................................ .23 .47 .49 .51 Net realized and unrealized gain (loss) on investments....... (.16) (.32) .25 .33 Total from investment operations........................... .07 .15 .74 .84 Less distributions to shareholders from: Net investment income........................................ (.23) (.47) (.49) (.51) Net realized gains........................................... -- (.03) -- -- In excess of net realized gains.............................. -- (.02)(b) -- -- Total distributions........................................ (.23) (.52) (.49) (.51) Net asset value, end of period............................... $10.05 $10.21 $10.58 $10.33 TOTAL RETURN+................................................ .7% 1.4% 7.4% 8.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................... $44,408 $53,417 $66,607 $54,470 Ratios to average net assets: Expenses (a)............................................... .72++ .58% .40% .17% Net investment income (a).................................. 4.54%++ 4.54% 4.73% 4.85% Portfolio turnover rate...................................... 8% 32% 37% 57% JULY 17, 1991* THROUGH AUGUST 31, 1991** PER SHARE DATA Net asset value, beginning of period......................... $10.00 Income (loss) from investment operations: Net investment income........................................ .06 Net realized and unrealized gain (loss) on investments....... -- Total from investment operations........................... .06 Less distributions to shareholders from: Net investment income........................................ (.06) Net realized gains........................................... -- In excess of net realized gains.............................. -- Total distributions........................................ (.06) Net asset value, end of period............................... $10.00 TOTAL RETURN+................................................ .6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................... $4,025 Ratios to average net assets: Expenses (a)............................................... 0%++ Net investment income (a).................................. 4.93%++ Portfolio turnover rate...................................... --
* Commencement of operations. ** On November 18, 1991, the Fund was changed to a diversified municipal bond fund with a fluctuating net asset value per share from a non-diversified money market fund with a stable net asset value per share. The shares outstanding at August 31, 1991 and the related per share data are restated to reflect both a 1 for 2 reverse share split on October 30, 1991 and a 1 for 5 reverse share split on August 19, 1992. Total return calculated after November 18, 1991 reflects the fluctuation in net asset value per share. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED FEBRUARY 28, JULY 17, 1991 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 Expenses.............................. .84% .83% .81% .86% 1.40% Net investment income................. 4.42% 4.29% 4.32% 4.16% 3.53%
(b) Distributions in excess of net realized gains were the result of certain book and tax timing differences. These distributions did not represent a return of capital for federal income tax purposes. 6 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CLASS A AND B SHARES
CLASS A SHARES CLASS B SHARES JANUARY 5, 1995* THROUGH FEBRUARY 28, 1995 (UNAUDITED) PER SHARE DATA Net asset value, beginning of period....................................................... $9.97 $9.97 Income from investment operations: Net investment income...................................................................... .07 .06 Net realized and unrealized gain on investments............................................ .09 .08 Total from investment operations......................................................... .16 .14 Less distributions to shareholders from net investment income.............................. (.07) (.06) Net asset value, end of period............................................................. $10.06 $10.05 TOTAL RETURN+ 1.6% 1.4% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................................................. $7,736 $2,564 Ratios to average net assets: Expenses (a)............................................................................. .61%++ 1.41%++ Net investment income (a)................................................................ 3.81%++ 3.30%++ Portfolio turnover rate**.................................................................. 8% 8%
* Commencement of class operations. ** Portfolio turnover rate is calculated for the six months period ended February 28, 1995. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class A and Class B shares are not necessarily comparable to that of the Class Y shares, and are not necessarily indicative of future ratios. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed by or waived by the investment adviser, the annualized ratios of expenses and net investment income, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 5, 1995 THROUGH FEBRUARY 28, 1995 (UAUDITED) Expenses......................................................... .88% 1.98% Net investment income............................................ 3.54% 2.73%
7 EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA -- CLASS Y SHARES
SIX MONTHS ENDED FEBRUARY 28, 1995 YEAR ENDED AUGUST 31, (UNAUDITED) 1994 1993** 1992** 1991** 1990** PER SHARE DATA Net asset value, beginning of period..... $10.09 $10.34 $10.00 $10.00 $10.00 $10.00 Income (loss) from investment operations: Net investment income.................... .20 .43 .41 .33 .47 .55 Net realized and unrealized gain (loss) on investments......................... (.15) (.24) .34 -- -- -- Total from investment operations....... .05 .19 .75 .33 .47 .55 Less distributions to shareholders from: Net investment income.................... (.20) (.43) (.41) (.33) (.47) (.55) Net realized gains....................... (.03) (.01) -- -- -- -- Total distributions.................... (.23) (.44) (.41) (.33) (.47) (.55) Net asset value, end of period........... $9.91 $10.09 $10.34 $10.00 $10.00 $10.00 TOTAL RETURN+............................ .6% 1.8% 7.6% 3.4% 4.8% 5.7% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $23,426 $28,433 $30,136 $34,452 $42,022 $37,291 Ratios to average net assets: Expenses (a)........................... .79++ .52% .30% .40% .37% .29% Net investment income (a).............. 4.15++ 4.20% 3.96% 3.36% 4.66% 5.52% Portfolio turnover rate.................. 13% 12% 37% -- -- -- NOVEMBER 2, 1988* THROUGH AUGUST 31, 1989** PER SHARE DATA Net asset value, beginning of period..... $10.00 Income (loss) from investment operations: Net investment income.................... .51 Net realized and unrealized gain (loss) on investments......................... -- Total from investment operations....... .51 Less distributions to shareholders from: Net investment income.................... (.51) Net realized gains....................... -- Total distributions.................... (.51) Net asset value, end of period........... $10.00 TOTAL RETURN+............................ 5.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $28,266 Ratios to average net assets: Expenses (a)........................... .24%++ Net investment income (a).............. 6.40++ Portfolio turnover rate.................. --
* Commencement of operations. ** On October 16, 1992, the Fund was converted to a short-intermediate municipal fund with a fluctuating net asset value per share from a money market fund with a stable net asset value per share. The shares outstanding and the related per share data for the fiscal years ended August 31, 1990 through August 31, 1992 are restated to reflect the 1 for 10 reverse share split on October 21, 1992. Total return calculated after October 16, 1992 reflects the fluctuation in net asset value per share. + Total return is calculated on net asset value for the period indicated and is not annualized. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
SIX MONTHS ENDED FEBRUARY 28, NOVEMBER 2, 1988 1995 YEAR ENDED AUGUST 31, THROUGH AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 1990 1989 Expenses............ .99% .95% .98% .84% .85% .88% .93% Net investment income............ 3.95% 3.77% 3.28% 2.92% 4.18% 4.93% 5.71%
8 9 - -------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen High Grade Tax Free Fund The Evergreen High Grade Tax Free Fund seeks a high level of federally tax free income that is consistent with preservation of capital. At least 65% of the value of the total assets of Evergreen High Grade Tax Free Fund will be invested in high grade bonds. High grade bonds mean: bonds insured by a municipal bond insurance company which is rated AAA by Standard & Poor's Ratings Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds rated A or better by S&P or Moody's; or, if unrated, of comparable quality as determined by the Fund's investment adviser. The insurance guarantees the timely payment of principal and interest, but not the value of the municipal bonds or the shares of the Fund. See the section "Investment Practices and Restrictions" - - "Municipal Bond Insurance" for further information. The Evergreen High Grade Tax Free Fund may also purchase instruments having variable rates of interest. One example is variable amount demand master notes. These notes represent a borrowing arrangement between a commercial paper issuer (borrower) and an institutional lender, such as the Fund and are payable upon demand. The underlying amount of the loan may vary during the course of the contract, as may the interest on the outstanding amount, depending on a stated short-term interest rate index. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Short-Intermediate Municipal Fund The investment objective of Evergreen Short-Intermediate Municipal Fund is to achieve as high a level of current income, exempt from Federal income tax other than the Federal alternative minimum tax("AMT") for individuals and corporations, as is consistent with preserving capital and providing liquidity. Under normal circumstances, it is anticipated that the Fund will invest its assets so that at least 80% of its annual interest income is exempt from Federal income tax other than the AMT. The Fund will seek to achieve its objective by investing substantially all of its assets in a diversified portfolio of short and intermediate-term debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, and their political subdivisions and duly constituted authorities, the interest from which is exempt from Federal income tax other than the AMT. Such securities are generally known as Municipal Securities (See "Investment Practices and Restrictions" - "Municipal Securities" below). As a matter of policy, the Trustees will not change the Fund's investment objective without shareholder approval. Under current tax law, a distinction is drawn between Municipal Securities issued to finance certain "private activities" and other Municipal Securities. Such private activity bonds include bonds issued to finance such projects as airports, housing projects, resource recovery programs, solid waste disposal facilities, student loan programs, and water and sewage projects. Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes an item of "tax preference" which is subject to the alternative minimum tax when received by a person in a tax year during which he is subject to that tax. Because interest income on AMT-Subject Bonds is taxable to certain investors, it is expected, although there can be no guarantee, that such Municipal Securities generally will provide somewhat higher yields than other Municipal Securities of comparable quality and maturity. The Fund may invest up to 50% of its total assets in AMT-Subject Bonds. The Fund intends to maintain a dollar-weighted average portfolio maturity of two to five years. The Fund may consider an obligation's maturity to be shorter than its stated maturity if the Fund has the right to sell the obligation at a price approximating par value before its stated maturity date. This is a liquidity put and is exercisable to the issuer or some third party. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Short-Intermediate Municipal Fund-California The investment objective of Evergreen Short-Intermediate Municipal Fund-California is to achieve as high a level of current income exempt from Federal and California income taxes, as is consistent with preserving capital and providing liquidity. The Fund will seek to achieve its objective by investing at least 80% of the value of its assets in a diversified portfolio of short and intermediate-term debt obligations issued by the State of California, its political subdivisions and duly constituted authorities, the interest from which is exempt from Federal and California income taxes. Such securities are generally known as Municipal Securities (see "Investment Practices and Restrictions" - "Municipal Securities" below). Interest income on certain types of bonds issued after August 7, 1986, to finance nongovernmental activities is an item of "tax preference" subject to AMT . To the extent the Fund invests in these "private activity" bonds (some of which were formerly referred to as "industrial development" bonds), individual and corporate shareholders, depending on their status, may be subject to AMT on the part of the Fund's distributions derived from the bonds. As a matter of fundamental policy, which may not be changed without shareholder approval, the Fund will invest at least 80% of its net assets in Municipal Securities, the interest from which is not subject to AMT . The Fund intends to maintain a dollar-weighted average portfolio maturity of two to five years. The Fund may consider an obligation's maturity to be shorter than its stated maturity if the Fund has the right to sell the obligation at a price approximating par value before its stated maturity date. This is a liquidity put and is exercisable to the issuer or some third party. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. INVESTMENT PRACTICES AND RESTRICTIONS Except where noted, each Fund may engage in the investment practices described below. Each Fund is also subject to certain investment restrictions more fully described in the Statement of Additional Information. General. Evergreen High Grade Tax Free Fund, Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California will invest in Municipal Securities so long as they are determined to be of high or upper medium quality. Municipal Securities meeting this criteria include bonds rated A or higher by S&P, Moody's or another nationally recognized statistical rating organization ("SRO"); notes rated SP-1 or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's in the case of variable rate demand notes or having comparable ratings from another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's or having comparable ratings from another SRO. Evergreen High Grade Tax Free Fund may also invest in general obligation bonds which are rated BBB by S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade bonds are more susceptible to adverse economic conditions or changing circumstances than higher grade bonds. However, like the higher rated bonds, these securities are considered to be investment grade. For a description of such ratings see the Statement of Additional Information. The Funds may also purchase Municipal Securities which are unrated at the time of purchase, if such securities are determined by the Fund's investment adviser to be of comparable quality. Certain Municipal Securities (primarily variable rate demand notes) may be entitled to the benefit of standby letters of credit or similar commitments issued by banks and, in such instances, the Fund's investment adviser will take into account the obligation of the bank in assessing the quality of such security. Investments by Evergreen Short-Intermediate Municipal Fund-California in unrated securities are limited to 20% of total assets. The ability of the Funds to meet their investment objectives is necessarily subject to the ability of municipal issuers to meet their payment obligations. In addition, the portfolios of the Funds will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Funds. Investors should recognize that, in periods of declining interest rates, the yield of the Funds will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates, the yield of the Funds will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to the Funds from the continuous sale of its shares will likely be invested in portfolio instruments producing lower yields than the balance of each Fund's portfolio, thereby reducing the current yield of the Funds. In periods of rising interest rates, the opposite can be expected to occur. In addition since Evergreen Short-Intermediate Municipal Fund-California will invest primarily in California Municipal Securities, there are certain specific factors and considerations concerning California which may affect the credit and market risk of the Municipal Securities that Evergreen Short-Intermediate Municipal Fund-California purchases. These factors are described in the Appendix to this Prospectus. Municipal Securities. As noted above, the Funds will invest substantially all of their assets in Municipal Securities. These include Municipal Securities, short-term municipal notes and tax exempt commercial paper. "Municipal Securities" are debt obligations issued to obtain funds for various public purposes that are exempt from Federal income tax in the opinion of issuer's counsel. The two principal classifications of Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific source such as from the user of the facility being financed. The term "Municipal Securities" also includes "moral obligation" issues which are normally issued by special purpose authorities. Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. The credit quality of IDBs and PABs is usually directly related to the credit standing of the corporate user of the facilities being financed. Participation interests are interests in Municipal Securities, including IDBs and PABs, and floating and variable rate obligations that are owned by banks. These interests carry a demand feature permitting the holder to tender them back to the bank, which demand feature is backed by an irrevocable letter of credit or guarantee of the bank. A put bond is a municipal bond which gives the holder the unconditional right to sell the bond back to the issuer at a specified price and exercise date, which is typically well in advance of the bond's maturity date. "Short-term municipal notes" and "tax exempt commercial paper" include tax anticipation notes, bond anticipation notes, revenue anticipation notes and other forms of short-term loans. Such notes are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements and other revenues. Municipal Bond Insurance. The Evergreen High Grade Tax Free Fund will require municipal bond insurance when purchasing Municipal Securities which would not otherwise meet the Fund's quality standards. The Evergreen High Grade Tax Free Fund may also require insurance when, in the opinion of the Fund's investment adviser, such insurance would benefit the Fund (for example, through improvement of portfolio quality or increased liquidity of certain securities). The purpose of municipal bond insurance is to guarantee the timely payment of principal at maturity and interest. Securities in the Evergreen High Grade Tax Free Fund's portfolio may be insured in one of two ways: (1) by a policy applicable to a specific security, obtained by the issuer of the security or by a third party ("Issuer-Obtained Insurance") or (2) under master insurance policies issued by municipal bond insurers, purchased by the Fund (the "Policies"). If a security's coverage is Issuer-Obtained, then that security does not need to be covered in the Policies. The Fund may purchase Policies from Municipal Bond Investors Assurance Corp., AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more detailed description of these insurers may be found in the Statement of Additional Information. Annual premiums for these Policies are paid by the Fund and are estimated to range from 0.10% to 0.25% of the value of the municipal securities covered under the Policies, with an average annual premium rate of approximately 0.175%. While the insurance feature reduces financial risk, the cost thereof and the restrictions on investments imposed by the guidelines in the Policies reduce the yield to shareholders. Floating Rate and Variable Rate Obligations. Municipal Securities also include certain variable rate and floating rate municipal obligations with or without demand features. These variable rate securities do not have fixed interest rates; rather, those rates fluctuate based upon changes in specified market rates, such as the prime rate, or are adjusted at predesignated periodic intervals. Certain of these obligations may carry a demand feature that gives the Funds the right to demand prepayment of the principal amount of the security prior to its maturity date. The demand obligation may or may not be backed by letters of credit or other guarantees of banks or other financial institutions. Such guarantees may enhance the quality of the security. The Funds will limit the value of their investments in any floating or variable rate securities which are not readily marketable to 10% or less of their total assets. When-Issued Securities. The Funds may purchase securities on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). A Fund generally would not pay for such securities or start earning interest on them until they are received. However, when a Fund purchases securities on a when-issued basis, it assumes the risks of ownership at the time of purchase, not at the time of receipt. Failure of the issuer to deliver a security purchased by a Fund on a when-issued basis may result in the Fund incurring a loss or missing an opportunity to make an alternative investment. Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund do not expect that commitments to purchase when-issued securities will normally exceed 25% of their total assets and Evergreen High Grade Tax Free Fund does not expect that such commitments will exceed 20% of its assets. The Funds do not intend to purchase when-issued securities for speculative purposes but only in furtherance of their investment objective. Stand-by Commitments. The Funds may also acquire "stand-by commitments" with respect to Municipal Securities held in their portfolio. Under a stand-by commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal Securities at a specified price. Failure of the dealer to purchase such Municipal Securities may result in a Fund incurring a loss or missing an opportunity to make an alternative investment. Each Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, a Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in each Fund's portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Funds will maintain cash or liquid high grade debt obligations in a segregated account with its custodian in an amount equal to such commitments. The Funds will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Fund's investment adviser, present minimal credit risks. Taxable Investments. Evergreen High Grade Tax Free Fund and Evergreen Short-Intermediate Municipal Fund-California may temporarily invest up to 20% of their assets in taxable securities, and Evergreen Short-Intermediate Municipal Fund may temporarily invest its assets so that not more than 20% of its annual interest income will be derived from taxable securities, under any one or more of the following circumstances: (a) pending investment of proceeds of sale of Fund shares or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) to maintain liquidity for the purpose of meeting anticipated redemptions. In addition, each such Fund may temporarily invest more than 20% of its total assets in taxable securities for defensive purposes. Each Fund may invest for defensive purposes during periods when each Fund's assets available for investment exceed the available Municipal Securities that meet each Fund's quality and other investment criteria. Taxable securities in which the Funds may invest on a short-term basis include obligations of the United States Government, its agencies or instrumentalities, including repurchase agreements with banks or securities dealers involving such securities; time deposits maturing in not more than seven days; other debt securities rated within the two highest ratings assigned by any major rating service; commercial paper rated in the highest grade by Moody's, S&P or any SRO; and certificates of deposit issued by United States branches of United States banks with assets of $1 billion or more. Repurchase Agreements. The Funds may enter into repurchase agreements with member banks of the Federal Reserve System, including State Street Bank and Trust Company, the Funds' custodian ("State Street" or the "Custodian"), or "primary dealers" (as designated by the Federal Reserve Bank of New York) in United States Government securities. A repurchase agreement is an arrangement pursuant to which a buyer purchases a security and simultaneously agrees to resell it to the vendor at a price that results in an agreed-upon market rate of return which is effective for the period of time (which is normally one to seven days, but may be longer) the buyer's money is invested in the security. The arrangement results in a fixed rate of return that is not subject to market fluctuations during a Fund's holding period. Each Fund requires continued maintenance of collateral with its Custodian in an amount equal to, or in excess of, the market value of the securities, including accrued interest, which are the subject of a repurchase agreement. In the event a vendor defaults on its repurchase obligation, the Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a Fund might be delayed in selling the collateral. Each Fund's investment adviser will review and continually monitor the creditworthiness of each institution with which a Fund enters into a repurchase agreement to evaluate these risks. Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund may not enter into repurchase agreements if, as a result, more than 10% of either Fund's net assets would be invested in repurchase agreements maturing in more than seven days and Evergreen High Grade Tax Free Fund may not so invest more than 15% of its net assets. Illiquid Securities. The Funds may invest up to 15% of their net assets in illiquid securities and other securities which are not readily marketable, except that Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund may only invest up to 10% of their assets in repurchase agreements with maturities longer than seven days. In the case of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Fund's investment adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. Evergreen High Grade Tax Free Fund may invest up to 10% of its assets in securities subject to restrictions on resale under the federal securities laws. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by each Fund's investment adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Other Investment Policies. The Funds may borrow funds and agree to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed upon date and price (a "reverse repurchase agreement") for temporary or emergency purposes. In the case of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund borrowings may be in amounts up to 10% of the value of each Fund's total assets at the time of such borrowing. Evergreen High Grade Tax Free Fund may borrow in amounts up to one-third of its net assets. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account cash, United States Government securities or liquid high grade debt obligations having a value equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the repurchase price of those securities. Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California will not enter into reverse repurchase agreements exceeding 5% of the value of its total assets and will not purchase any securities whenever any borrowings (including reverse repurchase agreements) are outstanding. In order to generate income and to offset expenses, the Funds may lend portfolio securities to brokers, dealers and other financial organizations. Each Fund's investment adviser will monitor the creditworthiness of such borrowers. Loans of securities by a Fund, if and when made, may not exceed 30% of each Fund's total assets, or in the case of Evergreen High Grade Tax Free Fund 15%, and will be collateralized by cash, letters of credit or U.S. government securities that are maintained at all times in an amount equal to at least 100 percent of the current market value of the loaned securities, including accrued interest. While such securities are on loan, the borrower will pay a Fund any income accruing thereon, and the Fund may invest the cash collateral, thereby increasing its return. A Fund will have the right to call any such loan and obtain the securities loaned at any time on five days' notice. Any gain or loss in the market price of the loaned securities which occurs during the term of the loan would affect a Fund and its investors. A Fund may pay reasonable fees in connection with such loans. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISERS The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees").. Evergreen Asset Management Corp. ("Evergreen Asset") has been retained by Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California as investment adviser. Evergreen Asset succeeded on June 30, 1994 to the advisory business of the same name, but under different ownership, which was organized in 1971. Evergreen Asset, with its predecessors, has served as investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National Bank of North Carolina ("FUNB"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and the former general partners of Lieber & Company, which, as described below, provides certain subadvisory services to Evergreen Asset in connection with its duties as investment adviser to the Funds. The Capital Management Group of FUNB ("CMG") serves as investment adviser to Evergreen High Grade Tax Free Fund. First Union is a bank holding company headquartered in Charlotte, North Carolina, and had $77.9 billion in consolidated assets as of March 31, 1995. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. Evergreen Asset manages investments, provides various administrative services and supervises the daily business affairs of Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California, subject to the authority of the Trustees. Under its investment advisory agreement with Evergreen Short-Intermediate Municipal Fund-California Evergreen Asset is entitled to receive an annual fee equal to .55 of 1% of the Fund's average daily net assets. Under its investment advisory agreement with Evergreen Short-Intermediate Municipal Fund, Evergreen Asset is entitled to receive an annual fee equal to .50 of 1% of each Fund's average daily net assets. The total expense ratios of Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California for the fiscal period ended August 31, 1994, are set forth in the section entitled "Financial Highlights". CMG manages investments and supervises the daily business affairs of Evergreen High Grade Tax Free Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of Evergreen High Grade Tax Free Fund. The total expense ratios of Evergreen High Grade Tax Free Fund for the fiscal period ended December 31, 1994, are set forth in the section entitled "Financial Highlights". Evergreen Asset serves as administrator to Evergreen High Grade Tax Free Fund and is entitled to receive a fee based on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator to Evergreen High Grade Tax Free Fund and is entitled to receive a fee from the Fund calculated on the average daily net assets of the Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. The portfolio manager of Evergreen High Grade Tax Free Fund is James T. Colby, III. Mr. Colby is a Vice President of CMG and has been associated with Evergreen Asset and its predecessor since 1992. He has served as portfolio manager of the Fund since June, 1995 and, since that fund's inception in 1992, was portfolio manager of Evergreen National Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995. Prior to joining Evergreen Asset, Mr. Colby served as Vice President-Investments at American Express Company from 1987 to 1992. The portfolio manager for Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund is Steven C. Shachat. Mr. Shachat has been associated with Evergreen Asset and its predecessor since prior to 1989 and has served as portfolio manager of these Funds since their inception. SUB-ADVISER Evergreen Asset has entered into sub-advisory agreements with Lieber & Company which provides that Lieber & Company's research department and staff will furnish Evergreen Asset with information, investment recommendations, advice and assistance, and will be generally available for consultation on the portfolios of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection with the rendering of services on the basis of the direct and indirect costs of performing such services. There is no additional charge to Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund for the services provided by Lieber & Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First Union. - -------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - -------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as a Fund's Trustees believe would accurately reflect fair market value. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. Shares of each Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of a Fund at the net asset value per share on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES Income dividends are declared daily and paid monthly. Distributions of any net realized gains of a Fund will be made at least annually. Shareholders will begin to earn dividends on the first business day after shares are purchased unless shares were not paid for, in which case dividends are not earned until the next business day after payment is received. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Internal Revenue Code (the "Code"). While so qualified, so long as each Fund distributes all of its investment company taxable income and any net realized gains to shareholders, it is expected that the Funds will not be required to pay any Federal income taxes. A 4% nondeductible excise tax will be imposed on a Fund if it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The Funds will designate and pay exempt-interest dividends derived from interest earned on qualifying tax-exempt obligations. Such exempt-interest dividends may be excluded by shareholders of a Fund from their gross income for Federal income tax purposes, however (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of the "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income and long-term capital gain distributions are taxable as long-term capital gains, even though received in additional shares of the Fund, and regardless of the investors holding period relating to the shares with respect to which such gains are distributed. Market discount recognized on taxable and tax-exempt bonds is taxable as ordinary income, not as excludable income. Under current law, the highest Federal income tax rate applicable to net long-term gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since each Fund's gross income is ordinarily expected to be tax exempt interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gains distributions (if any) and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, each investor must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. For Evergreen Short-Intermediate Municipal Fund-California, so long as the Fund remains qualified under Subchapter M of the Code for federal purposes and qualified as a diversified management investment company, then under current California law, the Fund is entitled to pass through to its shareholders the tax-exempt income it earns. To the extent that Fund dividends are derived from earnings on California Municipal Securities, such dividends will be exempt from California personal income taxes when received by the Fund's shareholders, provided the Fund has complied with the requirement that at least 50% of its assets be invested in California Municipal Securities. For California income tax purposes, long-term capital gains distributions are taxable as ordinary income. Statements describing the tax status of shareholders' dividends and distributions will be mailed annually by the Funds. These statements will set forth the amount of income exempt from Federal and, if applicable, state taxation (including California), and the amount, if any, subject to Federal and state taxation. Moreover, to the extent necessary, these statements will indicate the amount of exempt-interest dividends which are a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes. The exemption of interest income for Federal income tax purposes does not necessarily result in exemption under the income or other tax law of any state or local taxing authority. Investors should consult their own tax advisers about the status of distributions from the Funds in their states and localities. Each Fund notifies shareholders annually as to the interest exempt from Federal taxes earned by the Fund. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Short-Intermediate Municipal Fund-California and Evergreen Short-Intermediate Municipal Fund for their most recent fiscal year is set forth below. A similar discussion relating to Evergreen High Grade Municipal Fund is contained in the annual report of such Fund for the fiscal year ended December 31, 1994. Evergreen Short-Intermediate Municipal Fund. The Fund's total return for the fiscal year ending August 31, 1994 was +1.42%, versus the Lehman Brothers 3-Year Municipal Bond Index, which rose + 2.38%, and the Lehman Brothers 5-Year Municipal Bond Index, which increased + 2.01%. As the economy picked up momentum and the Federal Reserve started tightening, interest rates in the fixed-income markets climbed in every maturity range. As a result, the Fund moved to a more defensive position during the last half of the fiscal year in order to moderate price volatility. The Fund's investment adviser reduced the Fund's weighted average maturities and durations, and adjusted the holdings by selling securities most sensitive to price declines in a rising environment such as bonds trading at a discount. Proceeds were reinvested in premium-based, high quality bonds. The strategy of the Fund as of August 31, 1994 was to remain relatively short in the one to three-year range as we look to purchase investment grade, non-callable bonds. [CHART] Evergreen Short-Intermediate Municipal Fund - California. The Fund's total return for the fiscal year ending August 31, 1994 was 1.84%, versus the Lehman Brothers 3-Year California Municipal Bond Index, which rose +2.38% and the Lehman Brothers California Municipal Bond Index, which increased + 2.21%. As the economy picked up momentum and the Federal Reserve started tightening, interest rates in the fixed-income markets climbed in every maturity range. As a result, the Fund moved to a more defensive position during the last half of the fiscal year in order to moderate price volatility. The investment adviser reduced the Fund's weighted average maturities and durations, and adjusted the holdings by selling securities most sensitive to price declines in a rising environment such as bonds trading at a discount. Proceeds were reinvested in premium-based, high quality bonds. The strategy of the Fund strategy as of August 31, 1994, is to remain relatively short in the one to three-year range as we look to purchase investment grade, non callable bonds. [CHART] GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund - California are separate investment series of Evergreen Municipal Trust, a Massachusetts business trust organized in 1988. Evergreen High Grade Tax Free Fund is a separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Directors, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to Evergreen High Grade Tax Free Fund and which provides certain sub-administrative services to Evergreen Asset in connection with its role as investment adviser to Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund - California, including providing personnel to serve as officers of the Funds. Other Classes of Shares. Each Fund currently offers three classes of shares, Class A, Class B and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen mutual funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. A Fund's performance may be quoted in advertising in terms of yield or total return. Both types of performance are based on Securities and Exchange Commission ("SEC") formulas and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of the Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the income reported in a Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on a Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. A Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated Federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all a Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in a Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc., Morningstar and other industry publications. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. APPENDIX -- CALIFORNIA RISK CONSIDERATIONS The following information as to certain California risk factors is given to investors in view of the policy of Evergreen Short-Intermediate Municipal Fund-California of investing primarily in California state and municipal issuers. The information is based primarily upon information derived from public documents relating to securities offerings of California state and municipal issuers, from independent municipal credit reports and historically reliable sources but has not been independently verified by the Fund. Changes in California constitutional and other laws during the last several years have raised questions about the ability of California state and municipal issuers to obtain sufficient revenue to pay their bond obligations. In 1978, California voters approved an amendment to the California Constitution known as Proposition 13. Proposition 13 limits ad valorem taxes on real property and restricts the ability of taxing entities to increase real property taxes. Legislation passed subsequent to Proposition 13, however, provided for the redistribution of California's General Fund surplus to local agencies, the reallocation of revenues to local agencies, and the assumption of certain local obligations by the state so as to help California municipal issuers to raise revenue to pay their bond obligations. It is unknown, however, whether additional revenue redistribution legislation will be enacted in the future and whether, if enacted, such legislation would provide sufficient revenue for such California issuers to pay their obligations. The state is also subject to another constitutional amendment, Article XIIIB, which may have an adverse impact on California state and municipal issuers. Article XIIIB restricts the state from spending certain appropriations in excess of an appropriations limit imposed for each state and local government entity. If revenues exceed such appropriations limit, such revenues must be returned either as revisions in the tax rates or fee schedules. Because of the uncertain impact of the aforementioned statutes and cases, the possible inconsistencies in the respective terms of the statutes and the impossibility of predicting the level of future appropriations and applicability of related statutes to such questions, it is not currently possible to assess the impact of such legislation, cases and policies on the long-term ability of California state and municipal issuers to pay interest or repay principal on their obligations. California's economy is larger than many sovereign nations. During the 1980s, California experienced growth rates well in excess of the rest of the nation. The state's major employment sectors are services, trade, and manufacturing. Industrial concentration is in electronics, aerospace, and non-electrical equipment. Also significant are agriculture and oil production. Key sectors of California's economy have been severely affected by the recession. Since May of 1990, job losses total over 850,000. Declines in the aerospace and high technology sectors have been especially severe. The continuing drive in population and labor force growth has produced higher unemployment rates in the state. Although total job loss has declined, weakness continues in key areas of California's economy, including government, real estate and aerospace. Wealth levels still remain high in the state, although the difference between state and national levels continues to narrow. In July of 1994, both S&P and Moody's lowered the general obligation bond ratings of the state of California. These revisions reflect the state's heavy reliance on the short-term note market to finance its cash imbalance and the likelihood that this exposure will persist for at least another two years. For more information on these ratings revisions and the state's current budget, please refer to the Statement of Additional Information. Orange County Bankruptcy. On December 6, 1994, Orange County, California, petitioned for bankruptcy based on losses in the Orange County Investment Fund which at the time were estimated to be approximately $2 billion. At the time of the petition, the Orange County Investment Fund held monies belonging to Orange County as well as other municipal issuers located in Orange County and other parts of California. Although the ultimate resolution of this matter is uncertain, one possible result is that the ability of municipal issuers investing in the Orange County Investment Fund to service some or all of their outstanding debt obligations may be severely impaired. As of December 6, 1994, Evergreen Short-Intermediate Municipal Fund - California did not hold debt obligations of Orange County or other issuers that the Fund is aware had invested in the Orange County Investment Fund. Although it has no current intention to do so, if it deems it advisable, the Fund reserves the right from time to time to make investments in municipal issuers who maintain assets in the Orange County Investment Fund. INVESTMENT ADVISER Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA Capital Mangement Group of First Union Bank, 201 South College Street, Charlotte, North Carolina 28288 EVERGREEN HIGH GRADE TAX FREE FUND CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN HIGH GRADE TAX FREE FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 PROSPECTUS July 7, 1995 EVERGREEN(SM) STATE SPECIFIC TAX FREE FUNDS (Evergreen Logo appears here) EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND EVERGREEN VIRGINIA MUNICIPAL BOND FUND EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND CLASS A SHARES CLASS B SHARES The Evergreen State Specific Tax-Free Funds (the "Funds") are designed to provide investors with current income exempt from Federal income tax and certain state income tax. This Prospectus provides information regarding the Class A and Class B shares offered by the Funds. Each Fund is, or is a series of, an open-end, non-diversified, management investment company except for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND which is diversified. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 807-2940. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND WILL INVEST AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES CONSISTING OF HIGH YIELD (I.E., HIGH RISK), MEDIUM, LOWER RATED AND UNRATED BONDS. SUCH SECURITIES ARE COMMONLY CALLED JUNK BONDS AND ARE SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER RATED SECURITIES, LOWER QUALITY SECURITIES INVOLVE A GREATER RISK OF DEFAULT AND, CONSEQUENTLY, SHARES OF THE EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND ARE SPECULATIVE SECURITIES. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS 2 EXPENSE INFORMATION 3 FINANCIAL HIGHLIGHTS 6 DESCRIPTION OF THE FUNDS Investment Objectives and Policies 12 Investment Practices and Restrictions 14 MANAGEMENT OF THE FUNDS Investment Adviser 18 Distribution Plans and Agreements 19 PURCHASE AND REDEMPTION OF SHARES How to Buy Shares 20 How to Redeem Shares 22 Exchange Privilege 23 Shareholder Services 24 Effect of Banking Laws 24 OTHER INFORMATION Dividends, Distributions and Taxes 25 Management's Discussion of Fund Performance 26 General Information 27 APPENDIX Florida Risk Considerations 29
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Capital Management Group of First Union National Bank ("CMG") serves as investment adviser to Evergreen State Specific Tax Free Funds which include: EVERGREEN FLORIDA MUNICIPAL BOND FUND, EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN VIRGINIA MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND. First Union National Bank of North Carolina ("FUNB"), is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. EVERGREEN FLORIDA MUNICIPAL BOND FUND (formerly First Union Florida Municipal Bond Portfolio, successor to ABT Florida Tax-Free Fund) seeks current income exempt from federal income tax consistent with preservation of capital. In addition, the Fund intends to qualify as an investment exempt from the Florida state intangibles tax. EVERGREEN GEORGIA MUNICIPAL BOND FUND (formerly First Union Georgia Municipal Bond Portfolio) seeks current income exempt from federal income tax and Georgia state income tax, consistent with preservation of capital. EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND (formerly First Union North Carolina Municipal Bond Portfolio) seeks current income exempt from federal income tax and North Carolina state income tax, consistent with preservation of capital. In addition, the Fund intends to qualify as an investment substantially exempt from the North Carolina intangible personal property tax. EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (formerly First Union South Carolina Municipal Bond Portfolio seeks current income exempt from federal income tax and South Carolina state income tax. EVERGREEN VIRGINIA MUNICIPAL BOND FUND (formerly First Union Virginia Municipal Bond Portfolio) seeks current income exempt from federal income tax and Virginia state income tax, consistent with preservation of capital. EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (successor to ABT Florida High Income Municipal Bond Fund) seeks to provide a high level of current income exempt from federal income tax. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in municipal securities consisting of high yield (i.e., high risk), medium, lower rated and unrated bonds. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in Class A and Class B Shares of a Fund. For further information see "Purchase and Redemption of Fund Shares" and "General Information -- Other Classes of Shares".
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Maximum Sales Charge Imposed on Purchases 4.75% None (as a % of offering price) Sales Charge on Dividend Reinvestments None None Contingent Deferred Sales Charge (as a % of original purchase None 5% during the first year, 4% during the price or redemption proceeds, whichever is lower) second year, 3% during the third and fourth years, 2% during the fifth year, 1% during the sixth and seventh years and 0% after the seventh year Redemption Fee None None Exchange Fee None None
The following tables show for each Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to each Class of Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment in each Class for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period and, additionally for Class B shares, no redemption at the end of each period. In the following examples (i) the expenses for Class A Shares assume deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the expenses for Class B Shares assume deduction at the time of redemption (if applicable) of the maximum contingent deferred sales charge applicable for that time period, and (iii) the expenses for Class B Shares reflect the conversion to Class A Shares eight years after purchase (years eight through ten, therefore, reflect Class A expenses).
EVERGREEN FLORIDA MUNICIPAL BOND FUND(A) EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES** at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .30% .30% After 1 Year $ 53 $ 65 $ 15 Administrative Fees .06% .06% After 3 Years $ 66 $ 76 $ 46 12b-1 Fees* .15% .75% After 5 Years $ 80 $ 100 $ 80 Shareholder Service Fees -- .25% After 10 Years $ 120 $ 140 $140 Other Expenses .10% .10% Total .61% 1.46%
EVERGREEN GEORGIA MUNICIPAL BOND FUND EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 60 $ 70 $ 20 Administrative Fees .06% .06% After 3 Years $ 85 $ 93 $ 63 12b-1 Fees* .25% .75% After 5 Years $ 113 $ 128 $108 Shareholder Service Fees -- .25% After 10 Years $ 191 $ 204 $204 Other Expenses*** .44% .44% Total 1.25% 2.00%
3
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 59 $ 70 $ 20 Administrative Fees .06% .06% After 3 Years $ 83 $ 90 $ 60 12b-1 Fees* .25% .75% After 5 Years $ 109 $ 124 $104 Shareholder Service Fees -- .25% After 10 Years $ 183 $ 196 $196 Other Expenses .36% .36% Total 1.17% 1.92%
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 60 $ 70 $ 20 Administrative Fees .06% .06% After 3 Years $ 85 $ 93 $ 63 12b-1 Fees* .25% .75% After 5 Years $ 113 $ 128 $108 Shareholder Service Fees -- .25% After 10 Years $ 191 $ 204 $204 Other Expenses*** .44% .44% Total 1.25% 2.00%
EVERGREEN VIRGINIA MUNICIPAL BOND FUND EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees .50% .50% After 1 Year $ 60 $ 70 $ 20 Administrative Fees .06% .06% After 3 Years $ 85 $ 93 $ 63 12b-1 Fees* .25% .75% After 5 Years $ 113 $ 128 $108 Shareholder Service Fees -- .25% After 10 Years $ 191 $ 204 $204 Other Expenses*** .44% .44% Total 1.25% 2.00%
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (B) EXAMPLES Assuming Assuming ANNUAL OPERATING Redemption no EXPENSES at End of Period Redemption Class A Class B Class A Class B Class B Advisory Fees** .30% .30% After 1 Year $ 55 $ 66 $ 16 Administrative Fees .06% .06% After 3 Years $ 72 $ 80 $ 50 12b-1 Fees* .25% 1.00% After 5 Years $ 91 $ 106 $ 86 Other Expenses .21% .21% After 10 Years $ 144 $ 157 $157 Total .82% 1.57%
(a) Estimated annual operating expenses reflect the combination of FIRST UNION FLORIDA MUNICIPAL BOND FUND and ABT Florida Tax-Fee Fund. (b) Estimated annual operating expenses reflect the combination of EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND and ABT Florida High Income Municipal Bond Fund. The amounts in the tables and examples are based on the experience of ABT Florida High Income Municipal Bond Fund as restated to reflect current fee arrangements. *Class A Shares can pay up to .75 of 1% of average annual net assets as a 12b-1 Fee. For the forseeable future, the Class A Shares 12b-1 Fees will be limited to .25 of 1% of average annual net assets. For Class B Shares of EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND, a portion of the 12b-1 Fees equivalent to .25 of 1% of average annual assets will be shareholder servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1% of average annual assets as permitted under the rules of the National Association of Securities Dealers, Inc. **EVERGREEN FLORIDA MUNICIPAL BOND FUND will not pay 12b-1 Fees to the extent that the effect of such payment would be to cause the Fund's ratio of expenses to average net assets for Class A Shares to exceed .61 of 1%. 4 CMG has agreed to limit the Advisory Fee charged to EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND to .30 of 1% of average net assets for a period of at least one year. From time to time each fund's adviser may, at its discretion, reduce or waive its fees or reimburse these Funds for certain of their other expenses in order to reduce their expense ratios. Each fund's adviser may cease these voluntary waivers and reimbursements at any time. The estimated annual operating expenses and examples do not reflect fee waivers and expense reimbursements for the most recent fiscal year. Actual expenses for Class A and B Shares net of fee waivers and expense reimbursements for the year ended December 31, 1994 or April 30, 1995 as applicable were as follows:
CLASS A CLASS B EVERGREEN FLORIDA MUNICIPAL BOND FUND .61% N/A EVERGREEN GEORGIA MUNICIPAL BOND FUND .53% 1.13% EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND .79% 1.37% EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND .25% .87% EVERGREEN VIRGINIA MUNICIPAL BOND FUND .53% 1.12% EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND .60% N/A
***Reflects agreements by CMG to limit aggregate operating expenses (including the Advisory Fees, but excluding interest, taxes, brokerage commissions, Rule 12b-1 Fees, shareholder servicing fees and extraordinary expenses) of EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND to 1% of average net assets for the foreseeable future. Absent such agreements, the estimated annual operating expenses for the Funds would be as follows:
CLASS A CLASS B EVERGREEN GEORGIA MUNICIPAL BOND FUND 1.78% 2.53% EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND 4.91% 5.66% EVERGREEN VIRGINIA MUNICIPAL BOND FUND 2.25% 3.00%
The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for its most recent fiscal period. Such expenses have been restated to reflect current fee arrangements and in the case of Funds that did not offer all of the above-referenced Classes of shares during such periods, the amounts set forth in the tables are based on the expenses incurred by the Classes which were offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds." As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 5 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the fund if shorter for EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors for EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND has been audited by Tait, Weller & Baker, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Tait, Weller & Baker as the case may be, on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS A SHARES*
MAY 11, 1988** THROUGH YEAR ENDED APRIL 30, APRIL 30, 1995 1994 1993 1992 1991 1990 1989 PER SHARE DATA Net asset value, beginning of period......... $10.79 $11.27 $10.59 $10.43 $9.97 $10.30 $10.00 Income from investment operations: Net investment income........................ .61 .63 .63 .69 .74 .66 .53 Net realized and unrealized gain (loss) on investments................................ .12 (.40) .76 .25 .49 (.28) .25 Total from investment operations........... .73 .23 1.39 .94 1.23 .38 .78 Less distributions to shareholders from: Net investment income........................ (.61) (.63) (.63) (.69) (.77) (.67) (.48) Net realized gains........................... (.02) (.08) (.08) (.05) -- (.04) -- Paid-in capital.............................. -- -- -- (.04) -- -- -- Total distributions........................ (.63) (.71) (.71) (.78) (.77) (.71) (.48) Net asset value, end of period............. $10.89 $10.79 $11.27 $10.59 $10.43 $9.97 $10.30 TOTAL RETURN+................................ 2.0% 1.9% 13.6% 9.3% 12.9% 3.7% 9.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $168,542 $199,612 $198,286 $147,996 $75,791 $7,286 $717 Ratios to average net assets: Expenses................................... .61% .56% .58% .41%(a) .10%(a) .10%(a) .30%(a)++ Net investment income...................... 5.73% 5.37% 5.66% 6.12%(a) 6.55%(a) 6.15%(a) 5.30%(a)++ Portfolio turnover rate...................... 53% 32% 24% 24% 66% 82% 2%
* The information in the table above reflects the operating history of ABT Florida Tax Free Fund, the predecessor to EVEGREEN FLORIDA MUNICIPAL BOND FUND, for the periods indicated. ** Commencement of operations. + Total return is calculated on net asset value and is not annualized. Initial sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
MAY 11, 1988 YEAR ENDED APRIL 30, THROUGH 1992 1991 1990 APRIL 30, 1989 Expenses.................................................... .68% .88% 5.14% 20.40% Net investment income (loss)................................ 5.85% 5.77% 1.01% (14.80%)
6 EVERGREEN GEORGIA MUNICIPAL BOND FUND -- CLASS A, B, AND Y SHARES
CLASS A SHARES CLASS B SHARES CLASS Y JULY 2, JULY 2, SHARES 1993* 1993* FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period......... $10.19 $10.00 $10.19 $10.00 $9.83 Income (loss) from investment operations..... Net investment income........................ .48 .20 .43 .18 .42 Net realized and unrealized gain (loss) on investments................................ (1.45) .19 (1.45) .19 (1.09) Total from investment operations........... (.97) .39 (1.02) .37 (.67) Less distributions to shareholders from: Net investment income........................ (.48) (.20) (.43) (.18) (.42) Net asset value, end of period............... $8.74 $10.19 $8.74 $10.19 $8.74 TOTAL RETURN+................................ (9.6%) 4.0% (10.2%) 3.7% (6.9%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $1,387 $817 $6,912 $3,692 $284 Ratios to average net assets: Expenses (a)............................... .53% .25%++ 1.13% .75%++ .31%++ Net investment income (a).................. 5.26% 4.71%++ 4.66% 4.15%++ 5.68%++ Portfolio turnover rate...................... 147% 15% 147% 15% 147%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS Y CLASS A SHARES CLASS B SHARES SHARES JULY 2, 1993 JULY 2, 1993 FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expense................................... 3.61% 6.82% 4.21% 7.32% 3.39% Net investment income (loss).............. 2.18% (1.86%) 1.58% (2.42%) 2.60%
7 EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B SHARES SHARES Y SHARES JANUARY 11, JANUARY 11, FEBRUARY 28, YEAR ENDED 1993* THROUGH YEAR ENDED 1993* THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period........ $10.61 $10.00 $10.61 $10.00 $10.31 Income (loss) from investment operations: Net investment income....................... .49 .46 .44 .42 .43 Net realized and unrealized gain (loss) on investments............................... (1.45) .64 (1.45) .64 (1.15) Total from investment operations.......... (.96) 1.10 (.1.01) 1.06 (.72) Less distributions to shareholders from: Net investment income....................... (.49) (.46) (.44) (.42) (.43) Net realized gains.......................... -- (.03) -- (.03) -- Total distributions....................... (.49) (.49) (.44) (.45) (.43) Net asset value, end of period.............. $9.16 $10.61 $9.16 $10.61 $9.16 TOTAL RETURN+............................... (9.1%) 11.3% (9.6%) 10.8% (7.0%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)... $7,979 $12,739 $ 44,616 $45,168 $642 Ratios to average net assets: Expenses (a).............................. .79% .32%++ 1.37% .79%++ .59%++ Net investment income (a)................. 5.11% 4.91%++ 4.53% 4.47%++ 5.58%++ Portfolio turnover rate..................... 126% 57% 126% 57% 126%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund has borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS Y SHARES JANUARY 11, JANUARY 11, FEBRUARY 28, YEAR ENDED 1993 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expenses................................ 1.18% 1.25% 1.76% 1.74% .98% Net investment income................... 4.72% 3.98% 4.14% 3.52% 5.19%
8 EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JANUARY 3, JANUARY 3, FEBRUARY 28, 1994* THROUGH 1994* THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 PER SHARE DATA Net asset value, beginning of period......................................... $10.00 $10.00 $9.74 Income (loss) from investment operations: Net investment income........................................................ .46 .41 .43 Net realized and unrealized (loss) on investments............................ (1.38) (1.38) (1.12) Total from investment operations........................................... (.92) (.97) (.69) Less distributions to shareholders from: Net investment income........................................................ (.46) (.41) (.43) Net asset value, end of period............................................... $8.62 $8.62 $8.62 TOTAL RETURN+................................................................ (9.3%) (9.8%) (7.1%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................................... $312 $2,456 $92 Ratios to average net assets: Expenses (a)............................................................... .25%++ .87%++ .00%++ Net investment income (a).................................................. 5.57%++ 4.88%++ 5.92%++ Portfolio turnover rate...................................................... 23% 23% 23%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS Y SHARES JANUARY 3, JANUARY 3, FEBRUARY 28, 1994 1994 1994 THROUGH THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 Expenses............................................................... 10.71% 11.33% 10.46% Net investment income (loss)........................................... (4.89%) (5.58%) (4.54%)
9 EVERGREEN VIRGINIA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A SHARES CLASS B SHARES JULY 2, JULY 2, 1993* 1993* CLASS Y SHARES YEAR ENDED THROUGH YEAR ENDED THROUGH FEBRUARY 28, 1994* DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, THROUGH 1994 1993 1994 1993 DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period..... $10.19 $10.00 $10.19 $10.00 $9.83 Income (loss) from investment operations: Net investment income.................... .47 .20 .42 .17 .41 Net realized and unrealized gain (loss) on investments......................... (1.34) .19 (1.34) .19 (.98) Total from investment operations....... (.87) .39 (.92) .36 (.57) Less distributions to shareholders from: Net investment income.................... (.47) (.20) (.42) (.17) (.41) Net asset value, end of period........... $8.85 $10.19 $8.85 $10.19 $8.85 TOTAL RETURN+............................ (8.6%) 3.9% (9.1%) 3.7% (5.8%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $1,606 $1,306 $3,817 $2,235 $344 Ratios to average net assets: Expenses (a)........................... .53% .25%++ 1.12% .75%++ .28%++ Net investment income (a).............. 5.11% 4.64%++ 4.54% 4.25%++ 5.54%++ Portfolio turnover rate.................. 59% 0% 59% 0% 59%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS Y CLASS A SHARES CLASS B SHARES SHARES JULY 2, 1993 JULY 2, 1993 FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expenses.................................. 5.14% 7.75% 5.73% 8.25% 4.89% Net investment income (loss).............. .50% (2.86%) (.07%) (3.25%) .93%
10 EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND -- CLASS A SHARES*
YEAR ENDED JUNE 17, APRIL 30, 1992** THROUGH 1995 1994 APRIL 30, 1993 PER SHARE DATA Net asset value, beginning of period..................................................... $10.08 $10.36 $10.00 Income from investment operations: Net investment income.................................................................... .65 .68 .61 Net realized and unrealized gain (loss) on investments................................... .08 (.26) .39 Total from investment operations....................................................... .73 .42 1.00 Less distributions to shareholders from: Net investment income.................................................................... (.65) (.68) (.61) Net realized gains....................................................................... -- (.02) (.03) Total distributions.................................................................... (.65) (.70) (.64) Net asset value, end of period........................................................... $10.16 $10.08 $10.36 TOTAL RETURN+............................................................................ 7.6% 3.3% 11.9% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................................ $65,043 $72,683 $33,541 Ratios to average net assets: Expenses (a)........................................................................... .60% .14% .00++ Net investment income (a).............................................................. 6.52% 6.16% 5.92%++ Portfolio turnover rate.................................................................. 28% 31% 50%
* The information in the table above reflects the operating history of ABT Florida High Income Municipal Fund, the predecessor to EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND, for the periods indicated. ** Commencement of operations. + Total return is calculated on net asset value and is not annualized. Initial sales load is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED JUNE 17, 1992 APRIL 30, THROUGH 1995 1994 APRIL 30, 1993 Expenses.......................................................... 1.26% 1.12% 1.12% Net investment income............................................. 5.86% 5.18% 4.80%
11 12 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Florida Municipal Bond Fund Evergreen Georgia Municipal Bond Fund Evergreen North Carolina Municipal Bond Fund Evergreen South Carolina Municipal Bond Fund Evergreen Virginia Municipal Bond Fund The Funds seek current income exempt from federal regular income tax and, where applicable, state income taxes, consistent with preservation of capital. In addition, the Evergreen Florida Municipal Bond Fund intends to qualify as an investment exempt from the Florida state intangibles tax. Florida does not currently tax personal income. Each Fund's investment objective cannot be changed without shareholder approval. While there is no assurance that each objective will be achieved, the Funds will endeavor to do so by following the investment policies detailed below. Unless otherwise indicated, the investment policies of a Fund may be changed by the Trust's Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. As a matter of fundamental investment policy, which may not be changed without shareholder approval, each Fund will normally invest its assets so that at least 80% of its annual interest income is, or at least 80% of its net assets are invested in obligations which provide interest income which is exempt from federal regular income taxes. The interest retains its tax-free status when distributed to the Fund's shareholders. In addition, at least 65% of the value of each Fund's total assets will be invested in municipal bonds of the particular state after which the Fund is named. To qualify as an investment exempt from the Florida state intangibles tax, the Evergreen Florida Municipal Bond Fund's portfolio must consist entirely of investments exempt from the Florida state intangibles tax on the last business day of the calendar year. Each Fund seeks to achieve its investment objective by investing principally in municipal bonds, including industrial development bonds, of its designated state. In addition, the Funds may invest in obligations issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or their political subdivisions or agencies and instrumentalities, the interest from which is exempt from federal (regular, if applicable) income tax. It is likely that shareholders who are subject to the alternative minimum tax will be required to include interest from a portion of the municipal securities owned by a Fund in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. Municipal bonds are debt obligations issued by the state or local entities to support a government's general financial needs or special projects, such as housing projects or sewer works. Municipal bonds include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct or equip facilities for privately or publicly owned corporations. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Revenue bonds are paid off only with the revenue generated by the project financed by the bond or other specified sources of revenue. For example, in the case of a bridge project, proceeds from the tolls would go directly to retiring the bond issue. Thus, unlike general obligation bonds, revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. The municipal bonds in which the Funds will invest are subject to one or more of the following quality standards: rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P") or, if unrated, are determined by the Fund's investment adviser to be of comparable quality to such ratings; insured by a municipal bond insurance company which is rated Aa by Moody's or AA by S&P; guaranteed at the time of purchase by the U.S. government as to the payment of principal and interest; or fully collateralized by an escrow of U.S. government securities. Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered to be investment grade. If any security owned by a 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. If ratings made by Moody's or S&P change because of changes in those organizations or their ratings systems, the Funds will try to use comparable ratings as standards in accordance with the Funds' investment objectives. A description of the rating categories is contained in an Appendix to the Statement of Additional Information. The Funds may also invest in: participation interests in any of the above obligations. (Participation interests may be purchased from financial institutions such as commercial banks, savings and loan associations and insurance companies, and give a Fund an undivided interest in particular municipal securities); variable rate municipal securities. (Variable rate securities offer interest rates which are tied to a money market rate, usually a published interest rate or interest rate index or the 91-day U.S. Treasury bill rate. Many of these securities are subject to prepayment of principal on demand by the Fund, usually in seven days or less); and municipal leases issued by state and local governments or authorities to finance the acquisition of equipment and facilities. The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or non-profit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. Furthermore, a lease may provide that the certificate trustee cannot accelerate lease obligations upon default. The trustee would only be able to enforce lease payments as they become due. In the event of a default or failure of appropriation, it is unlikely that the trustee would be able to obtain an acceptable substitute source of payment or that the substitute source of payment would generate tax-exempt income. During periods when, in the Adviser's opinion, a temporary defensive position in the market is appropriate, a Fund may temporarily invest in short-term tax-exempt or taxable investments. These temporary investments include: notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; other debt securities; commercial paper; bank certificates of deposit; shares of other investment companies; and repurchase agreements. There are no rating requirements applicable to temporary investments. However, the Adviser will limit temporary investments to those it considers to be of comparable quality to the Fund's primary investments. Although the Funds are permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax, where applicable. However, certain temporary investments will generate income which is subject to state taxes. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Florida High Income Municipal Bond Fund Evergreen Florida High Income Municipal Bond Fund seeks to provide a high level of current income which is exempt from federal income taxes. The term "high-level" indicates that the Fund seeks to achieve an income level that exceeds that which an investor would expect from an investment grade portfolio with similar maturity characteristics. Evergreen Florida High Income Municipal Bond Fund invests primarily in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated municipal securities. To varying degrees, medium and lower rated municipal securities, as well as unrated municipal securities, are considered to have speculative characteristics and are subject to greater market fluctuations and risk of loss of income and principal than higher rated securities. To the extent that an investor realizes a yield in excess of that which could be expected from a fund which invests primarily in investment grade securities, the investor should expect to bear increased risk due to the fact that the risk of principal and/or interest not being repaid with respect to the high yield securities described above is significantly greater than that which exists in connection with investment grade securities. In assessing the risk involved in purchasing medium and lower rated and unrated securities, the Fund's investment adviser will use nationally recognized statistical rating organizations such as Moody's and S&P, and will also rely heavily on credit analysis it develops internally. Under normal circumstances, the Fund's dollar-weighted average maturity generally will be 15 years or more. However, the Fund may invest in securities of any maturity, and if the Fund's investment determines that market conditions warrant a shorter average maturity, the Fund's investments will be adjusted accordingly.. In pursuit of its investment objective, Evergreen Florida High Income Municipal Bond Fund will, under normal market conditions, invest at least 65% in such medium and lower rated municipal securities or unrated municipal securities of comparable quality to such rated municipal bonds. Investors should note that such a policy is not a fundamental policy of the Fund and shareholder approval is not necessary to change such policy. There is no assurance that Evergreen Florida High Income Municipal Bond Fund can achieve its investment objective. The Fund will not invest in municipal securities which are in default, i.e., securities rated D by S&P. Investments may also be made by Evergreen Florida High Income Municipal Bond Fund in higher quality municipal bonds and, for temporary defensive purposes, the Fund may invest less than 65% of its total assets in the medium and lower quality municipal securities described above. The Fund may assume a defensive position if, for example, yield spreads between lower grade and investment grade municipal bonds are narrow and the yields available on lower quality municipal securities do not justify the increased risk associated with an investment in such securities or when there is a lack of medium and lower quality issues in which to invest. Evergreen Florida High Income Municipal Bond Fund may also invest primarily in higher quality Municipal Obligations until its net assets reach a level that would permit the Fund to begin investing in medium and lower rated municipal bonds and at the same time maintain adequate diversification and liquidity. Investing in this manner may result in yields lower than those normally associated with a fund that invests primarily in medium and lower quality municipal securities. During the most recent fiscal year completed by Evergreen Florida High Income Municipal Bond Fund's predecessor, ended April 30, 1995, its holdings had the following average credit quality characteristics: Percent of Rating Net Assets Aaa or AAA 3.4% Aa or AA --- A 6.0 Baa or BBB 22.1 Ba or BB 1.5 Ba or BB 7.9 Non-rated 56.6 ----- Total 97.5% The Fund may purchase industrial development bonds only if the interest on such bonds is, in the opinion of bond counsel, exempt from federal income taxes. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Also, see the Statement of Additional Information for further information in regard to ratings. INVESTMENT PRACTICES AND RESTRICTIONS Risk Factors. Bond yields are dependent on several factors including market conditions, the size of an offering, the maturity of the bond, ratings of the bond and the ability of issuers to meet their obligations. There is no limit on the maturity of the bonds purchased by the Funds. Because the prices of bonds fluctuate inversely in relation to the direction of interest rates, the prices of longer term bonds fluctuate more widely in response to market interest rate changes. A Fund's concentration in securities issued by its designated state and that state's political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. An expanded discussion of the risks associated with the purchase of the designated state's municipal bonds is contained in the respective Statements of Additional Information. Although the Funds, other than Evergreen Florida High Income Municipal Bond Fund will not purchase securities rated below BBB by S&P or Baa by Moody's (i.e., junk bonds), the Funds are not required to dispose of securities that have been downgraded subsequent to their purchase. If the municipal obligations held by a Fund (because of adverse economic conditions in a particular state, for example) are downgraded, the Fund's concentration in securities of that state may cause the Fund to be subject to the risks inherent in holding material amounts of low-rated debt securities in its portfolio. As stated above, Evergreen Florida High Income Municipal Bond Fund invests primarily in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated securities. Additional risk factors relating to the investment by Evergreen Florida High Income Municipal Bond Fund in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated securities are discussed below. Portfolio Turnover. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects the transaction costs relating to the purchase and sale of securities which a Fund bears directly. A high rate of portfolio turnover will increase such costs. See the Statement of Additional Information for further information regarding the practices of the Funds affecting portfolio turnover. Non-Diversification. Each of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund is a non-diversified portfolio of an investment company and as such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in a Fund, therefore, will entail greater risk than would exist in a diversified investment company because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Each of the Funds intends to comply with Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") which requires that at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of the total assets may be invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security (usually U.S. government securities) for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Funds' risk is the inability of the seller to pay the agreed-upon price on the delivery date. However, this risk is tempered by the ability of the Funds to sell the security in the open market in the case of a default. In such a case, the Funds may incur costs in disposing of the security which would increase Fund expenses. The Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. The Funds may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Funds purchase securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Funds to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Funds may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the Adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Lending Of Portfolio Securities. In order to generate additional income, the Funds may lend their portfolio securities on a short-term or long-term basis to broker/dealers, banks, or other institutional borrowers of securities. The Funds will only enter into loan arrangements with creditworthy borrowers and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned. As a matter of fundamental investment policy which cannot be changed without shareholder approval, the Funds will not lend any of their assets except portfolio securities up to one-third of the value of their total assets. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Investing In Securities Of Other Investment Companies. Each Fund may invest in the securities of other investment companies. This is a short-term measure to invest cash which has not yet been invested in other portfolio instruments and is subject to the following limitations: (1) no Fund will own more than 3% of the total outstanding voting stock of any one investment company, (2) no Fund may invest more than 5% of its total assets in any one investment company and (3) no Fund may invest more than 10% of its total assets in investment companies in general. The Adviser will waive its investment advisory fee on assets invested in securities of other open end investment companies. Borrowing. As a matter of fundamental policy, which may not be changed without shareholder approval, the Funds may not borrow money except as a temporary measure to facilitate redemption requests which might otherwise require the untimely disposition of portfolio investments and for extraordinary or emergency purposes, provided that the aggregate amount of such borrowings shall not exceed one-third of the value of the total net assets at the time of such borrowing. Illiquid Securities. The Funds may invest up to 15% of their net assets in illiquid securities and other securities which are not readily marketable. Repurchase agreements with maturities longer than seven days will be included for the purpose of the foregoing 15% limit. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair a Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the Adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Unseasoned Issuers. The Funds will not invest more than 5% of the value of their total assets in securities of issuers (or guarantors, where applicable) which have records of less than three years of continuous operations, including the operation of any predecessor. Risk Factors Associated with Medium and Lower Rated and Unrated Municipal Obligations. Evergreen Florida High Income Municipal Bond Fund will invest in medium and lower rated or unrated municipal securities. The market for high yield, high risk debt securities rated in the medium and lower rating categories, or which are unrated, is relatively new and its growth has paralleled a long economic expansion. Past experience may not, therefore, provide an accurate indication of future performance of this market, particularly during periods of economic recession. An economic downturn or increase in interest rates is likely to have a greater negative effect on this market, the value of high yield debt securities in the Fund's portfolio, the Fund's net asset value and the ability of the bonds' issuers to repay principal and interest, meet projected business goals and obtain additional financing, than would be the case if investments by the Fund were limited to higher rated securities. These circumstances also may result in a higher incidence of defaults. Yields on medium or lower-rated municipal bonds may not fully reflect the higher risks of such bonds. Therefore, the risk of a decline in market value, should interest rates increase or credit quality concerns develop, may be higher than has historically been experienced with such investments. An investment in Evergreen Florida High Income Municipal Bond Fund may be considered more speculative than investment in shares of another fund which invests primarily in higher rated debt securities. Prices of high yield debt securities may be more sensitive to adverse economic changes or corporate developments than higher rated investments. Debt securities with longer maturities, which may have higher yields, may increase or decrease in value more than debt securities with shorter maturities. Market prices of high yield debt securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and may be more volatile than securities which pay interest periodically and in cash. Where Evergreen Florida High Income Municipal Bond Fund deems it appropriate and in the best interests of its shareholders, it may incur additional expenses to seek recovery on a debt security on which the issuer has defaulted and to pursue litigation to protect the interests of security holders of its portfolio entities. Because the market for medium or lower rated securities may be thinner and less active than the market for higher rated securities, there may be market price volatility for these securities and limited liquidity in the resale market. Unrated securities are usually not as attractive to as many buyers as are rated securities, a factor which may make unrated securities less marketable. These factors may have the effect of limiting the availability of the securities for purchase by Evergreen Florida High Income Municipal Bond Fund and may also limit the ability of the Fund to sell such securities at their fair value either to meet redemption requests or in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of medium or lower rated debt securities, especially in a thinly traded market. To the extent the Fund owns or may acquire illiquid or restricted high yield securities, these securities may involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Changes in values of debt securities which the Fund owns will affect the Fund's net asset value per share. If market quotations are not readily available for the Fund's lower rated or unrated securities, these securities will be valued by a method that the Trustees believes accurately reflects fair value. Valuation becomes more difficult and judgment plays a greater role in valuing high yield debt securities than with respect to securities for which more external sources of quotations and last sale information are available. Special tax considerations are associated with investing in high yield debt securities structured as zero coupon or pay-in-kind securities. A Fund investing in such securities accrues income on these securities prior to the receipt of cash payments. Evergreen Florida High Income Municipal Bond Fund must distribute substantially all of its income to shareholders to qualify for pass through treatment under the tax laws and may, therefore, have to dispose of portfolio securities to satisfy distribution requirements. While credit ratings are only one factor Evergreen Florida High Income Municipal Bond Fund's investment adviser relies on in evaluating high yield debt securities, certain risks are associated with using credit ratings. Credit ratings evaluate the safety of principal and interest payments, not market value risk. Credit rating agencies may fail to change in timely manner the credit ratings to reflect subsequent events; however, the Fund's investment adviser continuously monitors the issuers of high yield debt securities in the Fund's portfolio in an attempt to determine if the issuers will have sufficient cash flow and profits to meet required principal and interest payments. Achievement of Evergreen Florida High Income Municipal Bond Fund's investment objective may be more dependent upon the Fund's investment adviser and the credit analysis capability of the Fund's investment adviser, than is the case for higher quality debt securities. Credit ratings for individual securities may change from time to time and Evergreen Florida High Income Municipal Bond Fund may retain a portfolio security whose rating has been changed. See the Statement of Additional Information for a description of bond and note ratings. Transactions in Options and Futures. The Funds may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market or interest rate risk, and the Funds do not use these transactions for speculation or leverage. The Funds may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds also may write straddles (combinations of covered puts and calls on the same underlying security). The Funds may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option, the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities or index-based futures contracts in order to hedge against changes in interest rates or securities prices. A futures contract on securities is an agreement to buy or sell securities during a designated month at whatever price exists at that time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities declines and to fall when the value of such securities increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities increases and to fall when the value of such securities declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds' ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case it would continue to bear market risk on the transaction. Risk Characteristics Of Options And Futures. Although options and futures transactions are intended to enable the Funds to manage market or interest rate risks, these investment devices can be highly volatile, and the Funds' use of them can result in poorer performance (i.e., the Funds' return may be reduced). The Funds' attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contracts and options on financial futures contracts as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the Adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements, and other economic factors. Even if the Adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its investments. In these events, the Funds may lose money on the financial futures contracts or the options on financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the Adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds' ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISER The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). The Capital Management Group of First Union National Bank of North Carolina ("CMG") serves as investment adviser to Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund. First Union National Bank of North Carolina ("FUNB") is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $74.2 billion in consolidated assets as of September 30, 1994. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. CMG manages investments and supervises the daily business affairs of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund other than Evergreen Florida High Income Municipal Bond Fund, from which it is entitled to receive an annual fee equal to .60 of 1% of average daily net assets. The total annualized operating expenses of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund and the total annualized operating expenses of ABT Florida High Income Municipal Bond Fund, predecessor to Evergreen Florida High Income Municipal Bond Fund, for the most recent fiscal year are set forth in the section entitled "Financial Highlights". Evergreen Asset Management Corp. ("Evergreen Asset"), a subsidiary of FUNB, serves as administrator to each Fund and is entitled to receive a fee based on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator for each Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. Robert S. Drye is a Vice President of FUNB , and has been with FUNB since 1968. Since 1989, Mr. Drye has served as a portfolio manager for several of the series of Evergreen Investment Trust and for certain common trust funds. Prior to 1989, Mr. Drye worked as a marketing specialist with First Union Brokerage Services, Inc. Mr. Drye has managed the Evergreen South Carolina Municipal Bond Fund since its inception in January 1994. In addition, Mr. Drye has been the portfolio manager for the Evergreen Florida Municipal Bond Fund since its inception in July 1993. Richard K. Marrone is a Vice President of FUNB . Mr. Marrone joined FUNB in May 1993 with eleven years of experience managing fixed income assets at Woodbridge Capital Management, a subsidiary of Comerica Bank, N.A. Mr. Marrone is responsible for the portfolio management of several series of Evergreen Investment Trust and certain common trust funds. Mr. Marrone has served as portfolio manager of the Evergreen North Carolina Municipal Bond Fund since May 1993, and portfolio manager of the Evergreen Florida High Income Municipal Bond Fund and Evergreen Georgia Municipal Bond Fund since their inception in July 1995 and July 1993, respectively. Charles E. Jeanne joined FUNB, in July 1993. Prior to joining FUNB , Mr. Jeanne served as a trader/portfolio manager for First American Bank where he was responsible for individual accounts and common trust funds. Mr. Jeanne has been the portfolio manager for the Evergreen Virginia Municipal Bond Fund since its inception in 1993. DISTRIBUTION PLANS AND AGREEMENTS Rule 12b-1 under the Investment Company Act of 1940 permits an investment company to pay expenses associated with the distribution of its shares in accordance with a duly adopted plan. Each Fund has adopted for each of its Class A and Class B shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may incur distribution-related and shareholder servicing-related expenses which may not exceed an annual rate of .75 of 1% of the aggregate average daily net assets attributable to each Fund's Class A shares, 1.00% of the aggregate average daily net assets attributable to the Class B shares of Evergreen Florida High Income Municipal Fund, and .75 of 1% of the aggregate average daily net assets attributable to the Class B shares of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate average daily net assets attributable to Class A shares. The Plans provide that a portion of the fee payable thereunder may constitute a service fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund have, in addition to the Plans adopted with respect to their Class B shares, adopted a shareholder service plan ("Service Plans") relating to the Class B shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate average daily net assets attributable to the Class B shares for ongoing personal services and/or the maintenance of shareholder accounts. Such service fee payments to financial intermediaries for such purposes, whether pursuant to a Plan or Service Plans, will not to exceed .25% of the aggregate average daily net assets attributable to each Class of shares of each Fund. Each Fund has also entered into a distribution agreement (each a "Distribution Agreement" or collectively the "Distribution Agreements") with Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution Agreements, each Fund will compensate EFD for its services as distributor at a rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate average daily net assets attributable to Class A shares and .75 of 1% of a Fund's aggregate average daily net assets attributable to the Class B shares. The Distribution Agreements provide that EFD will use the distribution fee received from a Fund for payments (i) to compensate broker-dealers or other persons for distributing shares of the Funds, including interest and principal payments made in respect of amounts paid to broker-dealers or other persons that have been financed (EFD may assign its rights to receive compensation under the Plans to secure such financings), (ii) to otherwise promote the sale of shares of the Fund, and (iii) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders. The financing of payments made by EFD to compensate broker-dealers or other persons for distributing shares of the Funds may be provided by First Union or its affiliates. The Funds may also make payments under the Plans (and in the case of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund, the Service Plans), in amounts up to .25 of 1% of a Fund's aggregate average daily net assets on an annual basis attributable to Class B shares, to compensate organizations, which may include EFD and each Fund's investment adviser or their affiliates, for personal services rendered to shareholders and/or the maintenance of shareholder accounts. The Funds may not pay any distribution or services fees during any fiscal period in excess of the amounts set forth above. Since EFD's compensation under the Distribution Agreements is not directly tied to the expenses incurred by EFD, the amount of compensation received by it under the Distribution Agreements during any year may be more or less than its actual expenses and may result in a profit to EFD. Distribution expenses incurred by EFD in one fiscal year that exceed the level of compensation paid to EFD for that year may be paid from distribution fees received from a Fund in subsequent fiscal years. The Plans and Service Plans are in compliance with rules of the National Association of Securities Dealers, Inc. which effectively limit the annual asset-based sales charges and service fees that a mutual fund may pay on a class of shares to .75 of 1% and .25 of 1%, respectively, of the average annual net assets attributable to that class. The rules also limit the aggregate of all front-end, deferred and asset-based sales charges imposed with respect to a class of shares by a mutual fund that also charges a service fee to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES You can purchase shares of any of the Funds through broker-dealers, banks or other financial intermediaries, or directly through EFD. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investments of $25 or more are allowed under the systematic investment program. Share certificates are not issued for Class A and Class B shares. In states where EFD is not registered as a broker-dealer shares of a Fund will only be sold through other broker-dealers or other financial institutions that are registered. See the Share Purchase Application and Statement of Additional Information for more information. Only Class A and Class B shares are offered through this Prospectus (see "General Information" - "Other Classes of Shares"). Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A shares at net asset value plus an initial sales charge, as follows: Initial Sales Charge ------------------------ ----------------- --------------- ------------------ Commission to Dealer/Agent as a % of the Net as a % of the as a % of Amount of Purchase Amount Invested Offering Price Offering Price ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Less than $100,000 4.99% 4.75% 4.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $100,000 - $249,999 3.90% 3.75% 3.25% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $250,000 - $499,999 3.09% 3.00% 2.50% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $500,000 - $999,999 2.04% 2.00% 1.75% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ $1,000,000 - $2,499,999 1.01% 1.00% 1.00% ------------------------ ----------------- --------------- ------------------ ------------------------ ----------------- --------------- ------------------ Over $2,500,000 .25% .25% .25% ------------------------ ----------------- --------------- ------------------ No front-end sales charges are imposed on Class A shares purchased by: institutional investors, which may include bank trust departments and registered investment advisers; investment advisers, consultants or financial planners who place trades for their own accounts or the accounts of their clients and who charge such clients a management, consulting, advisory or other fee; clients of investment advisers or financial planners who place trades for their own accounts if the accounts are linked to the master account of such investment advisers or financial planners on the books of the broker-dealer through whom shares are purchased; institutional clients of broker-dealers, including retirement and deferred compensation plans and the trusts used to fund these plans, which place trades through an omnibus account maintained with a Fund by the broker-dealer; shareholders of record on October 12, 1990 in any series of Evergreen Investment Trust in existence on that date, and the members of their immediate families; employees of FUNB and its affiliates, EFD and any broker-dealer with whom EFD has entered into an agreement to sell shares of the Funds, and members of the immediate families of such employees; and upon the initial purchase of an Evergreen mutual fund by investors reinvesting the proceeds from a redemption within the preceeding thirty days of shares of other mutual funds, provided such shares were initially purchased with a front-end sales charge or subject to a CDSC. Certain broker-dealers or other financial institutions may impose a fee on transactions in shares of the Funds. When Class A shares are sold, EFD will normally retain a portion of the applicable sales charge and pay the balance to the broker-dealer or other financial intermediary through whom the sale was made. EFD may also pay fees to banks from sales charges for services performed on behalf of the bank's customers in connection with the purchase of shares of the Funds. In addition to compensation paid at the time of sale, entities whose clients have purchased Class A shares may receive a trailing commission equal to .25 of 1% of the aggregate average daily net assets attributable to Class A shares of each Fund held by their clients. Certain purchases of Class A shares may qualify for reduced sales charges in accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for Certain Retirement Plans and Reinstatement Privilege. Consult the Share Purchase Application and Statement of Additional Information for additional information concerning these reduced sales charges. Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B shares at net asset value without an initial sales charge. However, you may pay a contingent deferred sales charge ("CDSC") if you redeem shares within seven years after purchase. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. The amount of the CDSC (expressed as a percentage of the lesser of the current net asset value or original cost) will vary according to the number of years from the purchase of Class B shares as set forth below. Year Since Purchase Contingent Deferred Sales Charge FIRST 5% SECOND 4% THIRD and FOURTH 3% FIFTH 2% SIXTH and SEVENTH 1% The CDSC is deducted from the amount of the redemption and is paid to EFD. The CDSC will be waived on redemptions of shares following the death or disability of a shareholder, to meet distribution requirements for certain qualified retirement plans or in the case of certain redemptions made under a Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher distribution and/or shareholder service fees than Class A shares for a period of seven years (after which they convert to Class A shares) . The higher fees mean a higher expense ratio, so Class B shares pay correspondingly lower dividends and may have a lower net asset value than Class A shares. See the Statement of Additional Information for further details. With respect to Class B Shares, no CDSC will be imposed on: (1) the portion of redemption proceeds attributable to increases in the value of the account due to increases in the net asset value per Share, (2) Shares acquired through reinvestment of dividends and capital gains, (3) Shares held for more than seven years after the end of the calendar month of acquisition, (4) accounts following the death or disability of a shareholder, or (5) minimum required distributions to a shareholder over the age of 70 1/2 from an IRA or other retirement plan. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as the Trustees believe would accurately reflect fair market value. General. The decision as to which Class of shares is more beneficial to you depends on the amount of your investment and the length of time you will hold it. If you are making a large investment, thus qualifying for a reduced sales charge, you might consider Class A shares. If you are making a smaller investment, you might consider Class B shares since 100% of your purchase is invested immediately and since such shares will convert to Class A shares, which incur lower ongoing distribution and/or shareholder service fees, after seven years. The compensation received by Dealers and agents may differ depending on whether they sell Class A or Class B shares. There is no size limit on purchases of Class A shares. In addition to the discount or commission paid to dealers, EFD will from time to time pay to dealers additional cash or other incentives that are conditioned upon the sale of a specified minimum dollar amount of shares of a Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of payment for attendance at seminars, lunches, dinners, sporting events or theater performances, or payment for travel, lodging and entertainment incurred in connection with travel by persons associated with a dealer and their immediate family members to urban or resort locations within or outside the United States. Such a dealer may elect to receive cash incentives of equivalent amount in lieu of such payments. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Fund's investment adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or its investment adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen mutual funds. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value (less any applicable CDSC for Class B shares) next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Through Your Financial Intermediary. A Fund must receive instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value (less any applicable CDSC for Class B shares). Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Certain financial intermediaries may require that you give instructions earlier than 4:00 p.m. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street Bank and Trust Company ("State Street") which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling by calling the phone number on the front page of this Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the Exchange or State Street's offices are closed). The Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen mutual funds through your financial intermediary, or by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen mutual fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen mutual funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Shareholders are limited to five exchanges per calendar year, with a maximum of three per calendar quarter. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. No CDSC will be imposed in the event Class B shares are exchanged for Class B shares of other Evergreen mutual funds. If you redeem shares, the CDSC applicable to the Class B shares of the Evergreen mutual fund originally purchased for cash is applied. Also, Class B shares will continue to age following an exchange for purposes of conversion to Class A shares and determining the amount of the applicable CDSC. Exchanges Through Your Financial Intermediary. A Fund must receive exchange instructions from your financial intermediary before 4:00 p.m. Eastern time for you to receive that day's net asset value. Your financial intermediary is responsible for furnishing all necessary documentation to a Fund and may charge you for this service. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling the telephone number on the front of this Prospectus. Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, EFD or the toll-free number on the front of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Any applicable Class B CDSC will be waived with respect to redemptions occurring under a Systematic Cash Withdrawal Plan during a calendar year to the extent that such redemptions do not exceed 10% of (i) the initial value of the account plus (ii) the value, at the time of purchase, of any subsequent investments. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of a Fund at the net asset value per share on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES Income dividends are declared daily and paid monthly. Distributions of any net realized gains of a Fund will be made at least annually. Shareholders will begin to earn dividends on the first business day after shares are purchased unless shares were not paid for, in which case dividends are not earned until the next business day after payment is received. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, so long as each Fund distributes all of its investment company taxable income and any net realized gains to shareholders, it is expected that the Funds will not be required to pay any Federal income taxes. A 4% nondeductible excise tax will be imposed on a Fund if it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The Funds will designate and pay exempt-interest dividends derived from interest earned on qualifying tax-exempt obligations. Such exempt-interest dividends may be excluded by shareholders of a Fund from their gross income for Federal income tax purposes, however (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of the "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income and long-term capital gain distributions are taxable as long-term capital gains, even though received in additional shares of the Fund, and regardless of the investors holding period relating to the shares with respect to which such gains are distributed. Market discount recognized on taxable and tax-exempt bonds is taxable as ordinary income, not as excludable income. Under current law, the highest Federal income tax rate applicable to net long-term gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since each Fund's gross income is ordinarily expected to be tax exempt interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gains distributions (if any) and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, each investor must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. Set forth below are brief descriptions of the personal income tax status of an investment in each of the Funds under Florida, Georgia, North Carolina, South Carolina, and Virginia tax laws currently in effect. Income from a Fund is not necessarily free from state income taxes in states other than its designated state. State laws differ on this issue, and shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local laws. Evergreen Florida Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund. Florida does not currently impose an income tax on individuals. Thus, individual shareholders of the Funds will not be subject to any Florida state income tax on distributions received from the Funds. However, certain distributions will be taxable to corporate shareholders which are subject to Florida corporate income tax. Florida currently imposes an intangibles tax at the annual rate of 0.20% on certain securities and other intangible assets owned by Florida residents. Certain types of tax exempt securities of Florida issuers, U.S. government securities and tax exempt securities issued by certain U.S. territories and possessions are exempt from this intangibles tax. Shares of the Funds will also be exempt from the Florida intangibles tax if the portfolio consists exclusively of securities exempt from the intangibles tax on the last business day of the calendar year. If the portfolio consists of any assets which are not so exempt on the last business day of the calendar year, however, only the portion of the shares of the Funds which relate to securities issued by the United States and its possessions and territories will be exempt from the Florida intangibles tax, and the remaining portion of such shares will be fully subject to the intangibles tax, even if they partly relate to Florida tax exempt securities. Evergreen Georgia Municipal Bond Fund. Under existing Georgia law, shareholders of the Fund will not be subject to individual or corporate Georgia income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest-bearing obligations issued by or on behalf of the State of Georgia or its political subdivisions, or (2) interest on obligations of the United States or of any other issuer whose obligations are exempt from state income taxes under federal law. Distributions, if any, derived from capital gains or other sources generally will be taxable for Georgia income tax purposes to shareholders of the Fund who are subject to the Georgia income tax. For purposes of the Georgia intangibles tax, Shares of the Fund likely are taxable (at the rate of 10 cents per $1,000 in value of the Shares held on January 1 of each year) to shareholders who are otherwise subject to such tax. Evergreen North Carolina Municipal Bond Fund. Under existing North Carolina law, shareholders of the Fund will not be subject to individual or corporate North Carolina income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest on obligations issued by North Carolina and political subdivisions thereof or (2) interest on obligations of the United States or its territories or possessions. Distributions, if any, derived from capital gains or other sources generally will be taxable for North Carolina income tax purposes to shareholders of the Fund who are subject to the North Carolina income tax. Evergreen South Carolina Municipal Bond Fund. Under existing South Carolina law, shareholders of the Fund will not be subject to individual or corporate South Carolina income taxes on Fund distributions to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest on obligations of the State of South Carolina, or any of its political subdivisions, (2) interest on obligations of the United States, or (3) interest on obligations of any agency or instrumentality of the United States that is prohibited by federal law from being taxed by a state or any political subdivision of a state. Distributions, if any, derived from capital gains or other sources, generally will be taxable for South Carolina income tax purposes to shareholders of the Fund who are subject to South Carolina income tax. Evergreen Virginia Municipal Bond Fund. Under existing Virginia law, shareholders of the Fund will not be subject to individual or corporate Virginia income taxes on distributions received from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to interest earned on (1) obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof, or (2) obligations issued by a territory or possession of the United States or any subdivision thereof which federal law exempts from state income taxes. Distributions, if any, derived from capital gains or other sources generally will be taxable for Virginia income tax purposes to shareholders of the Fund who are subject to Virginia income tax. Statements describing the tax status of shareholders' dividends and distributions will be mailed annually by the Funds. These statements will set forth the amount of income exempt from Federal and if applicable, state taxation, and the amount, if any, subject to Federal and state taxation. Moreover, to the extent necessary, these statements will indicate the amount of exempt-interest dividends which are a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes. The exemption of interest income for Federal income tax purposes does not necessarily result in exemption under the income or other tax law of any state or local taxing authority. Investors should consult their own tax advisers about the status of distributions from the Funds in their states and localities. Each Fund notifies shareholders annually as to the interest exempt from Federal taxes earned by the Fund. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. A similar discussion relating to ABT Florida High Income Municipal Bond Fund, the predecessor of Evergreen Florida High Income Municipal Bond Fund is contained in the annual report of such Fund for the fiscal year ended April 30, 1995. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. Evergreen Florida High Income Municipal Fund is a newly organized, separate investment series of Evergreen Municipal Trust, a Massachusetts business trust organized in 1988. Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund are each separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Directors, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to the Funds. Other Classes of Shares. Each Fund currently offers three classes of shares, Class A, Class B and Class Y, and may in the future offer additional classes. Class Y shares are not offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen mutual funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. A Fund's performance may be quoted in advertising in terms of yield or total return. Both types of performance are based on Securities and Exchange Commission ("SEC") formulas and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of the Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the income reported in a Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on a Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. A Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated Federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all a Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in a Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Each Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc., Morningstar and other industry publications. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. APPENDIX A -- FLORIDA RISK CONSIDERATIONS The following is a summary of economic factors which may affect the ability of the municipal issuers of Florida Obligations to repay general obligation and revenue bonds. Such information is derived from sources that are generally available to investors and is believed by the Funds to be accurate, but has not been independently verified and may not be complete. Under current law, the State of Florida is required to maintain a balanced budget such that current expenses are met from current revenues. Florida does not currently impose a tax on personal income but does impose taxes on corporate income derived from activities within the state. In addition, Florida imposes an ad valorem tax as well as sales and use taxes. These taxes are the principal sources of funds to meet state expenses, including repayment of, and interest on, obligations backed solely by the full faith and credit of the state, without recourse to any specific project or related revenue source. On November 3, 1992, Florida voters approved an amendment to the state constitution which limits the annual growth in the assessed valuation of residential property and which, over time, could constrain the growth in property taxes, a major revenue source for local governments. The amendment restricts annual increases in assessed valuation to the lesser of 3% or the Consumer Price Index. The amendment applies only to residential properties eligible for the homestead exemption and does not affect the valuation of rental, commercial, or industrial properties. When sold, residential property would be reassessed at market value. The amendment became effective January 1, 1993. While no immediate ratings implications are expected, the amendment could have a negative impact on the financial performance of local governments over time and lead to ratings revisions which may have a negative impact on the prices of affected bonds. Many of the bonds in which the Funds invest were issued by various units of local government in the State of Florida. In addition, most of these bonds are revenue bonds where the security interest of the bond holders typically is limited to the pledge of revenues or special assessments flowing from the project financed by the bonds. Projects include, but are not limited to, water and waste water utilities, drainage systems, roadways, and other development-related infrastructures. Therefore, the capacity of these issuers to repay their obligations may be affected by variations in the Florida economy. Since 1970, Florida has been one of the fastest growing states in the nation. Average annual population growth over the last 20 years was 320,000. During this period only California and Texas grew more rapidly. In terms of total population, Florida moved from the ninth most populous state in 1970 to fourth today. This rapid and sustained pace of population growth has given rise to sharp increases in construction activity and to the need for roads, drainage systems, and utilities to serve the burgeoning population. In turn this has driven the growth in the volume of revenue bond debt outstanding. The pace of growth, however, has not been steady. During economic expansions, Florida's population growth has exceeded 500,000 people per year, but in recessions growth has slowed to 120,000 per year. The variations in construction activity over the course of business cycles is also very large. Although the amplitude of the swings during business cycles is large, the duration of downturns in Florida's growth has been short. Historically, depressed levels of growth have lasted only a year or two at most. Furthermore, Florida's cycles have not been periods of growth or decline. Instead, what has occurred are periods of more growth or less growth. Florida's ability to meet increasing expenses will be dependent in part upon the state's ability to foster business and economic growth. During the past decade, Florida has experienced significant increases in the technology-based and other light industries and in the service sector. This growth has diversified the state's overall economy, which at one time was dominated by the citrus and tourism industries. The state's economic and business growth could be restricted, however, by the natural limitations of environmental resources and the state's ability to finance adequate public facilities such as roads and schools. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN FLORIDA MUNICIPAL BOND FUND, EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN VIRGINIA MUNICIPAL BOND FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536118 PROSPECTUS July 7, 1995 EVERGREEN(SM) STATE SPECIFIC TAX FREE FUNDS (Evergreen logo appears here) EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND EVERGREEN VIRGINIA MUNICIPAL BOND FUND EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND CLASS Y SHARES The Evergreen State Specific Tax-Free Funds (the "Funds") are designed to provide investors with current income from Federal income tax and certain state income tax. This Prospectus provides information regarding the Class Y shares offered by the Funds. Each Fund is, or is a series of, an open-end, non-diversified, management investment company except for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND which is diversified. This Prospectus sets forth concise information about the Funds that a prospective investor should know before investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New York 10577. A "Statement of Additional Information" for the Funds and certain other funds in the Evergreen Group of mutual funds dated July 7, 1995 has been filed with the Securities and Exchange Commission and is incorporated by reference herein. The Statement of Additional Information provides information regarding certain matters discussed in this Prospectus and other matters which may be of interest to investors, and may be obtained without charge by calling the Funds at (800) 235-0064. There can be no assurance that the investment objective of any Fund will be achieved. Investors are advised to read this Prospectus carefully. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND WILL INVEST AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES CONSISTING OF HIGH YIELD (I.E., HIGH RISK), MEDIUM, LOWER RATED AND UNRATED BONDS. SUCH SECURITIES ARE COMMONLY CALLED JUNK BONDS AND ARE SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER RATED SECURITIES, LOWER QUALITY SECURITIES INVOLVE A GREATER RISK OF DEFAULT AND, CONSEQUENTLY, SHARES OF THE EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND ARE SPECULATIVE SECURITIES. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. TABLE OF CONTENTS OVERVIEW OF THE FUNDS EXPENSE INFORMATION FINANCIAL HIGHLIGHTS DESCRIPTION OF THE FUNDS Investment Objectives and Policies Investment Practices and Restrictions MANAGEMENT OF THE FUNDS Investment Adviser Distribution Plans and Agreements PURCHASE AND REDEMPTION OF SHARES How to Buy Shares How to Redeem Shares Exchange Privilege Shareholder Services Effect of Banking Laws OTHER INFORMATION Dividends, Distributions and Taxes Management's Discussion of Fund Performance General Information APPENDIX Florida Risk Considerations
OVERVIEW OF THE FUNDS The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. See "Description of the Funds" and "Management of the Funds". The Capital Management Group of First Union National Bank ("CMG") serves as investment adviser to Evergreen State Specific Tax Free Funds which include: EVERGREEN FLORIDA MUNICIPAL BOND FUND, EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN VIRGINIA MUNICIPAL BOND FUND AND EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND. First Union National Bank of North Carolina ("FUNB"), is a subsidiary of First Union Corporation, one of the ten largest bank holding companies in the United States. EVERGREEN FLORIDA MUNICIPAL BOND FUND (formerly First Union Florida Municipal Bond Portfolio, successor to ABT Florida Tax-Free Fund) seeks current income exempt from federal income tax consistent with preservation of capital. In addition, the Fund intends to qualify as an investment exempt from the Florida state intangibles tax. EVERGREEN GEORGIA MUNICIPAL BOND FUND (formerly First Union Georgia Municipal Bond Portfolio) seeks current income exempt from federal income tax and Georgia state income tax, consistent with preservation of capital. EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND (formerly First Union North Carolina Municipal Bond Portfolio) seeks current income exempt from federal income tax and North Carolina state income tax, consistent with preservation of capital. In addition, the Fund intends to qualify as an investment substantially exempt from the North Carolina intangible personal property tax. EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (formerly First Union South Carolina Municipal Bond Portfolio) seeks current income exempt from federal income tax and South Carolina state income tax. EVERGREEN VIRGINIA MUNICIPAL BOND FUND (formerly First Union Virginia Municipal Bond Fund) seeks current income exempt from federal income tax and Virginia state income tax, consistent with preservation of capital. EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (successor to ABT Florida High Income Municipal Bond Fund) seeks to provide a high level of current income exempt from federal income taxes. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in municipal securities consisting of high yield (i.e., high risk), medium, lower rated and unrated bonds. THERE IS NO ASSURANCE THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE ACHIEVED. 2 EXPENSE INFORMATION The table set forth below summarizes the shareholder transaction costs associated with an investment in the Class Y Shares of the Fund. For further information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None Sales Charge on Dividend Reinvestments None Contingent Deferred Sales Charge None Redemption Fee None Exchange Fee (only applies after 4 exchanges per year) $ 5.00
The following table shows for the Fund the estimated annual operating expenses (as a percentage of average net assets) attributable to Class Y Shares, together with examples of the cumulative effect of such expenses on a hypothetical $1,000 investment for the periods specified assuming (i) a 5% annual return and (ii) redemption at the end of each period. EVERGREEN FLORIDA MUNICIPAL BOND FUND (A)
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees* .30% After 1 Year $ 5 Administrative Fees .06% After 3 Years $ 15 12b-1 Fees -- After 5 Years $ 26 Other Expenses .10% After 10 Years $ 58 Total .46%
EVERGREEN GEORGIA MUNICIPAL BOND FUND
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees .50% After 1 Year $ 10 Administrative Fees .06% After 3 Years $ 32 12b-1 Fees -- After 5 Years $ 55 Other Expenses** .44% After 10 Years $ 122 Total 1.00%
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees .50% After 1 Year $ 9 Administrative Fees .06% After 3 Years $ 29 12b-1 Fees -- After 5 Years $ 51 Other Expenses .36% After 10 Years $ 113 Total .92%
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees .50% After 1 Year $ 10 Administrative Fees .06% After 3 Years $ 32 12b-1 Fees -- After 5 Years $ 55 Other Expenses** .44% After 10 Years $ 122 Total 1.00%
3 EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees .50% After 1 Year $ 10 Administrative Fees .06% After 3 Years $ 32 12b-1 Fees -- After 5 Years $ 55 Other Expenses** .44% After 10 Years $ 122 Total 1.00%
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (B)
EXAMPLE ANNUAL OPERATING Class Y EXPENSES Advisory Fees* .30% After 1 Year $ 6 Administrative Fees .06% After 3 Years $18 12b-1 Fees -- After 5 Years $32 Other Expenses .21% After 10 Years $71 Total .57%
(a) Estimated annual operating expenses reflect the combination of First Union Florida Municipal Bond Fund and ABT Florida Tax-Free Fund. (b) Estimated annual operating expenses reflect the combination of EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND and ABT Florida High Income Municipal Bond Fund. The amounts in the tables and examples are based on the experience of ABT Florida High Income Municipal Bond Fund as restated to reflect current fee arrangements. The estimated annual operating expenses and examples do not reflect fee waivers and reimbursements for the most recent fiscal year. Actual expenses for Class Y Shares, net of fee waivers and expense reimbursements for the year ended December 31, 1994 were as follows: EVERGREEN GEORGIA MUNICIPAL BOND FUND .31% EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND .59% EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND .00% EVERGREEN VIRGINIA MUNICIPAL BOND FUND .28%
* CMG has agreed to limit the Advisory fee charged to EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND to .30 of 1% of average net assets for a period of at least one year. ** Reflects agreements by CMG to limit aggregate operating expenses (including the Advisory Fees, but excluding interest, taxes, brokerage commissions, Rule 12b-1 Fees, shareholder servicing fees and extraordinary expenses) of EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND to 1% of average net assets for the foreseeable future. Absent such agreements, the estimated annual operating expenses for the Funds would be as follows: EVERGREEN GEORGIA MUNICIPAL BOND FUND 1.53% EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND 4.66% EVERGREEN VIRGINIA MUNICIPAL BOND FUND 2.00%
From time to time, each Fund's investment adviser may, at its discretion, reduce or waive its fees or reimburse the Funds for certain of their expenses in order to reduce their expense ratios. Each Fund's investment adviser may cease these waivers and reimbursements at any time. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in each Class of Shares of the Funds will bear directly or indirectly. The amounts set forth both in the tables and in the examples are estimated amounts based on the experience of each Fund for the most recent fiscal period. Such amounts have been restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various costs and expenses borne by the Funds see "Management of the Funds". As a result of asset-based sales charges, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. 4 FINANCIAL HIGHLIGHTS The tables on the following pages present, for each Fund, financial highlights for a share outstanding throughout each period indicated. The information in the tables for the five most recent fiscal years or the life of the Fund if shorter for EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, for EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND has been audited by Tait, Weller & Baker, each Fund's independent auditors. A report of KPMG Peat Marwick LLP or Tait, Weller & Baker, as the case may be on the audited information with respect to each Fund is incorporated by reference in the Fund's Statement of Additional Information. The following information for each Fund should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Fund's Statement of Additional Information. Further information about a Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS A SHARES*
MAY 11, 1988** YEAR ENDED APRIL 30, THROUGH 1995 1994 1993 1992 1991 1990 APRIL 30, 1989 PER SHARE DATA Net asset value, beginning of period.......... $10.79 $11.27 $10.59 $10.43 $9.97 $10.30 $10.00 Income from investment operations: Net investment income......................... .61 .63 .63 .69 .74 .66 .53 Net realized and unrealized gain (loss) on investments................................. .12 (.40) .76 .25 .49 (.28) .25 Total from investment operations............ .73 .23 1.39 .94 1.23 .38 .78 Less distributions to shareholders from: Net investment income......................... (.61) (.63) (.63) (.69) (.77) (.67) (.48) Net realized gains............................ (.02) (.08) (.08) (.05) -- (.04) -- Paid-in capital............................... -- -- -- (.04) -- -- -- Total distributions......................... (.63) (.71) (.71) (.78) (.77) (.71) (.48) Net asset value, end of period.............. $10.89 $10.79 $11.27 $10.59 $10.43 $9.97 $10.30 TOTAL RETURN+................................. 2.0% 1.9% 13.6% 9.3% 12.9% 3.7% 9.2% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)..... $168,542 $199,612 $198,286 $147,996 $75,791 $7,286 $717 Ratios to average net assets: Expenses.................................... .61% .56% .58% .41%(a) .10%(a) .10%(a) .30%(a)++ Net investment income....................... 5.73% 5.37% 5.66% 6.12%(a) 6.55%(a) 6.15%(a) 5.30%(a)++ Portfolio turnover rate....................... 53% 32% 24% 24% 66% 82% 2%
* The information in the table above reflects the operating history of ABT Florida Tax Free Fund, the predecessor to Evergreen Florida Municipal Bond Fund, for the periods indicated. ** Commencement of operations. + Total return is calculated on net asset value and is not annualized. Initial sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
MAY 11, 1988 YEAR ENDED APRIL 30, THROUGH 1992 1991 1990 APRIL 30, 1989 Expenses.................................................................. .68% .88% 5.14% 20.40% Net investment income (loss).............................................. 5.85% 5.77% 1.01% (14.80%)
5 EVERGREEN GEORGIA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B SHARES SHARES CLASS Y JULY 2, JULY 2, SHARES 1993* 1993* FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period......... $10.19 $10.00 $10.19 $10.00 $9.83 Income (loss) from investment operations..... Net investment income........................ .48 .20 .43 .18 .42 Net realized and unrealized gain (loss) on investments................................ (1.45) .19 (1.45) .19 (1.09) Total from investment operations........... (.97) .39 (1.02) .37 (.67) Less distributions to shareholders from: Net investment income........................ (.48) (.20) (.43) (.18) (.42) Net asset value, end of period............... $8.74 $10.19 $8.74 $10.19 $8.74 TOTAL RETURN+................................ (9.6%) 4.0% (10.2%) 3.7% (6.9%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).... $1,387 $817 $6,912 $3,692 $284 Ratios to average net assets: Expenses (a)............................... .53% .25%++ 1.13% .75%++ .31%++ Net investment income (a).................. 5.26% 4.71%++ 4.66% 4.15%++ 5.68%++ Portfolio turnover rate...................... 147% 15% 147% 15% 147%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JULY 6, 1993 JULY 2, 1993 FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expense................................... 3.61% 6.82% 4.21% 7.32% 3.39% Net investment income (loss).............. 2.18% (1.86%) 1.58% (2.42%) 2.60%
6 EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JANUARY 11, JANUARY 11, FEBRUARY 28, YEAR ENDED 1993* THROUGH YEAR ENDED 1993* THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 PER SHARE DATA Net asset value, beginning of period........ $10.61 $10.00 $10.61 $10.00 $10.31 Income (loss) from investment operations: Net investment income....................... .49 .46 .44 .42 .43 Net realized and unrealized (loss) on investments............................... (1.45) .64 (1.45) .64 (1.15) Total from investment operations.......... (.96) 1.10 (1.01) 1.06 (.72) Less distributions to shareholders from: Net investment income....................... (.49) (.46) (.44) (.42) (.43) Net realized gains.......................... -- (.03) -- (.03) -- Total distributions......................... (.49) (.49) (.44) (.45) (.43) Net asset value, end of period.............. $9.16 $10.61 $9.16 $10.61 $9.16 TOTAL RETURN+............................... (9.1%) 11.3% (9.6%) 10.8% (7.0%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)... $7,979 $12,739 $ 44,616 $45,168 $642 Ratios to average net assets: Expenses (a).............................. .79% .32%++ 1.37% .79%++ .59%++ Net investment income (a)................. 5.11% 4.91%++ 4.53% 4.47%++ 5.58%++ Portfolio turnover rate..................... 126% 57% 126% 57% 126%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund has borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JANUARY 11, JANUARY 11, FEBRUARY 28, YEAR ENDED 1993 THROUGH YEAR ENDED 1993 THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expenses.................................. 1.18% 1.25% 1.76% 1.74% .98% Net investment income..................... 4.72% 3.98% 4.14% 3.52% 5.19%
7 EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JANUARY 3, JANUARY 3, FEBRUARY 28, 1994* THROUGH 1994* THROUGH 1994* THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1994 1994 PER SHARE DATA Net asset value, beginning of period......................................... $10.00 $10.00 $9.74 Income (loss) from investment operations: Net investment income........................................................ .46 .41 .43 Net realized and unrealized (loss) on investments............................ (1.38) (1.38) (1.12) Total from investment operations........................................... (.92) (.97) (.69) Less distributions to shareholders from: Net investment income........................................................ (.46) (.41) (.43) Net asset value, end of period............................................... $8.62 $8.62 $8.62 TOTAL RETURN+................................................................ (9.3%) (9.8%) (7.1%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................................... $312 $2,456 $92 Ratios to average net assets: Expenses (a)............................................................... .25%++ .87%++ .00%++ Net investment income (a).................................................. 5.57%++ 4.88%++ 5.92%++ Portfolio turnover rate...................................................... 23% 23% 23%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JANUARY 3, 1994 JANUARY 3, 1994 FEBRUARY 28, 1994 THROUGH THROUGH THROUGH DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994 Expenses.................................................... 10.71% 11.33% 10.46% Net investment income (loss)................................ (4.89%) (5.58%) (4.54%)
8 EVERGREEN VIRGINIA MUNICIPAL BOND FUND -- CLASS A, B AND Y SHARES
CLASS A CLASS B SHARES SHARES JULY 2, JULY 2, CLASS Y 1993* 1993* SHARES YEAR ENDED THROUGH YEAR ENDED THROUGH FEBRUARY 28, 1994* DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, THROUGH 1994 1993 1994 1993 DECEMBER 31, 1994 PER SHARE DATA Net asset value, beginning of period..... $10.19 $10.00 $10.19 $10.00 $9.83 Income (loss) from investment operations: Net investment income.................... .47 .20 .42 .17 .41 Net realized and unrealized gain (loss) on investments......................... (1.34) .19 (1.34) .19 (.98) Total from investment operations....... (.87) .39 (.92) .36 (.57) Less distributions to shareholders from: Net investment income.................... (.47) (.20) (.42) (.17) (.41) Net asset value, end of period........... $8.85 $10.19 $8.85 $10.19 $8.85 TOTAL RETURN+............................ (8.6%) 3.9% (9.1%) 3.7% (5.8%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................... $1,606 $1,306 $3,817 $2,235 $344 Ratios to average net assets: Expenses (a)........................... .53% .25%++ 1.12% .75%++ .28%++ Net investment income (a).............. 5.11% 4.64%++ 4.54% 4.25%++ 5.54%++ Portfolio turnover rate.................. 59% 0% 59% 0% 59%
* Commencement of operations. + Total return is calculated on net asset value per share for the period indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS Y SHARES SHARES SHARES JULY 2, 1993 JULY 2, 1993 FEBRUARY 28, YEAR ENDED THROUGH YEAR ENDED THROUGH 1994 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 Expenses.................................. 5.14% 7.75% 5.73% 8.25% 4.89% Net investment income (loss).............. .50% (2.86%) (.07%) (3.25%) .93%
9 EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND -- CLASS A SHARES*
JUNE 17, 1992** YEAR ENDED THROUGH APRIL 30, APRIL 1995 1994 30, 1993 PER SHARE DATA Net asset value at beginning of period......................................................... $10.08 $10.36 $10.00 Income from investment operations: Net investment income.......................................................................... .65 .68 .61 Net realized and unrealized gain (loss) on investments......................................... .08 (.26) .39 Total from investment operations............................................................. .73 .42 1.00 Less distributions to shareholders from: Net investment income.......................................................................... (.65) (.68) (.61 ) Net realized gains............................................................................. -- (.02) (.03 ) Total distributions.......................................................................... (.65) (.70) (.64 ) Net asset value at end of period............................................................... $10.16 $10.08 $10.36 TOTAL RETURN+.................................................................................. 7.6% 3.3% 11.9% RATIOS & SUPPLEMENTAL DATA Net assets at end of period (000's omitted).................................................... $65,043 $72,683 $33,541 Ratios to average net assets: Expenses (a)................................................................................. .60% .14% .00 ++ Net investment income (a).................................................................... 6.52% 6.16% 5.92% ++ Portfolio turnover rate........................................................................ 28% 31% 50%
* The information in the table above reflects the operating history of ABT Florida High Income Municipal Bond Fund, the predecessor to Evergreen Florida High Income Municipal Bond Fund, for the periods indicated. ** Commencement of operations. + Total return is calculated on net asset value and is not annualized. Initial sales charge is not reflected. ++ Annualized. (a) Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED JUNE 17, 1992 APRIL 30, THROUGH 1995 1994 APRIL 30, 1993 Expenses.................................................................................. 1.26% 1.12% 1.12% Net investment income..................................................................... 5.86% 5.18% 4.80%
10 11 - ------------------------------------------------------------------------------- DESCRIPTION OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES Evergreen Florida Municipal Bond Fund Evergreen Georgia Municipal Bond Fund Evergreen North Carolina Municipal Bond Fund Evergreen South Carolina Municipal Bond Fund Evergreen Virginia Municipal Bond Fund The Funds seek current income exempt from federal regular income tax and, where applicable, state income taxes, consistent with preservation of capital. In addition, the Evergreen Florida Municipal Bond Fund intends to qualify as an investment exempt from the Florida state intangibles tax. Florida does not currently tax personal income. Each Fund's investment objective cannot be changed without shareholder approval. While there is no assurance that each objective will be achieved, the Funds will endeavor to do so by following the investment policies detailed below. Unless otherwise indicated, the investment policies of a Fund may be changed by the Trust's Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. As a matter of fundamental investment policy, which may not be changed without shareholder approval, each Fund will normally invest its assets so that at least 80% of its annual interest income is, or at least 80% of its net assets are invested in obligations which provide interest income which is exempt from federal regular income taxes. The interest retains its tax-free status when distributed to the Fund's shareholders. In addition, at least 65% of the value of each Fund's total assets will be invested in municipal bonds of the particular state after which the Fund is named. To qualify as an investment exempt from the Florida state intangibles tax, the Evergreen Florida Municipal Bond Fund's portfolio must consist entirely of investments exempt from the Florida state intangibles tax on the last business day of the calendar year. Each Fund seeks to achieve its investment objective by investing principally in municipal bonds, including industrial development bonds, of its designated state. In addition, the Funds may invest in obligations issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or their political subdivisions or agencies and instrumentalities, the interest from which is exempt from federal (regular, if applicable) income tax. It is likely that shareholders who are subject to the alternative minimum tax will be required to include interest from a portion of the municipal securities owned by a Fund in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. Municipal bonds are debt obligations issued by the state or local entities to support a government's general financial needs or special projects, such as housing projects or sewer works. Municipal bonds include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct or equip facilities for privately or publicly owned corporations. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Revenue bonds are paid off only with the revenue generated by the project financed by the bond or other specified sources of revenue. For example, in the case of a bridge project, proceeds from the tolls would go directly to retiring the bond issue. Thus, unlike general obligation bonds, revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. The municipal bonds in which the Funds will invest are subject to one or more of the following quality standards: rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P") or, if unrated, are determined by the Fund's investment adviser to be of comparable quality to such ratings; insured by a municipal bond insurance company which is rated Aa by Moody's or AA by S&P; guaranteed at the time of purchase by the U.S. government as to the payment of principal and interest; or fully collateralized by an escrow of U.S. government securities. Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. However, like the higher rated bonds, these securities are considered to be investment grade. If any security owned by a 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. If ratings made by Moody's or S&P change because of changes in those organizations or their ratings systems, the Funds will try to use comparable ratings as standards in accordance with the Funds' investment objectives. A description of the rating categories is contained in an Appendix to the Statement of Additional Information. The Funds may also invest in: participation interests in any of the above obligations. (Participation interests may be purchased from financial institutions such as commercial banks, savings and loan associations and insurance companies, and give a Fund an undivided interest in particular municipal securities); variable rate municipal securities. (Variable rate securities offer interest rates which are tied to a money market rate, usually a published interest rate or interest rate index or the 91-day U.S. Treasury bill rate. Many of these securities are subject to prepayment of principal on demand by the Fund, usually in seven days or less); and municipal leases issued by state and local governments or authorities to finance the acquisition of equipment and facilities. The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or non-profit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. Furthermore, a lease may provide that the certificate trustee cannot accelerate lease obligations upon default. The trustee would only be able to enforce lease payments as they become due. In the event of a default or failure of appropriation, it is unlikely that the trustee would be able to obtain an acceptable substitute source of payment or that the substitute source of payment would generate tax-exempt income. During periods when, in the Adviser's opinion, a temporary defensive position in the market is appropriate, a Fund may temporarily invest in short-term tax-exempt or taxable investments. These temporary investments include: notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; other debt securities; commercial paper; bank certificates of deposit; shares of other investment companies; and repurchase agreements. There are no rating requirements applicable to temporary investments. However, the Adviser will limit temporary investments to those it considers to be of comparable quality to the Fund's primary investments. Although the Funds are permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax, where applicable. However, certain temporary investments will generate income which is subject to state taxes. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Evergreen Florida High Income Municipal Bond Fund Evergreen Florida High Income Municipal Bond Fund seeks to provide a high level of current income which is exempt from federal income taxes. The term "high-level" indicates that the Fund seeks to achieve an income level that exceeds that which an investor would expect from an investment grade portfolio with similar maturity characteristics. Evergreen Florida High Income Municipal Bond Fund invests primarily in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated municipal securities. To varying degrees, medium and lower rated municipal securities, as well as unrated municipal securities, are considered to have speculative characteristics and are subject to greater market fluctuations and risk of loss of income and principal than higher rated securities. To the extent that an investor realizes a yield in excess of that which could be expected from a fund which invests primarily in investment grade securities, the investor should expect to bear increased risk due to the fact that the risk of principal and/or interest not being repaid with respect to the high yield securities described above is significantly greater than that which exists in connection with investment grade securities. In assessing the risk involved in purchasing medium and lower rated and unrated securities, the Fund's investment adviser will use nationally recognized statistical rating organizations such as Moody's and S&P, and will also rely heavily on credit analysis it develops internally. Under normal circumstances, the Fund's dollar-weighted average maturity generally will be 15 years or more. However, the Fund may invest in securities of any maturity, and if the Fund's investment determines that market conditions warrant a shorter average maturity, the Fund's investments will be adjusted accordingly.. In pursuit of its investment objective, Evergreen Florida High Income Municipal Bond Fund will, under normal market conditions, invest at least 65% in such medium and lower rated municipal securities or unrated municipal securities of comparable quality to such rated municipal bonds. Investors should note that such a policy is not a fundamental policy of the Fund and shareholder approval is not necessary to change such policy. There is no assurance that Evergreen Florida High Income Municipal Bond Fund can achieve its investment objective. The Fund will not invest in municipal securities which are in default, i.e., securities rated D by S&P. Investments may also be made by Evergreen Florida High Income Municipal Bond Fund in higher quality municipal bonds and, for temporary defensive purposes, the Fund may invest less than 65% of its total assets in the medium and lower quality municipal securities described above. The Fund may assume a defensive position if, for example, yield spreads between lower grade and investment grade municipal bonds are narrow and the yields available on lower quality municipal securities do not justify the increased risk associated with an investment in such securities or when there is a lack of medium and lower quality issues in which to invest. Evergreen Florida High Income Municipal Bond Fund may also invest primarily in higher quality Municipal Obligations until its net assets reach a level that would permit the Fund to begin investing in medium and lower rated municipal bonds and at the same time maintain adequate diversification and liquidity. Investing in this manner may result in yields lower than those normally associated with a fund that invests primarily in medium and lower quality municipal securities. During the most recent fiscal year completed by Evergreen Florida High Income Municipal Bond Fund's predecessor, ended April 30, 1995, its holdings had the following average credit quality characteristics: Percent of Rating Net Assets Aaa or AAA 3.4% Aa or AA --- A 6.0 Baa or BBB 22.1 Ba or BB 1.5 Ba or BB 7.9 Non-rated 56.6 ----- Total 97.5% The Fund may purchase industrial development bonds only if the interest on such bonds is, in the opinion of bond counsel, exempt from federal income taxes. It is anticipated that the annual portfolio turnover rate for the Fund may exceed 100%. The Fund may employ certain additional investment strategies which are discussed in "Investment Practices and Restrictions", below. Also, see the Statement of Additional Information for further information in regard to ratings. INVESTMENT PRACTICES AND RESTRICTIONS Risk Factors. Bond yields are dependent on several factors including market conditions, the size of an offering, the maturity of the bond, ratings of the bond and the ability of issuers to meet their obligations. There is no limit on the maturity of the bonds purchased by the Funds. Because the prices of bonds fluctuate inversely in relation to the direction of interest rates, the prices of longer term bonds fluctuate more widely in response to market interest rate changes. A Fund's concentration in securities issued by its designated state and that state's political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. An expanded discussion of the risks associated with the purchase of the designated state's municipal bonds is contained in the respective Statements of Additional Information. Although the Funds, other than Evergreen Florida High Income Municipal Bond Fund will not purchase securities rated below BBB by S&P or Baa by Moody's (i.e., junk bonds), the Funds are not required to dispose of securities that have been downgraded subsequent to their purchase. If the municipal obligations held by a Fund (because of adverse economic conditions in a particular state, for example) are downgraded, the Fund's concentration in securities of that state may cause the Fund to be subject to the risks inherent in holding material amounts of low-rated debt securities in its portfolio. As stated above, Evergreen Florida High Income Municipal Bond Fund invests primarily in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated securities. Additional risk factors relating to the investment by Evergreen Florida High Income Municipal Bond Fund in high yield, medium and lower rated (Baa through C by Moody's and BBB through D by S&P) and unrated securities are discussed below. Portfolio Turnover. A portfolio turnover rate of 100% would occur if all of a Fund's portfolio securities were replaced in one year. The portfolio turnover rate experienced by a Fund directly affects the transaction costs relating to the purchase and sale of securities which a Fund bears directly. A high rate of portfolio turnover will increase such costs. See the Statement of Additional Information for further information regarding the practices of the Funds affecting portfolio turnover. Non-Diversification. Each of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund is a non-diversified portfolio of an investment company and as such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in a Fund, therefore, will entail greater risk than would exist in a diversified investment company because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Each of the Funds intends to comply with Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") which requires that at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of the total assets may be invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security (usually U.S. government securities) for cash and obtains a simultaneous commitment from the seller (usually a bank or broker/dealer) to repurchase the security at an agreed-upon price and specified future date. The repurchase price reflects an agreed-upon interest rate for the time period of the agreement. The Funds' risk is the inability of the seller to pay the agreed-upon price on the delivery date. However, this risk is tempered by the ability of the Funds to sell the security in the open market in the case of a default. In such a case, the Funds may incur costs in disposing of the security which would increase Fund expenses. The Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. When-Issued And Delayed Delivery Transactions. The Funds may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Funds purchase securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Funds to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Funds may pay more or less than the market value of the securities on the settlement date. The Funds may dispose of a commitment prior to settlement if the Adviser deems it appropriate to do so. In addition, the Funds may enter into transactions to sell their purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Funds may realize short-term profits or losses upon the sale of such commitments. Lending Of Portfolio Securities. In order to generate additional income, the Funds may lend their portfolio securities on a short-term or long-term basis to broker/dealers, banks, or other institutional borrowers of securities. The Funds will only enter into loan arrangements with creditworthy borrowers and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned. As a matter of fundamental investment policy which cannot be changed without shareholder approval, the Funds will not lend any of their assets except portfolio securities up to one-third of the value of their total assets. There is the risk that when lending portfolio securities, the securities may not be available to a Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. Investing In Securities Of Other Investment Companies. Each Fund may invest in the securities of other investment companies. This is a short-term measure to invest cash which has not yet been invested in other portfolio instruments and is subject to the following limitations: (1) no Fund will own more than 3% of the total outstanding voting stock of any one investment company, (2) no Fund may invest more than 5% of its total assets in any one investment company and (3) no Fund may invest more than 10% of its total assets in investment companies in general. The Adviser will waive its investment advisory fee on assets invested in securities of other open end investment companies. Borrowing. As a matter of fundamental policy, which may not be changed without shareholder approval, the Funds may not borrow money except as a temporary measure to facilitate redemption requests which might otherwise require the untimely disposition of portfolio investments and for extraordinary or emergency purposes, provided that the aggregate amount of such borrowings shall not exceed one-third of the value of the total net assets at the time of such borrowing. Illiquid Securities. The Funds may invest up to 15% of their net assets in illiquid securities and other securities which are not readily marketable. Repurchase agreements with maturities longer than seven days will be included for the purpose of the foregoing 15% limit. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, which have been determined to be liquid, will not be considered by the Adviser to be illiquid or not readily marketable and, therefore, are not subject to the aforementioned 15% limit. The inability of a Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair a Fund's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Fund which are eligible for resale pursuant to Rule 144A will be monitored by the Adviser on an ongoing basis, subject to the oversight of the Trustees. In the event that such a security is deemed to be no longer liquid, a Fund's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Fund having more than 15% of its assets invested in illiquid or not readily marketable securities. Unseasoned Issuers. The Funds will not invest more than 5% of the value of their total assets in securities of issuers (or guarantors, where applicable) which have records of less than three years of continuous operations, including the operation of any predecessor. Risk Factors Associated with Medium and Lower Rated and Unrated Municipal Obligations. Evergreen Florida High Income Municipal Bond Fund will invest in medium and lower rated or unrated municipal securities. The market for high yield, high risk debt securities rated in the medium and lower rating categories, or which are unrated, is relatively new and its growth has paralleled a long economic expansion. Past experience may not, therefore, provide an accurate indication of future performance of this market, particularly during periods of economic recession. An economic downturn or increase in interest rates is likely to have a greater negative effect on this market, the value of high yield debt securities in the Fund's portfolio, the Fund's net asset value and the ability of the bonds' issuers to repay principal and interest, meet projected business goals and obtain additional financing, than would be the case if investments by the Fund were limited to higher rated securities. These circumstances also may result in a higher incidence of defaults. Yields on medium or lower-rated municipal bonds may not fully reflect the higher risks of such bonds. Therefore, the risk of a decline in market value, should interest rates increase or credit quality concerns develop, may be higher than has historically been experienced with such investments. An investment in Evergreen Florida High Income Municipal Bond Fund may be considered more speculative than investment in shares of another fund which invests primarily in higher rated debt securities. Prices of high yield debt securities may be more sensitive to adverse economic changes or corporate developments than higher rated investments. Debt securities with longer maturities, which may have higher yields, may increase or decrease in value more than debt securities with shorter maturities. Market prices of high yield debt securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and may be more volatile than securities which pay interest periodically and in cash. Where Evergreen Florida High Income Municipal Bond Fund deems it appropriate and in the best interests of its shareholders, it may incur additional expenses to seek recovery on a debt security on which the issuer has defaulted and to pursue litigation to protect the interests of security holders of its portfolio entities. Because the market for medium or lower rated securities may be thinner and less active than the market for higher rated securities, there may be market price volatility for these securities and limited liquidity in the resale market. Unrated securities are usually not as attractive to as many buyers as are rated securities, a factor which may make unrated securities less marketable. These factors may have the effect of limiting the availability of the securities for purchase by Evergreen Florida High Income Municipal Bond Fund and may also limit the ability of the Fund to sell such securities at their fair value either to meet redemption requests or in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of medium or lower rated debt securities, especially in a thinly traded market. To the extent the Fund owns or may acquire illiquid or restricted high yield securities, these securities may involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Changes in values of debt securities which the Fund owns will affect the Fund's net asset value per share. If market quotations are not readily available for the Fund's lower rated or unrated securities, these securities will be valued by a method that the Trustees believes accurately reflects fair value. Valuation becomes more difficult and judgment plays a greater role in valuing high yield debt securities than with respect to securities for which more external sources of quotations and last sale information are available. Special tax considerations are associated with investing in high yield debt securities structured as zero coupon or pay-in-kind securities. A Fund investing in such securities accrues income on these securities prior to the receipt of cash payments. Evergreen Florida High Income Municipal Bond Fund must distribute substantially all of its income to shareholders to qualify for pass through treatment under the tax laws and may, therefore, have to dispose of portfolio securities to satisfy distribution requirements. While credit ratings are only one factor Evergreen Florida High Income Municipal Bond Fund's investment adviser relies on in evaluating high yield debt securities, certain risks are associated with using credit ratings. Credit ratings evaluate the safety of principal and interest payments, not market value risk. Credit rating agencies may fail to change in timely manner the credit ratings to reflect subsequent events; however, the Fund's investment adviser continuously monitors the issuers of high yield debt securities in the Fund's portfolio in an attempt to determine if the issuers will have sufficient cash flow and profits to meet required principal and interest payments. Achievement of Evergreen Florida High Income Municipal Bond Fund's investment objective may be more dependent upon the Fund's investment adviser and the credit analysis capability of the Fund's investment adviser, than is the case for higher quality debt securities. Credit ratings for individual securities may change from time to time and Evergreen Florida High Income Municipal Bond Fund may retain a portfolio security whose rating has been changed. See the Statement of Additional Information for a description of bond and note ratings. Transactions in Options and Futures. The Funds may engage in options and futures transactions. Options and futures transactions are intended to enable a Fund to manage market or interest rate risk, and the Funds do not use these transactions for speculation or leverage. The Funds may attempt to hedge all or a portion of their portfolios through the purchase of both put and call options on their portfolio securities and listed put options on financial futures contracts for portfolio securities. The Funds may also write covered call options on their portfolio securities to attempt to increase their current income. The Funds will maintain their positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. The Funds may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. The Funds may write (i.e., sell) covered call and put options. By writing a call option, a Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. The Funds also may write straddles (combinations of covered puts and calls on the same underlying security). The Funds may only write "covered" options. This means that so long as a Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option or, in the case of call options on U.S. Treasury bills, the Fund might own substantially similar U.S. Treasury bills. A Fund will be considered "covered" with respect to a put option it writes if, so long as it is obligated as the writer of the put option, it deposits and maintains with its custodian in a segregated account liquid assets having a value equal to or greater than the exercise price of the option. The principal reason for writing call or put options is to obtain, through a receipt of premiums, a greater current return than would be realized on the underlying securities alone. The Funds receive a premium from writing a call or put option which they retain whether or not the option is exercised. By writing a call option, the Funds might lose the potential for gain on the underlying security while the option is open, and by writing a put option, the Funds might become obligated to purchase the underlying securities for more than their current market price upon exercise. A futures contract is a firm commitment by two parties: the seller, who agrees to make delivery of the specific type of instrument called for in the contract ("going short"), and the buyer, who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If a Fund would enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at an undetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. A Fund would "go long" (agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. The Funds may also enter into financial futures contracts and write options on such contracts. The Funds intend to enter into such contracts and related options for hedging purposes. The Funds will enter into futures on securities or index-based futures contracts in order to hedge against changes in interest rates or securities prices. A futures contract on securities is an agreement to buy or sell securities during a designated month at whatever price exists at that time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Funds do not make payment or deliver securities upon entering into a futures contract. Instead, they put down a margin deposit, which is adjusted to reflect changes in the value of the contract and which remains in effect until the contract is terminated. The Funds may sell or purchase other financial futures contracts. When a futures contract is sold by a Fund, the profit on the contract will tend to rise when the value of the underlying securities declines and to fall when the value of such securities increases. Thus, the Funds sell futures contracts in order to offset a possible decline in the profit on their securities. If a futures contract is purchased by a Fund, the value of the contract will tend to rise when the value of the underlying securities increases and to fall when the value of such securities declines. The Funds may enter into closing purchase and sale transactions in order to terminate a futures contract and may buy or sell put and call options for the purpose of closing out their options positions. The Funds' ability to enter into closing transactions depends on the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. As a result, there can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the margin deposits on the contract and to complete the contract according to its terms, in which case it would continue to bear market risk on the transaction. Risk Characteristics Of Options And Futures. Although options and futures transactions are intended to enable the Funds to manage market or interest rate risks, these investment devices can be highly volatile, and the Funds' use of them can result in poorer performance (i.e., the Funds' return may be reduced). The Funds' attempt to use such investment devices for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. When the Funds use financial futures contracts and options on financial futures contracts as hedging devices, there is a risk that the prices of the securities subject to the financial futures contracts and options on financial futures contracts may not correlate perfectly with the prices of the securities in the Funds' portfolios. This may cause the financial futures contract and any related options to react to market changes differently than the portfolio securities. In addition, the Adviser could be incorrect in its expectations and forecasts about the direction or extent of market factors, such as interest rates, securities price movements, and other economic factors. Even if the Adviser correctly predicts interest rate movements, a hedge could be unsuccessful if changes in the value of a Fund's futures position did not correspond to changes in the value of its investments. In these events, the Funds may lose money on the financial futures contracts or the options on financial futures contracts. It is not certain that a secondary market for positions in financial futures contracts or for options on financial futures contracts will exist at all times. Although the Adviser will consider liquidity before entering into financial futures contracts or options on financial futures contracts transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular financial futures contract or option on a financial futures contract at any particular time. The Funds' ability to establish and close out financial futures contracts and options on financial futures contract positions depends on this secondary market. If a Fund is unable to close out its position due to disruptions in the market or lack of liquidity, the Fund may lose money on the futures contract or option, and the losses to the Fund could be significant. - ------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - ------------------------------------------------------------------------------- INVESTMENT ADVISER The management of each Fund is supervised by the Trustees of the Trust under which the Fund has been established ("Trustees"). The Capital Management Group of First Union National Bank of North Carolina ("CMG") serves as investment adviser to Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund. First Union National Bank of North Carolina ("FUNB") is a subsidiary of First Union Corporation ("First Union"), one of the ten largest bank holding companies in the United States. First Union is a bank holding company headquartered in Charlotte, North Carolina, which had $74.2 billion in consolidated assets as of September 30, 1994. First Union and its subsidiaries provide a broad range of financial services to individuals and businesses through offices in 36 states. The Capital Management Group of FUNB manages or otherwise oversees the investment of over $36 billion in assets belonging to a wide range of clients, including all the series of Evergreen Investment Trust (formerly known as First Union Funds). First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is principally engaged in providing retail brokerage services consistent with its federal banking authorizations. First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer principally engaged in providing, consistent with its federal banking authorizations, private placement, securities dealing, and underwriting services. CMG manages investments and supervises the daily business affairs of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund and, as compensation therefor, is entitled to receive an annual fee equal to .50 of 1% of average daily net assets of each Fund other than Evergreen Florida High Income Municipal Bond Fund, from which it is entitled to receive an annual fee equal to .60 of 1% of average daily net assets. The total annualized operating expenses of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund and the total annualized operating expenses of ABT Florida High Income Municipal Bond Fund, predecessor to Evergreen Florida High Income Municipal Bond Fund, for the most recent fiscal year are set forth in the section entitled "Financial Highlights". Evergreen Asset Management Corp. ("Evergreen Asset"), a subsidiary of FUNB, serves as administrator to each Fund and is entitled to receive a fee based on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of mutual funds, serves as sub-administrator for each Fund and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Funds at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of the mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser as of March 31, 1995 were approximately $8 billion. Robert S. Drye is a Vice President of FUNB , and has been with FUNB since 1968. Since 1989, Mr. Drye has served as a portfolio manager for several of the series of Evergreen Investment Trust and for certain common trust funds. Prior to 1989, Mr. Drye worked as a marketing specialist with First Union Brokerage Services, Inc. Mr. Drye has managed the Evergreen South Carolina Municipal Bond Fund since its inception in January 1994. In addition, Mr. Drye has been the portfolio manager for the Evergreen Florida Municipal Bond Fund since its inception in July 1993. Richard K. Marrone is a Vice President of FUNB . Mr. Marrone joined FUNB in May 1993 with eleven years of experience managing fixed income assets at Woodbridge Capital Management, a subsidiary of Comerica Bank, N.A. Mr. Marrone is responsible for the portfolio management of several series of Evergreen Investment Trust and certain common trust funds. Mr. Marrone has served as portfolio manager of the Evergreen North Carolina Municipal Bond Fund since May 1993, and portfolio manager of the Evergreen Florida High Income Municipal Bond Fund and Evergreen Georgia Municipal Bond Fund since their inception in July 1995 and July 1993, respectively. Charles E. Jeanne joined FUNB, in July 1993. Prior to joining FUNB , Mr. Jeanne served as a trader/portfolio manager for First American Bank where he was responsible for individual accounts and common trust funds. Mr. Jeanne has been the portfolio manager for the Evergreen Virginia Municipal Bond Fund since its inception in 1993. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES - ------------------------------------------------------------------------------- HOW TO BUY SHARES Eligible investors may purchase Fund shares at net asset value by mail or wire as described below. The Funds impose no sales charges on Class Y shares. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen Funds as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of the Adviser and its affiliates. The minimum initial investment is $1,000, which may be waived in certain situations. There is no minimum for subsequent investments. Investors may make subsequent investments by establishing a Systematic Investment Plan or a Telephone Investment Plan. Purchases by Mail or Wire. Each investor must complete the enclosed Share Purchase Application and mail it together with a check made payable to the Fund whose shares are being purchased, to State Street Bank and Trust Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on U.S. banks will be subject to foreign collection which will delay an investor's investment date and will be subject to processing fees. When making subsequent investments, an investor should either enclose the return remittance portion of the statement, or indicate on the face of the check, the name of the Fund in which an investment is to be made, the exact title of the account, the address, and the Fund account number. Purchase requests should not be sent to a Fund in New York. If they are, the Fund must forward them to State Street, and the request will not be effective until State Street receives them. Initial investments may also be made by wire by (i) calling State Street at 800-423-2615 for an account number and (ii) instructing your bank, which may charge a fee, to wire federal funds to State Street, as follows: State Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder Services. The wire must include references to the Fund in which an investment is being made, account registration, and the account number. A completed Application must also be sent to State Street indicating that the shares have been purchased by wire, giving the date the wire was sent and referencing the account number. Subsequent wire investments may be made by existing shareholders by following the instructions outlined above. It is not necessary, however, for existing shareholders to call for another account number. How the Funds Value Their Shares. The net asset value of each Class of shares of a Fund is calculated by dividing the value of the amount of the Fund's net assets attributable to that Class by the outstanding shares of that Class. Shares are valued each day the New York Stock Exchange (the "Exchange") is open as of the close of regular trading (currently 4:00 p.m. Eastern time). The securities in a Fund are valued at their current market value determined on the basis of market quotations or, if such quotations are not readily available, such other methods as a Fund's Trustees believe would accurately reflect fair market value. Additional Purchase Information. As a condition of this offering, if a purchase is canceled due to nonpayment or because an investor's check does not clear, the investor will be responsible for any loss a Fund or the Adviser incurs. If such investor is an existing shareholder, a Fund may redeem shares from an investor's account to reimburse the Fund or the Adviser for any loss. In addition, such investors may be prohibited or restricted from making further purchases in any of the Evergreen Funds. A Fund cannot accept investments specifying a certain price or date and reserves the right to reject any specific purchase order, including orders in connection with exchanges from the other Evergreen Funds. Although not currently anticipated, each Fund reserves the right to suspend the offer of shares for a period of time. Shares of each Fund are sold at the net asset value per share next determined after a shareholder's order is received. Investments by federal funds wire or by check will be effective upon receipt by State Street. Qualified institutions may telephone orders for the purchase of Fund shares. Investors may also purchase shares through a broker/dealer, which may charge a fee for the service. HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the Exchange is open, either directly or through your financial intermediary. The price you will receive is the net asset value next calculated after the Fund receives your request in proper form. Proceeds generally will be sent to you within seven days. However, for shares recently purchased by check, a Fund will not send proceeds until it is reasonably satisfied that the check has been collected (which may take up to 15 days). Once a redemption request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Redeeming Shares Directly by Mail or Telephone. Send a signed letter of instruction or stock power form to State Street which is the registrar, transfer agent and dividend-disbursing agent for each Fund. Stock power forms are available from your financial intermediary, State Street, and many commercial banks. Additional documentation is required for the sale of shares by corporations, financial intermediaries, fiduciaries and surviving joint owners. Signature guarantees are required for all redemption requests for shares with a value of more than $10,000 or where the redemption proceeds are to be mailed to an address other than that shown in the account registration. A signature guarantee must be provided by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders may withdraw amounts of $1,000 or more from their accounts by calling State Street (800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on which the New York Stock Exchange or State Street's offices are closed). The New York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. Such redemption requests must include the shareholder's account name, as registered with a Fund, and the account number. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone redemptions. Shareholders who are unable to reach a Fund or State Street by telephone should follow the procedures outlined above for redemption by mail. The telephone redemption service is not made available to shareholders automatically. Shareholders wishing to use the telephone redemption service must indicate this on the Share Purchase Application and choose how the redemption proceeds are to be paid. Redemption proceeds will either (i) be mailed by check to the shareholder at the address in which the account is registered or (ii) be wired to an account with the same registration as the shareholder's account in a Fund at a designated commercial bank. State Street currently deducts a $5 wire charge from all redemption proceeds wired. This charge is subject to change without notice. A shareholder who decides later to use this service, or to change instructions already given, should fill out a Shareholder Services Form and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank or trust company (not a Notary Public), a member firm of a domestic stock exchange or by other financial institutions whose guarantees are acceptable to State Street. Shareholders should allow approximately ten days for such form to be processed. The Funds will employ reasonable procedures to verify that telephone requests are genuine. These procedures include requiring some form of personal identification prior to acting upon instructions and tape recording of conversations. If the Fund fails to follow such procedures, it may be liable for any losses due to unauthorized or fraudulent instructions. The Fund shall not be liable for following telephone instructions reasonably believed to be genuine. Also, the Fund reserves the right to refuse a telephone redemption request, if it is believed advisable to do so. Financial intermediaries may charge a fee for handling telephonic requests. The telephone redemption option may be suspended or terminated at any time without notice. General. The sale of shares is a taxable transaction for Federal tax purposes. Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities law. The Funds reserve the right to close an account that through redemption has remained below $1,000 for 30 days. Shareholders will receive 60 days' written notice to increase the account value before the account is closed. The Funds have elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which each Fund is obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day period for any one shareholder. See the Statement of Additional Information for further details. EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of your shares for shares of the same Class in the other Evergreen Funds by telephone or mail as described below. An exchange which represents an initial investment in another Evergreen Fund must amount to at least $1,000. Once an exchange request has been telephoned or mailed, it is irrevocable and may not be modified or canceled. Exchanges will be made on the basis of the relative net asset values of the shares exchanged next determined after an exchange request is received. Exchanges are subject to minimum investment and suitability requirements. Each of the Evergreen Funds have different investment objectives and policies. For complete information, a prospectus of the fund into which an exchange will be made should be read prior to the exchange. An exchange is treated for Federal income tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss. Each Fund imposes a fee of $5 per exchange on shareholders who exchange in excess of four times per calendar year. This exchange privilege may be modified or discontinued at any time by the Fund upon sixty days' notice to shareholders and is only available in states in which shares of the fund being acquired may lawfully be sold. Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000 or more by telephone by calling State Street (800-423-2615). Exchange requests made after 4:00 p.m. (Eastern time) will be processed using the net asset value determined on the next business day. During periods of drastic economic or market changes, shareholders may experience difficulty in effecting telephone exchanges. You should follow the procedures outlined below for exchanges by mail if you are unable to reach State Street by telephone. If you wish to use the telephone exchange service you should indicate this on the Share Purchase Application. As noted above, each Fund will employ reasonable procedures to confirm that instructions for the redemption or exchange of shares communicated by telephone are genuine. A telephone exchange may be refused by a Fund or State Street if it is believed advisable to do so. Procedures for exchanging Fund shares by telephone may be modified or terminated at any time. Written requests for exchanges should follow the same procedures outlined for written redemption requests in the section entitled "How to Redeem Shares", however, no signature guarantee is required. SHAREHOLDER SERVICES The Funds offer the following shareholder services. For more information about these services or your account, contact your financial intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the Funds, or the toll-free number on the front page of this Prospectus. Some services are described in more detail in the Share Purchase Application. Systematic Investment Plan. You may make monthly or quarterly investments into an existing account automatically in amounts of not less than $25. Telephone Investment Plan. You may make investments into an existing account electronically in amounts of not less than $100 or more than $10,000 per investment. Telephone investment requests received by 3:00 p.m. (Eastern time) will be credited to a shareholder's account the day the request is received. Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or when an existing account reaches that size, you may participate in the Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share Purchase Application. Under this plan, you may receive (or designate a third party to receive) a monthly or quarterly check in a stated amount of not less than $100. Fund shares will be redeemed as necessary to meet withdrawal payments. All participants must elect to have their dividends and capital gain distributions reinvested automatically. Automatic Reinvestment Plan. For the convenience of investors, all dividends and distributions are automatically reinvested in full and fractional shares of a Fund at the net asset value per share on the last business day of each month, unless otherwise requested by a shareholder in writing. If the transfer agent does not receive a written request for subsequent dividends and/or distributions to be paid in cash at least three full business days prior to a given record date, the dividends and/or distributions to be paid to a shareholder will be reinvested. If you elect to receive dividends and distributions in cash and the U.S. Postal Service cannot deliver the checks, or if the checks remain uncashed for six months, the checks will be reinvested into your account at the then current net asset value. EFFECT OF BANKING LAWS The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered open-end investment companies such as the Funds. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment adviser, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of their customer. Evergreen Asset, since it is a subsidiary of FUNB, and CMG are subject to and in compliance with the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in CMG or Evergreen Asset being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of a Fund by its customers. If CMG or Evergreen Asset were prevented from continuing to provide the services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon each Fund's shareholders to approve, a new investment adviser. If this were to occur, it is not anticipated that the shareholders of any Fund would suffer any adverse financial consequences. - ------------------------------------------------------------------------------- OTHER INFORMATION - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES Income dividends are declared daily and paid monthly. Distributions of any net realized gains of a Fund will be made at least annually. Shareholders will begin to earn dividends on the first business day after shares are purchased unless shares were not paid for, in which case dividends are not earned until the next business day after payment is received. Each Fund has qualified and intends to continue to qualify to be treated as a regulated investment company under the Code. While so qualified, so long as each Fund distributes all of its investment company taxable income and any net realized gains to shareholders, it is expected that the Funds will not be required to pay any Federal income taxes. A 4% nondeductible excise tax will be imposed on a Fund if it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. The Funds will designate and pay exempt-interest dividends derived from interest earned on qualifying tax-exempt obligations. Such exempt-interest dividends may be excluded by shareholders of a Fund from their gross income for Federal income tax purposes, however (1) all or a portion of such exempt-interest dividends may be a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes to the extent that they are derived from certain types of private activity bonds issued after August 7, 1986, and (2) all exempt-interest dividends will be a component of the "adjusted current earnings" for purposes of the Federal corporate alternative minimum tax. Dividends paid from taxable income, if any, and distributions of any net realized short-term capital gains (whether from tax exempt or taxable obligations) are taxable as ordinary income and long-term capital gain distributions are taxable as long-term capital gains, even though received in additional shares of the Fund, and regardless of the investors holding period relating to the shares with respect to which such gains are distributed. Market discount recognized on taxable and tax-exempt bonds is taxable as ordinary income, not as excludable income. Under current law, the highest Federal income tax rate applicable to net long-term gains realized by individuals is 28%. The rate applicable to corporations is 35%. Since each Fund's gross income is ordinarily expected to be tax exempt interest income, it is not expected that the 70% dividends-received deduction for corporations will be applicable. Specific questions should be addressed to the investor's own tax adviser. Each Fund is required by Federal law to withhold 31% of reportable payments (which may include dividends, capital gains distributions (if any) and redemptions) paid to certain shareholders. In order to avoid this backup withholding requirement, each investor must certify on the Share Purchase Application, or on a separate form supplied by State Street, that the investor's social security or taxpayer identification number is correct and that the investor is not currently subject to backup withholding or is exempt from backup withholding. Set forth below are brief descriptions of the personal income tax status of an investment in each of the Funds under Florida, Georgia, North Carolina, South Carolina, and Virginia tax laws currently in effect. Income from a Fund is not necessarily free from state income taxes in states other than its designated state. State laws differ on this issue, and shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local laws. Evergreen Florida Municipal Bond Fund and Evergreen Florida High Income Municipal Bond Fund. Florida does not currently impose an income tax on individuals. Thus, individual shareholders of the Funds will not be subject to any Florida state income tax on distributions received from the Funds. However, certain distributions will be taxable to corporate shareholders which are subject to Florida corporate income tax. Florida currently imposes an intangibles tax at the annual rate of 0.20% on certain securities and other intangible assets owned by Florida residents. Certain types of tax exempt securities of Florida issuers, U.S. government securities and tax exempt securities issued by certain U.S. territories and possessions are exempt from this intangibles tax. Shares of the Funds will also be exempt from the Florida intangibles tax if the portfolio consists exclusively of securities exempt from the intangibles tax on the last business day of the calendar year. If the portfolio consists of any assets which are not so exempt on the last business day of the calendar year, however, only the portion of the shares of the Funds which relate to securities issued by the United States and its possessions and territories will be exempt from the Florida intangibles tax, and the remaining portion of such shares will be fully subject to the intangibles tax, even if they partly relate to Florida tax exempt securities. Evergreen Georgia Municipal Bond Fund. Under existing Georgia law, shareholders of the Fund will not be subject to individual or corporate Georgia income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest-bearing obligations issued by or on behalf of the State of Georgia or its political subdivisions, or (2) interest on obligations of the United States or of any other issuer whose obligations are exempt from state income taxes under federal law. Distributions, if any, derived from capital gains or other sources generally will be taxable for Georgia income tax purposes to shareholders of the Fund who are subject to the Georgia income tax. For purposes of the Georgia intangibles tax, Shares of the Fund likely are taxable (at the rate of 10 cents per $1,000 in value of the Shares held on January 1 of each year) to shareholders who are otherwise subject to such tax. Evergreen North Carolina Municipal Bond Fund. Under existing North Carolina law, shareholders of the Fund will not be subject to individual or corporate North Carolina income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest on obligations issued by North Carolina and political subdivisions thereof or (2) interest on obligations of the United States or its territories or possessions. Distributions, if any, derived from capital gains or other sources generally will be taxable for North Carolina income tax purposes to shareholders of the Fund who are subject to the North Carolina income tax. Evergreen South Carolina Municipal Bond Fund. Under existing South Carolina law, shareholders of the Fund will not be subject to individual or corporate South Carolina income taxes on Fund distributions to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest on obligations of the State of South Carolina, or any of its political subdivisions, (2) interest on obligations of the United States, or (3) interest on obligations of any agency or instrumentality of the United States that is prohibited by federal law from being taxed by a state or any political subdivision of a state. Distributions, if any, derived from capital gains or other sources, generally will be taxable for South Carolina income tax purposes to shareholders of the Fund who are subject to South Carolina income tax. Evergreen Virginia Municipal Bond Fund. Under existing Virginia law, shareholders of the Fund will not be subject to individual or corporate Virginia income taxes on distributions received from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to interest earned on (1) obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof, or (2) obligations issued by a territory or possession of the United States or any subdivision thereof which federal law exempts from state income taxes. Distributions, if any, derived from capital gains or other sources generally will be taxable for Virginia income tax purposes to shareholders of the Fund who are subject to Virginia income tax. Statements describing the tax status of shareholders' dividends and distributions will be mailed annually by the Funds. These statements will set forth the amount of income exempt from Federal and if applicable, state taxation, and the amount, if any, subject to Federal and state taxation. Moreover, to the extent necessary, these statements will indicate the amount of exempt-interest dividends which are a specific preference item for purposes of the Federal individual and corporate alternative minimum taxes. The exemption of interest income for Federal income tax purposes does not necessarily result in exemption under the income or other tax law of any state or local taxing authority. Investors should consult their own tax advisers about the status of distributions from the Funds in their states and localities. Each Fund notifies shareholders annually as to the interest exempt from Federal taxes earned by the Fund. A shareholder who acquires Class A shares of a Fund and sells or otherwise disposes of such shares within 90 days of acquisition may not be allowed to include certain sales charges incurred in acquiring such shares for purposes of calculating gain and loss realized upon a sale or exchange of shares of the Fund. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE A discussion of the performance of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund is contained in the annual report of each Fund for the fiscal year ended December 31, 1994. A similar discussion relating to ABT Florida High Income Municipal Bond Fund, the predecessor of Evergreen Florida High Income Municipal Bond Fund is contained in the annual report of such Fund for the fiscal year ended April 30, 1995. GENERAL INFORMATION Portfolio Transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, a Fund may consider sales of its shares as a factor in the selection of dealers to enter into portfolio transactions with the Fund. Organization. Evergreen Florida High Income Municipal Fund is a newly organized, separate investment series of Evergreen Municipal Trust, a Massachusetts business trust organized in 1988. Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia Municipal Bond Fund are each separate investment series of Evergreen Investment Trust (formerly First Union Funds), which is a Massachusetts business trust organized in 1984. The Funds do not intend to hold annual shareholder meetings; shareholder meetings will be held only when required by applicable law. Shareholders have available certain procedures for the removal of Trustees. A shareholder in each class of a Fund will be entitled to his or her share of all dividends and distributions from a Fund's assets, based upon the relative value of such shares to those of other Classes of the Fund, and, upon redeeming shares, will receive the then current net asset value of the Class of shares of the Fund represented by the redeemed shares less any applicable CDSC. Each Trust named above is empowered to establish, without shareholder approval, additional investment series, which may have different investment objectives, and additional classes of shares for any existing or future series. If an additional series or class were established in a Fund, each share of the series or class would normally be entitled to one vote for all purposes. Generally, shares of each series and class would vote together as a single class on matters, such as the election of Directors, that affect each series and class in substantially the same manner. Class A, B and Y shares have identical voting, dividend, liquidation and other rights, except that each class bears, to the extent applicable, its own distribution, shareholder service and transfer agency expenses as well as any other expenses applicable only to a specific class. Each class of shares votes separately with respect to Rule 12b-1 distribution plans and other matters for which separate class voting is appropriate under applicable law. Shares are entitled to dividends as determined by the Trustees and, in liquidation of a Fund, are entitled to receive the net assets of the Fund. Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as each Fund's registrar, transfer agent and dividend-disbursing agent for a fee based upon the number of shareholder accounts maintained for the Funds. The transfer agency fee with respect to the Class B shares will be higher than the transfer agency fee with respect to the Class A shares. Principal Underwriter. EFD, a wholly-owned subsidiary of Furman Selz Incorporated, located 237 Park Avenue, New York, New York 10017, is the principal underwriter of the Funds. Furman Selz Incorporated, also acts as sub-administrator to the Funds. Other Classes of Shares. Each Fund currently offers three classes of shares, Class A, Class B and Class Y, and may in the future offer additional classes. Class Y shares are the only class of shares offered by this Prospectus and are only available to (i) all shareholders of record in one or more of the Evergreen mutual funds for which Evergreen Asset serves as investment adviser as of December 30, 1994, (ii) certain institutional investors and (iii) investment advisory clients of CMG, Evergreen Asset or their affiliates. The dividends payable with respect to Class A and Class B shares will be less than those payable with respect to Class Y shares due to the distribution and distribution related expenses borne by Class A and Class B shares and the fact that such expenses are not borne by Class Y shares. Performance Information. A Fund's performance may be quoted in advertising in terms of yield or total return. Both types of performance are based on Securities and Exchange Commission ("SEC") formulas and are not intended to indicate future performance. Yield is a way of showing the rate of income a Fund earns on its investments as a percentage of the Fund's share price. A Fund's yield is calculated according to accounting methods that are standardized by the SEC for all stock and bond funds. Because yield accounting methods differ from the method used for other accounting purposes, a Fund's yield may not equal its distribution rate, the income paid to your account or the income reported in a Fund's financial statements. To calculate yield, a Fund takes the interest income it earned from its portfolio of investments (as defined by the SEC formula) for a 30-day period (net of expenses), divides it by the average number of shares entitled to receive dividends, and expresses the result as an annualized percentage rate based on a Fund's share price at the end of the 30-day period. This yield does not reflect gains or losses from selling securities. A Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated Federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Total returns are based on the overall dollar or percentage change in the value of a hypothetical investment in a Fund. A Fund's total return shows its overall change in value including changes in share prices and assumes all a Fund's distributions are reinvested. A cumulative total return reflects a Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a Fund's performance had been constant over the entire period. Because average annual total returns tend to smooth out variations in a Fund's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and realized and unrealized gain or loss. Each Fund may also quote tax-equivalent yields, which show the taxable yields an investor would have to earn before taxes to equal the Fund's tax-free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt yield by the result of one minus a stated federal tax rate. If only a portion of a Fund's income was tax-exempt, only that portion is adjusted in the calculation. Comparative performance information may also be used from time to time in advertising or marketing a Fund's shares, including data from Lipper Analytical Services, Inc., Morningstar and other industry publications. The Fund may also advertise in items of sales literature an "actual distribution rate" which is computed by dividing the total ordinary income distributed (which may include the excess of short-term capital gains over losses) to shareholders for the latest twelve month period by the maximum public offering price per share on the last day of the period. Investors should be aware that past performance may not be reflective of future results. Liability Under Massachusetts Law. Under Massachusetts law, trustees and shareholders of a business trust may, in certain circumstances, be held personally liable for its obligations. The Declaration of Trust under which each Fund operates provide that no Trustee or shareholder will be personally liable for the obligations of the Trust and that every written contract made by the Trust contain a provision to that effect. If any Trustee or shareholder were required to pay any liability of the Trust, that person would be entitled to reimbursement from the general assets of the Trust. Additional Information. This Prospectus and the Statement of Additional Information, which have been incorporated by reference herein, do not contain all the information set forth in the Registration Statements filed by the Trusts with the Commission under the Securities Act. Copies of the Registration Statements may be obtained at a reasonable charge from the Commission or may be examined, without charge, at the offices of the Commission in Washington, D.C. APPENDIX A -- FLORIDA RISK CONSIDERATIONS The following is a summary of economic factors which may affect the ability of the municipal issuers of Florida Obligations to repay general obligation and revenue bonds. Such information is derived from sources that are generally available to investors and is believed by the Funds to be accurate, but has not been independently verified and may not be complete. Under current law, the State of Florida is required to maintain a balanced budget such that current expenses are met from current revenues. Florida does not currently impose a tax on personal income but does impose taxes on corporate income derived from activities within the state. In addition, Florida imposes an ad valorem tax as well as sales and use taxes. These taxes are the principal sources of funds to meet state expenses, including repayment of, and interest on, obligations backed solely by the full faith and credit of the state, without recourse to any specific project or related revenue source. On November 3, 1992, Florida voters approved an amendment to the state constitution which limits the annual growth in the assessed valuation of residential property and which, over time, could constrain the growth in property taxes, a major revenue source for local governments. The amendment restricts annual increases in assessed valuation to the lesser of 3% or the Consumer Price Index. The amendment applies only to residential properties eligible for the homestead exemption and does not affect the valuation of rental, commercial, or industrial properties. When sold, residential property would be reassessed at market value. The amendment became effective January 1, 1993. While no immediate ratings implications are expected, the amendment could have a negative impact on the financial performance of local governments over time and lead to ratings revisions which may have a negative impact on the prices of affected bonds. Many of the bonds in which the Funds invest were issued by various units of local government in the State of Florida. In addition, most of these bonds are revenue bonds where the security interest of the bond holders typically is limited to the pledge of revenues or special assessments flowing from the project financed by the bonds. Projects include, but are not limited to, water and waste water utilities, drainage systems, roadways, and other development-related infrastructures. Therefore, the capacity of these issuers to repay their obligations may be affected by variations in the Florida economy. Since 1970, Florida has been one of the fastest growing states in the nation. Average annual population growth over the last 20 years was 320,000. During this period only California and Texas grew more rapidly. In terms of total population, Florida moved from the ninth most populous state in 1970 to fourth today. This rapid and sustained pace of population growth has given rise to sharp increases in construction activity and to the need for roads, drainage systems, and utilities to serve the burgeoning population. In turn this has driven the growth in the volume of revenue bond debt outstanding. The pace of growth, however, has not been steady. During economic expansions, Florida's population growth has exceeded 500,000 people per year, but in recessions growth has slowed to 120,000 per year. The variations in construction activity over the course of business cycles is also very large. Although the amplitude of the swings during business cycles is large, the duration of downturns in Florida's growth has been short. Historically, depressed levels of growth have lasted only a year or two at most. Furthermore, Florida's cycles have not been periods of growth or decline. Instead, what has occurred are periods of more growth or less growth. Florida's ability to meet increasing expenses will be dependent in part upon the state's ability to foster business and economic growth. During the past decade, Florida has experienced significant increases in the technology-based and other light industries and in the service sector. This growth has diversified the state's overall economy, which at one time was dominated by the citrus and tourism industries. The state's economic and business growth could be restricted, however, by the natural limitations of environmental resources and the state's ability to finance adequate public facilities such as roads and schools. INVESTMENT ADVISER Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288 CUSTODIAN & TRANSFER AGENT State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827 LEGAL COUNSEL Sullivan & Worcester, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219 EVERGREEN FLORIDA MUNICIPAL BOND FUND, EVERGREEN GEORGIA MUNICIPAL BOND FUND, EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND, EVERGREEN VIRGINIA MUNICIPAL BOND FUND Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036 EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND DISTRIBUTOR Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10017 536126 STATEMENT OF ADDITIONAL INFORMATION July 7, 1995 THE EVERGREEN TAX FREE FUNDS 2500 Westchester Avenue, Purchase, New York 10577 800-807-2940 Evergreen Florida Municipal Bond Fund (formerly First Union Florida Municipal Bond Portfolio) ("Florida Municipal Bond") Evergreen Georgia Municipal Bond Fund (formerly First Union Georgia Municipal Bond Portfolio) ("Georgia Municipal Bond") Evergreen North Carolina Municipal Bond Fund (formerly First Union North Carolina Municipal Bond Portfolio) ("North Carolina Municipal Bond") Evergreen South Carolina Municipal Bond Fund (formerly First Union South Carolina Municipal Bond Portfolio) ("South Carolina Municipal Bond") Evergreen Virginia Municipal Bond Fund (formerly First Union Virginia Municipal Bond Portfolio)("Virginia Municipal Bond") Evergreen Florida High Income Municipal Bond Fund ("Florida High Income") Evergreen High Grade Tax Free Fund (formerly First Union High Grade Tax Free Portfolio) ("High Grade") Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate") Evergreen Short-Intermediate Municipal Fund-California ("Short-Intermediate-CA") This Statement of Additional Information pertains to all classes of shares of the Funds listed below. It is not a prospectus and should be read in conjunction with the Prospectus dated July 7, 1995 for the Fund in which you are making or contemplating an investment. The Evergreen Tax Free Funds are offered through four separate prospectuses: one offering Class A and Class B shares, and a separate prospectus offering Class Y shares of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and Florida High Income; and one offering Class A and Class B shares and a separate prospectus offering Class Y shares of High Grade, Short- Intermediate and Short-Intermediate-CA. Copies of each Prospectus may be obtained without charge by calling the number listed above. TABLE OF CONTENTS Page Investment Objectives and Policies................................ Investment Restrictions........................................... Non-Fundamental Operating Policies................................ Management........................................................ Investment Adviser................................................ Distribution Plans................................................ Allocation of Brokerage........................................... Additional Tax Information........................................ Net Asset Value................................................... Purchase of Shares................................................ Performance Information........................................... Financial Statements.............................................. Appendix A - Note, Bond And Commercial Paper Ratings Appendix B - Additional Information Concerning California Appendix C - Additional Information Concerning Florida Appendix D - Additional Information Concerning Georgia Appendix E - Additional Information Concerning North Carolina Appendix F - Additional Information Concerning South Carolina Appendix G - Additional Information Concerning Virginia INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the Funds - Investment Objective and Policies" in each Fund's Prospectus) The investment objective of each Fund and a description of the securities in which each Fund may invest is set forth under "Description of the Funds - Investment Objective and Policies" in the relevant Prospectus. The investment objectives of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade are fundamental and cannot be changed without the approval of shareholders. The following expands the discussion in the Prospectus regarding certain investments of each Fund. Additional Information Regarding Investments that each Fund May Make Participation Interests (All Funds) Participation interests may take the form of participations, beneficial interests, in a trust, partnership interests, or any other form of indirect ownership that allows a Fund to treat the income from the investments as exempt from federal and state tax. The financial institutions from which a Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give a Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). Variable Rate Municipal Securities (All Funds) Variable interest rates generally reduce changes in the market value of municipal securities from their original purchase prices. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less for variable rate municipal securities than for fixed income obligations. Many municipal securities with variable interest rates purchased by a Fund are subject to repayment of principal (usually within seven days) on the Fund's demand. The terms of these variable rate demand instruments require payment of principal obligations by the issuer of the participation interests or a guarantor of either issuer. All variable rate municipal securities will meet the quality standards for a Fund. The Fund's investment adviser has been instructed by the Board of Trustees (the "Trustees") to monitor the pricing, quality, and liquidity of the variable rate municipal securities, including participation interests held by a Fund, on the basis of published financial information and reports of the rating agencies and other analytical services. Municipal Leases (All Funds) When determining whether municipal leases purchased by a Fund will be classified as a liquid or illiquid security, the Trustees have directed each Fund's investment adviser to consider certain factors, such as: the frequency of trades and quotes for the security; the volatility of quotations and trade prices for the security, the number of dealers willing to purchase or sell the security and the number of potential purchasers; dealer undertakings to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); the rating of the security and the financial condition and prospects of the issuer of the security; whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the lease property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of nonappropriation"); any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease; and such other factors as may be relevant to the Fund's ability to dispose of the security. When-Issued and Delayed Delivery Transactions These transactions are made to secure what is considered to be an advantageous price or yield for a Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of a Fund sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Funds (other than High Grade, Short-Intermediate and Short-Intermediate-CA) do not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. Short-Intermediate and Short-Intermediate-CA do not expect that commitments to purchase when-issued securities will normally exceed 25% of their total assets and High Grade does not expect that such commitments will exceed 20% of its total assets. Futures and Options Transactions (All Funds Except High Grade, Short-Intermediate and Short-Intermediate-CA) A Fund may attempt to hedge all or a portion of its portfolio by buying and selling financial futures contracts and options on financial futures contracts. Additionally, a Fund may buy and sell call and put options on portfolio securities. The Funds do not intend to invest more than 5% of their assets in options and futures. Purchasing Put Options on Financial Futures Contracts A Fund may purchase listed put and call options on financial futures contracts for U.S. government securities. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at a specified price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. A Fund may purchase put options on futures to protect portfolio securities against decreases in value resulting from an anticipated increase in market interest rates. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the option will increase in value. In such an event, the Fund will normally close out its option by selling an identical option. If the hedge is successful, the proceeds received by a Fund upon the sale of the second option will be large enough to offset both the premium paid by the Fund for the original option plus the realized decrease in value of the hedged securities. Alternatively, a Fund may exercise its put option. To do so, it would simultaneously enter into a futures contract of the type underlying the option (for a price less than the strike price of the option) and exercise the option. A Fund would then deliver the futures contract in return for payment of the strike price. If a Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and the premium paid for the contract will be lost. Writing Call Options on Financial Futures Contracts In addition to purchasing put options on futures, a Fund may write listed call options on futures contracts for U.S. government securities to hedge its portfolio against an increase in market interest rates. When a Fund writes a call option on a futures contract, it is undertaking the obligation of assuming a short futures position (selling a futures contract) at the fixed strike price at any time during the life of the option, if the option is exercised. As market interest rates rise, causing the prices of futures to go down, a Fund's obligation under a call option on a future (to sell a futures contract) costs less to fulfill, causing the value of the Fund's call option position to increase. In other words, as the underlying futures price goes down below the strike price, the buyer of the option has no reason to exercise the call, so that the Fund keeps the premium received for the option. This premium can offset the drop in value of a Fund's fixed income portfolio which is occurring as interest rates rise. -3- Prior to the expiration of a call written by a Fund, or exercise of it by the buyer, a Fund may close out the option by buying an identical option. If the hedge is successful, the cost of the second option will be less than the premium received by the Fund for the initial option. The net premium income of a Fund will then offset the decrease in value of the hedged securities. Writing Put Options on Financial Futures Contracts A Fund may write listed put options on financial futures contracts for U.S. government securities to hedge its portfolio against a decrease in market interest rates. When a Fund writes a put option on a futures contract, it receives a premium for undertaking the obligation to assume a long futures position (buying a futures contract) at a fixed price at any time during the life of the option. As market interest rates decrease, the market price at any time during the life of the option. As market interest rates decrease, the market price of the underlying futures contract normally increases. As the market value of the underlying futures contract increases, the buyer of the put option has less reason to exercise the put because the buyer can sell the same futures contract at a higher price in the market. The premium received by a Fund can then be used to offset the higher prices of portfolio securities to be purchased in the future due to the decrease in the market interest rates. Prior to the expiration of the put option or its exercise by the buyer, a Fund may close out the option by buying an identical option. If the hedge is successful, the cost of buying the second option will be less than the premium received by the Fund for the initial option. Purchasing Call Options on Financial Futures Contracts An additional way in which a Fund may hedge against decreases in market interest rates is to buy a listed call option on a financial futures contract for U.S. government securities. When a Fund purchases a call option on a futures contract, it is purchasing the right (not the obligation) to assume a long futures position (buy a futures contract) at a fixed price at any time during the life of the option. As market interest rates fall, the value of the underlying futures contract will normally increase, resulting in an increase in value of the Fund's option position. When the market price of the underlying futures contract increases above the strike price plus premium paid, the Fund could exercise its option and buy the futures contract below market price. Prior to the exercise or expiration of the call option a Fund could sell an identical call option and close out its position. If the premium received upon selling the offsetting call is greater than the premium originally paid, the Fund has completed a successful hedge. Limitation on Open Futures Positions A Fund will not maintain open positions in futures contracts it has sold or call options it has written on futures contracts if, in the aggregate, the value of the open positions (marked to market) exceeds the current market value of its securities portfolio plus or minus the unrealized gain or loss on those open positions, adjusted for the correlation of volatility between the hedged securities and the futures contracts. If this limitation is exceeded at any time, a Fund will take prompt action to close out a sufficient number of open contracts to bring its open futures and options positions within this limitation. "Margin" in Futures Transactions Unlike the purchase or sale of a security, a Fund does not pay or receive money upon the purchase or sale of a futures contract. Rather, a Fund is required to deposit an amount of "initial margin" in cash or U.S. Treasury bills with its custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contract initial margin does not involve the borrowing of funds by a Fund to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract -4- which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. A Fund may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin", equal to the daily change in value of the futures contract. This process is known as "marking to market". Variation margin does not represent a borrowing or loan by a Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, the Fund will mark-to-market its open futures positions. A Fund is also required to deposit and maintain margin when it writes call options on futures contracts. Purchasing and Writing Put and Call Options on Portfolio Securities (All Funds, except High Grade, Short-Intermediate and Short-Intermediate-CA) A Fund may purchase put and call options on portfolio securities to protect against price movements in particular securities. A put option gives the Fund, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. A call option gives the Fund, in return for a premium, the right to buy the underlying security from the seller. A Fund may generally purchase and write over-the-counter options on portfolio securities in negotiated transactions with the writers or buyers of the options since options on the portfolio securities held by the Fund are to traded on an exchange. A Fund purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Fund's adviser. Over-the-counter options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange traded options have a continuous liquid market while over-the-counter options may not. Repurchase Agreements (All Funds) Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to a Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. A Fund or its custodian will take possession of the securities subject to repurchase agreements. To the extent that the original seller does not repurchase the securities from a Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. Each Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. A Fund may only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's investment adviser to be creditworthy pursuant to guidelines established by the Trustees. Reverse Repurchase Agreements (All Funds) A Fund may enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a -5- stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of a Fund, in a dollar amount sufficient to make market daily and maintained until the transaction is settled. Lending of Portfolio Securities (All Funds) The collateral received when a Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. A Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Fund does not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Restricted Securities (All Funds) A Fund may invest in restricted securities. Restricted securities are any securities in which a Fund may otherwise invest pursuant to its investment objectives and policies but which are subject to restrictions on resale under federal securities laws. A Fund will not invest more than 15% (10% for High Grade) of the value of its net assets in restricted securities; however, certain restricted securities which the Trustees deem to be liquid will be excluded from this 15% limitation. The ability of the Trustees to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for resale under the Rule 144A. Each Fund believes that the Staff of the SEC has left the question of determining the liquidity of all restricted securities (eligible for resale under Rule 144A) for determination by the Trustees. The Trustees consider the following criteria in determining the liquidity of certain restricted securities: (i) the frequency of trades and quotes for the security; (ii) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (iii) dealer undertakings to make a market in the security; and (iv) the nature of the security and the nature of the marketplace trades. Municipal Bond Insurance (High Grade) The Fund may purchase two types of municipal bond insurance policies ("Policies") issued by municipal bond insurers. One type of Policy covers certain municipal securities only during the period in which they are in the Fund's portfolio. In the event that a municipal security covered by such a Policy is sold by the Fund, the insurer of the relevant Policy will be liable only for those payments of interest and principal which are then due and owing at the time of sale. The other type of Policy covers municipal securities not only while they remain in the Fund's portfolio but also until their final maturity, even if they are sold out of the Fund's portfolio, so that the coverage may benefit all subsequent holders of those -6- municipal securities. The Fund will obtain insurance which covers municipal securities until final maturity even after they are sold out of the Fund's portfolio only if, in the judgment of the investment adviser, the Fund would receive net proceeds from the sale of those securities, after deducting the cost of such permanent insurance and related fees, significantly in excess of the proceeds it would receive if such municipal securities were sold without insurance. Payments received from municipal bond insurers may not be tax-exempt income to shareholders of the Fund. Depending upon the characteristics of the municipal security held by the Fund, the annual premiums for the Policies are estimated to range from 0.10% to 0.25% of the value of the municipal securities covered under the Policies, with an average annul premium rate of approximately 0.175%. The Fund may purchase Policies from Municipal Bond Investors Assurance Corp. ("MBIA"), AMBAC Indemnity Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"), each as described under "Municipal Bond Insurers", or any other municipal bond insurer which is rated at least Aa by Moody's or AA by S&P. Each Policy guarantees the payment of principal and interest on those municipal securities it insures. The Policies will have the same general characteristics and features. A municipal security will be eligible for coverage if it meets certain requirements set forth in a Policy. In the event interest or principal on an insured municipal security is not paid when due, the insurer covering the security will be obligated under its Policy to make such payment not later than 30 days after it has been notified by the Fund that such non-payment has occurred. MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on securities insured by their Policies so long as such securities remain in the Fund's portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any reason except failure to pay premiums when due. MBIA, AMBAC, and FGIC will reserve the right at any time upon 90 days' written notice to the Fund to refuse to insure any additional municipal securities purchased by the Fund after the effective date of such notice. The Trustees will reserve the right to terminate any of the Policies if it determines that the benefits to the Fund of having its portfolio insured under such Policy are not justified by the expense involved. Additionally, the Trustees reserve the right to enter into contracts with insurance carriers other than MBIA, AMBAC, or FGIC, if such carriers are rated Aaa by Moody's or AAA by S&P. Under the Policies, municipal bond insurers unconditionally guarantee to the Fund the timely payment of principal and interest on the insured municipal securities when and as such payments shall become due but shall not be paid by the issuer, except that in the event of any acceleration of the due date of the principal by reason of mandatory or optional redemption (other than acceleration by reason of mandatory sinking fund payments), default or otherwise, the payments guaranteed will be made in such amounts and at such times as payments of principal would have been due had there not been such acceleration. The municipal bond insurers will be responsible for such payments less any amounts received by the Fund from any trustee for the municipal bond holders or from any other source. The Policies do not guarantee payment on an accelerated basis, the payment of any redemption premium, the value for the Shares of the Fund, or payments of any tender purchase price upon the tender of the municipal securities. The Policies also do not insure against nonpayment of principal of or interest on the securities resulting from the insolvency, negligence or any other act or omission of the trustee or other paying agent for the securities. However, with respect to small issue industrial development municipal bonds and pollution control revenue municipal bonds covered by the Policies, the municipal bond insurers guarantee the full and complete payments required to be made by or on behalf of an issuer of such municipal securities if there occurs any change in the tax-exempt status of interest on such municipal securities, including principal, interest or premium payments, if any, as and when required to be made by or on behalf of the issuer pursuant to the terms of such municipal securities. A when-issued municipal security will be covered under the Policies upon the settlement date of the original issue of such when-issued municipal securities. In determining whether to insure municipal securities held by the Fund, each municipal bond insurer has applied its own standard, when corresponds generally to the standards it has established for determining the insurability of new issues of municipal securities. This insurance is intended to reduce financial risk, but the cost thereof and -7- compliance with investment restrictions imposed under the Policies and these guidelines will reduce the yield to shareholders of the Fund. If a Policy terminates as to municipal securities sold by the Fund on the date of sale, in which event municipal bond insurers will be liable only for those payments of principal and interest that are then due and owing, the provision for insurance will not enhance the marketability of securities held by the Fund, whether or not the securities are in default or subject to significant risk of default, unless the option to obtain permanent insurance is exercised. On the other hand, since issuer-obtained insurance will remain in effect as long as the insured municipal securities are outstanding, such insurance may enhance the marketability of municipal securities covered thereby, but the exact effect, if any, on marketability cannot be estimated. The Fund generally intends to retain any securities that are in default or subject to significant risk of default and to place a value on the insurance, which ordinary will be the difference between the market value of the defaulted security and the market value of similar securities of minimum high grade (i.e., rated A by Moody's or S&P) that are not in default. To the extent that the Fund holds defaulted securities, it may be limited in its ability to manage its investment and to purchase other municipal securities. Except as described above with respect to securities that are in default or subject to significant risk of default, the Fund will not place any value on the insurance in valuing the municipal securities that it holds. Municipal Bond Insurers (High Grade) Municipal bond insurance may be provided by one or more of the following insurers or any other municipal bond insurer which is rated at least Aa by Moody's or AA by S&P. Municipal Bond Investors Assurance Corp. (High Grade) Municipal Bond Investors Assurance Corp. is a wholly-owned subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned by AEtna Life and Casualty, Credit Local DeFrance CAECL, S.A., The Fund American Companies, and the public. The investors of MBIA, Inc., are not obligated to pay the obligations of MBIA. MBIA, domiciled in New York, is regulated by the New York State Insurance Department and licensed to do business in various states. The address of MBIA is 113 King Street, Armonk, New York, 10504, and its telephone number is (914) 273-4345. S&P has rated the claims-paying ability of MBIA AAA. AMBAC Indemnity Corporation (High Grade) AMBAC Indemnity Corporation is a Wisconsin-domiciled stock insurance company, regulated by the Insurance Department of Wisconsin, and licensed to do business in various states. AMBAC is a wholly-owned subsidiary of AMBAC, Inc., a financial holding company which is owned by the public. Copies of certain statutorily required filings of AMBAC can be obtained from AMBAC. The address of AMBAC's administrative offices is One State Street Plaza, 17th Floor, New York, New York, 10004, and its telephone number is (212) 668-0340. S&P has rated the claims-paying ability of AMBAC AAA. Financial Guaranty Insurance Company (High Grade) Financial Guaranty Insurance Company is a wholly-owned subsidiary of FGIC corporation, a Delaware holding company. FGIC Corporation is wholly-owned by General Electric Capital Corporation. The investors of FGIC Corporation are not obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is subject to regulation by the state of New York Insurance Department and is licensed to do business in various states. The address of Financial Guaranty is 115 Broadway, New York, New York, 10006, and its telephone number is (212) 312-3000. S&P has rated the claims-paying ability of Financial Guaranty AAA. Municipal Bonds The two principal classifications of municipal bonds are "general obligation" bonds and "revenue bonds". General obligation bonds are secured by the issuer's pledge of its full faith, credit and unlimited taxing power for the payment of principal and interest. Revenue or special tax bonds are payable only from the revenues derived from a particular -8- facility or class of facilities or projects or, in a few cases, from the proceeds of a special excise or other tax, but are not supported by the issuer's power to levy general taxes. There are, of course, variations in the security of municipal bonds, both within a particular classification and between classifications, depending on numerous factors. The yields of municipal bonds depend on, among other things, general money market conditions, general conditions of the municipal bond market, size of a particular offering, the maturity of the obligations and rating of the issue. Since the Fund may invest in industrial development bonds, the Funds may not be appropriate investment for entities which are "substantial users" of facilities financed by industrial development bonds or for investors who are "related persons". Generally, an individual will not be a "related person" under the Code unless such investors or his immediate family (spouse, brothers, sisters and lineal descendants) own directly or indirectly in the aggregate more than 50 percent of the value of the equity of a corporation or partnership which is a "substantial user" of a facility financed from proceeds of "industrial development bonds". A "substantial user" of such facilities is defined generally as a "non-exempt person who regularly uses a part of a facility" financed from the proceeds of industrial development bonds. As set forth in the Prospectus, the Code establishes new unified volume caps for most "private purpose" municipal bonds (such as industrial development bonds and obligations to finance low-interest mortgages on owner-occupied housing and student loans). The unified volume cap is not expected to affect adversely the availability of Municipal Obligations for investment by the Funds; however, it is possible that proposals will be introduced before Congress to further restrict or eliminate the federal income tax exemption for interest on Municipal Obligations. Any such proposals, if enacted, could adversely affect the availability of municipal bonds for investment by the Funds and the value of each Fund's portfolio might be affected. In that event, each Fund might reevaluate its investment policies and restrictions and consider recommending to its shareholders changes in both. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS .........Except as noted, the investment restrictions set forth below are fundamental and may not be changed with respect to each Fund without the affirmative vote of a majority of the outstanding voting securities of the Fund. Where an asterisk (*) appears after a Fund's name, the relevant policy is non-fundamental with respect to that Fund and may be changed by the Fund's investment adviser without shareholder approval, subject to review and approval by the Trustees. As used in this Statement of Additional Information and in the Prospectus, "a majority of the outstanding voting securities of the Fund" means the lesser of (1) the holders of more than 50% of the outstanding shares of beneficial interest of the Fund or (2) 67% of the shares present if more than 50% of the shares are present at a meeting in person or by proxy. 1........Concentration of Assets in Any One Issuer .........None of Florida High Income, Short-Intermediate or Short-Intermediate-CA may invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer other than the U.S. government and its agencies or instrumentalities, except that up to 25% of the value of each Fund's total assets may be invested without regard to such 5% limitation. For this purpose each political subdivision, agency, or instrumentality and each multi-state agency of which a state is a member, and each public authority which issues industrial development bonds on behalf of a private entity, will be regarded as a separate issuer for determining the diversification of each Fund's portfolio. With respect to 75% of the value of its total assets, High Grade will not purchase securities of any one issuer (other than cash, cash items or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) if as a result more than 5% of the value of its total assets would be invested in the securities of that issuer. -9- Under this limitation, each governmental subdivision, including states and the District of Columbia, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds, backed only by the assets and revenues of a nongovernmental issuer, are considered to be issued solely by that issuer. If, in the case of an industrial development bond or governmental-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. 2........Ten Percent Limitation on Securities of Any One Issuer .........Short-Intermediate-CA, Florida High Income*, and Short-Intermediate may not purchase more than 10% of any class of securities (voting securities in the case of Florida High Income* and Short-Intermediate) of any one issuer other than the U.S. government and its agencies or instrumentalities. 3........Investment for Purposes of Control or Management .........None of Florida High Income, Short-Intermediate or Short-Intermediate-CA may invest in companies for the purpose of exercising control or management. 4........Purchase of Securities on Margin .........None of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond, Florida High Income*, High Grade, Short-Intermediate or Short-Intermediate-CA may purchase securities on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of transactions. A deposit or payment by a Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 5........Unseasoned Issuers .........None of Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond* or High Grade* will invest more than 5% of its total assets in industrial development bonds (and, in the case of High Grade, other municipal securities) where the principal and interest are the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. .........None of Florida High Income*, Short-Intermediate or Short-Intermediate-CA may invest more than 5% of its total assets in securities of unseasoned issuers (taxable securities of unseasoned issuers for Short-Intermediate and Short-Intermediate-CA) that have been in continuous operation for less than three years, including operating periods of their predecessors, except that no such limitation shall apply to the extent that (i) each Fund may invest in obligations issued or guaranteed by the U.S. government and its agencies or instrumentalities, (ii) Short-Intermediate and Short-Intermediate-CA may invest in municipal securities, and (iii) Florida High Income* may invest in municipal bonds. 6........Underwriting .........None of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond, High Grade Florida High Income*, Short-Intermediate or Short-Intermediate-CA may engage in the business of underwriting the securities of other issuers, provided that the purchase of municipal securities or other permitted investments, directly from the issuer thereof (or from an underwriter for an issuer) and the later disposition of such securities in accordance with a Fund's investment program shall not be deemed to be an underwriting. -10- 7........Interests in Oil, Gas or Other Mineral Exploration or Development Programs .........Neither Florida High Income, Short-Intermediate nor Short-Intermediate-CA may purchase, sell or invest in interests in oil, gas or other mineral exploration or development programs. .........Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond*, or High Grade will not purchase interests in or sell oil, gas or other mineral exploration or development programs or leases, although they may purchase the securities of issuers which invest in or sponsor such programs. 8........Concentration in Any One Industry .........Neither Short-Intermediate nor Short-Intermediate-CA may invest 25% or more of its total assets in the securities of issuers conducting their principal business activities in any one industry; provided, that this limitation shall not apply (i) with respect to each Fund, to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities and to municipal securities, or (ii) with respect to Short-Intermediate-CA to certificates of deposit and bankers' acceptances issued by domestic branches of U.S. banks. .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond, High Grade and Florida High Income will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by theses money market instruments, such as repurchase agreements. 9........Warrants .........None of Florida High Income*, Short-Intermediate or Short-Intermediate-CA may invest more than 5% of its total net assets in warrants, and, of this amount, no more than 2% of each Fund's total net assets may be invested in warrants that are listed on neither the New York nor the American Stock Exchange. 10.......Ownership by Trustees/Officers .........None of Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond*, High Grade*, Florida High Income*, Short-Intermediate or Short-Intermediate-CA may purchase or retain the securities of any issuer if (i) one or more officers or Trustees of a Fund or its investment adviser individually owns or would own, directly or beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such persons own or would own, directly or beneficially, more than 5% of such securities. 11.......Short Sales .........High Grade and Florida High Income* will not make short sales of securities or maintain a short position, unless at all times when a short position is open a Fund owns an equal amount of such securities or of securities which, without payment of any further consideration are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. The use of short sales will allow the Funds to retain certain bonds in their portfolios longer than it would without such sales. To the extent that a Fund receives the current income produced by such bonds for a longer period than it might otherwise, a Fund's investment objective is furthered. .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond, Short-Intermediate and Short- Intermediate-CA will not sell any securities short or maintain a short position. -11- 12.......Lending of Funds and Securities .........None of Florida High Income, Short-Intermediate or Short-Intermediate-CA may lend its funds to other persons, provided that each Fund may purchase issues of debt securities, acquire privately negotiated loans made to municipal borrowers and enter into repurchase agreements. .........Neither Florida High Income* nor Short-Intermediate may lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the current market value of the loaned securities, including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's total assets. .........Short-Intermediate-CA may not lend its portfolio securities, unless the borrower is a broker, dealer or financial institution that pledges and maintains collateral with the Fund consisting of cash, letters of credit or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the current market value of the loaned securities, including accrued interest, provided that the aggregate amount of such loans shall not exceed 30% of the Fund's total assets. .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond and Virginia Municipal Bond will not lend any of their assets, except portfolio securities up to one-third of the value of their total assets. Each Fund may, however, acquire publicly or non-publicly issued municipal bonds or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies and limitations or the Declaration of Trust. .........High Grade will not lend any of its assets except that it may purchase or hold money market instruments, including repurchase agreements and variable amount demand master notes in accordance with its investment objective, policies and limitations and it may lend portfolio securities valued at not more than 15% of its total assets to broker-dealers. 13.......Commodities .........Florida High Income* may not purchase, sell or invest in physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities). .........Neither Short-Intermediate nor Short-Intermediate-CA may purchase, sell or invest in commodities, commodity contracts or financial futures contracts. .........High Grade will not purchase or sell commodities or commodity contracts. .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond and Virginia Municipal Bond will not purchase or sell commodities. However, each Fund may purchase put and call options on portfolio securities and on financial futures contracts. In addition, each Fund reserves the right to hedge its portfolio by entering into financial futures contracts and to sell puts and calls on financial futures contracts. 14.......Real Estate .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond and Virginia Municipal Bond will not buy or sell real estate, including limited partnership interests, although each Fund may invest in municipal bonds secured by real estate or interests in real estate. .........Florida High Income* may not purchase, sell or invest in real estate or interests in real estate, except that it may purchase, sell or invest in marketable securities of companies holding real estate or interests in real estate, including real estate investment trusts. -12- .........High Grade will not buy or sell real estate, although it may invest in securities of companies whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. .........Neither Short-Intermediate nor Short-Intermediate-CA may purchase, sell or invest in real estate or interests in real estate, except that each Fund may purchase municipal securities and other debt securities secured by real estate or interests therein. 15.......Borrowing, Senior Securities, Reverse Repurchase Agreements .........Neither Short-Intermediate nor Short-Intermediate-CA nor Florida High Income may borrow money, issue senior securities or enter into reverse repurchase agreements, except for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 10% of the value of each Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of each Fund's total assets at the time of such borrowing, provided that Short-Intermediate and Short-Intermediate-CA will not purchase any securities at any time when borrowings, including reverse repurchase agreements, are outstanding. No Fund will enter into reverse repurchase agreements exceeding 5% of the value of its total assets. .........Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade will not issue senior securities, except each Fund may borrow money directly or through reverse repurchase agreement as a temporary measure for extraordinary or emergency purposes in an amount up to one-third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio instruments; and except to the extent a Fund will enter into futures contracts. Any such borrowings need not be collateralized. No Fund will purchase any securities while borrowings in excess of 5% of its total assets are outstanding. No Fund will borrow money or engage in reverse repurchase agreements for investment leverage purposes. None of Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond* or High Grade will mortgage, pledge or hypothecate any assets except to secure permitted borrowings. In those cases, High Grade may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of borrowing. Margin deposits for the purchase and sale of financial futures contracts and related options and segregation or collateral arrangements made in connection with options activities and the purchase of securities on a when-issued basis are not deemed to be a pledge. 16.......Joint Trading .........Florida High Income may not participate on a joint or joint and several basis in any trading account in any securities. (The "bunching of orders for the purchase or sale of portfolio securities with its investment adviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction). 17.......Options .........Neither Short-Intermediate nor Short-Intermediate-CA may write, purchase or sell put or call options, or combinations thereof, except that each Fund may purchase securities with rights to put securities to the seller in accordance with its investment program. 18.......Investing in Securities of Other Investment Companies .........Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond* and High Grade will purchase securities of investment companies only in open-market transactions involving customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. -13- .........Florida High Income*, Short-Intermediate* and Short-Intermediate-CA* may not purchase the securities of other investment companies, except to the extent such purchases are not prohibited by applicable law. 19.......Restricted Securities .........High Grade will not invest more than 10% of its total assets in securities subject to restrictions on resale under the Federal securities laws. 20.......Investment in Municipal Securities .........Neither Short-Intermediate nor Short-Intermediate-CA may invest more than 20% of its total assets in securities other than, in the case of Short-Intermediate, municipal securities, and in the case of Short-Intermediate-CA, California municipal securities (as described under "Description of the Funds - Investment Objective and Policies" in the Funds' Prospectus), unless extraordinary circumstances dictate a more defensive posture. .........Florida High Income will invest, under normal market conditions, at least 80% of its net assets in municipal securities and at least 90% of such assets will be invested in Florida obligations. NON FUNDAMENTAL OPERATING POLICIES .........Certain Funds have adopted additional non-fundamental operating policies. Operating policies may be changed by the Board of Trustees without a shareholder vote. 1........Securities Issued by Government Units; Industrial Development Bonds .........Short-Intermediate has determined not to invest more than 25% of its total assets (i) in securities issued by governmental units located in any one state, territory or possession of the United States (but this limitation does not apply to project notes backed by the full faith and credit of the U.S. Government) or (ii) industrial development bonds not backed by bank letters of credit. In addition, Short-Intermediate-CA has determined not to invest more than 25% of its total assets in industrial development bonds not backed by bank letters of credit. 2........Illiquid Securities. .........Florida Municipal Bond*, Georgia Municipal Bond*, North Carolina Municipal Bond*, South Carolina Municipal Bond*, Virginia Municipal Bond*, High Grade, Short-Intermediate* and Short-Intermediate-CA* may not invest more than 15% (10% in the case of High Grade) of their net assets in illiquid securities and other securities which are not readily marketable, including repurchase agreements which have a maturity of longer than seven days, but excluding certain securities and municipal leases determined by the Trustees to be liquid. 3........Other. In order to comply with certain state blue sky limitations: ----- ...........Each of Short-Intermediate and Short-Intermediate-CA interprets fundamental investment restriction 7 to prohibit investments in oil, gas and mineral leases. ...........Each of Short-Intermediate and Short-Intermediate-CA interprets fundamental investment restriction 14 to prohibit investment in real estate limited partnerships which are not readily marketable. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. -14- The Funds (other than Short-Intermediate, Short-Intermediate-CA and Florida High Income) have no present intention to borrow money or invest in reverse repurchase agreements in excess of 5% of the value of their net assets during the coming fiscal year. The Funds did not invest more than 5% of their net assets in securities of other investment companies in the last fiscal year, and have no present intent to do so during the coming year. For purposes of their policies and limitations, the Funds consider certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items". .........High Grade does not intend to invest more than 25% of the value of its assets in any issuer in a single state. MANAGEMENT The Trustees and executive officers of the Trusts, their ages, addresses and principal occupations during the past five years are set forth below: Laurence B. Ashkin (67), 180 East Pearson Street, Chicago, IL-Trustee. Real estate developer and construction consultant since 1980; President of Centrum Equities since 1987 and Centrum Properties, Inc. since 1980. Foster Bam*(68), Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law firm of Cummings and Lockwood since 1968. James S. Howell (70), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee. Retired Vice President of Lance Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the Carolinas from 1989 to 1993. Robert J. Jeffries (72), 2118 New Bedford Drive, Sun City Center, FL-Trustee. Corporate consultant since 1967. Gerald M. McDonnell (55), 821 Regency Drive, Charlotte, NC-Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since 1988. Thomas L. McVerry (56), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham Corporation from 1979 to 1990. William Walt Pettit*(39), Holcomb and Pettit, P.A., 207 West Trade St., Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since 1990; Attorney, Clontz and Clontz from 1980 to 1990. Russell A. Salton, III, M.D. (47), Primary Physician Care, 1515 Mockingbird Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990. Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee. Attorney, Law Offices of Michael S. Scofield since prior to 1989. John J. Pileggi (35), 237 Park Avenue, Suite 910, New York, NY-President and Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992, Managing Director from 1984 to 1992. Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney, Securities and Exchange Commission from 1986 to 1991. Except for Messrs. Ashkin, Bam and Jeffries, who are not Trustees of Evergreen Investment Trust (formerly first Union Funds), the Trustees and officers listed above hold the same positions with a total of ten registered investment companies offering a total of thirty-one investment funds within the Evergreen mutual fund complex. -15- - -------- * Mr. Bam and Mr. Pettit may each be deemed to be an "interested person" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). The officers of the Trusts are all officers and/or employees of Furman Selz Incorporated. Furman Selz Incorporated is the parent of Evergreen Funds Distributor, Inc., the distributor of each Class of shares of each Fund. The Funds do not pay any direct remuneration to any officer or Trustee who is an "affiliated person" of either First Union National Bank of North Carolina or Evergreen Asset Management Corp. or their affiliates. See "Investment Adviser." Currently, none of the Trustees is an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee who is not an "affiliated person" an annual retainer and a fee per meeting attended, plus expenses (and $50 for each telephone conference meeting) as follows: Name of Trust/Fund Annual Retainer Meeting Fee Evergreen Municipal Trust - 4,000** Florida High Income 100 Short-Intermediate 100 Short-Intermediate-CA 100 Evergreen Investment Trust - 9,000** 1,500** Florida Municipal Bond Georgia Municipal Bond North Carolina Municipal Bond South Carolina Municipal Bond Virginia Municipal Bond High Grade - ------------------------ * Allocated among the Evergreen Money Market Fund, which is not a series fund, and Evergreen Municipal Trust which offers four investment series, the Evergreen Tax Exempt Money Market Fund, Evergreen Short-Intermediate Municipal Fund, Evergreen Short-Intermediate Fund-CA, and Evergreen National Tax-Free Fund. ** Evergreen Investment Trust pays an annual retainer to each trustee and a per-meeting fee that are allocated among its fifteen series. Additionally, each member of the Audit Committee receives $200 for attendance at each meeting of the of the Audit Committee and an additional fee is paid to the Chairman of the Board of $2,000. Set forth below for each of the Trustees is the aggregate compensation paid to such Trustees by each Trust for the fiscal year ended December 31, 1994 (fiscal year ended August 31, 1994 for Short-Intermediate and Short-Intermediate-CA and April 30, 1995 for Florida High Income). Total Compensation Aggregate Compensation From Trust From Trusts & Fund Name of Municipal Investment Complex Paid Person Trust* Trust** to Trustees Laurence Ashkin $1,489 $29,800 Foster Bam 1,489 29,850 James S. Howell 494 $14,900 26,900 Robert J. Jeffries 1,489 29,800 Gerald M. -16- McDonnell 694 11,900 26,100 Thomas L. McVerry 694 11,900 26,150 William Walt Pettit 694 11,900 26,100 Russell A. Salton, III, M.D. 694 11,900 26,100 Michael S. Scofield 694 11,700 25,650 * Florida High Income commenced operations on June 30, 1995 and, therefore, compensation with regard to such Fund is not included in this table. ** Formerly known as First Union Funds. The number and percent of outstanding shares of of each Fund owned by officers and Trustees as a group on June 15, 1995, is as follows: No. of Shares Owned By Officers and Ownership by Officers and Trustees Trustees as a % of Class Name of Fund as a Group Florida Municipal Bond -0- -0- Georgia Municipal Bond -0- -0- North Carolina Municipal Bond -0- -0- South Carolina Municipal Bond -0- -0- Virginia Municipal Bond -0- -0- Florida High Income -0- -0- High Grade 457,268 - Class Y 17.40% Short-Intermediate 98,659 - Class Y 2.40% Short-Intermediate-CA -0- -0- Set forth below is information with respect to each person, who, to each Fund's knowledge, owned beneficially or of record more than 5% of a class of each Fund's total outstanding shares and their aggregate ownership of the Fund's total outstanding shares as of June 15, 1995. Name of No. of % of Name and Address Fund/Class Shares Class/Fund - ---------------- ---------- ------ ---------- First Union National Bank North Carolina Trust Accounts Municipal Bond/Y 80,095 86.09%/13.64% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank North Carolina Trust Accounts Municipal Bond/Y 12,932 13.90%/2.22% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina 7RK0124218 Municipal Bond/A 16,326 29.21%/3.80% Thomas B. Carr and Louise R. Carr C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 -17- Fubs & Co. Febo South Carolina Charles Dean Turner Municipal Bond/A 5,559 9.95%/1.32% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina Mildred R. Robards Municipal Bond/A 5,484 9.76%/1.27% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina Warren A. Ransom, Jr. Municipal Bond/A 5,057 9.05%/1.18% Laurie P. Ransom C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina Virginia S. Herring Municipal Bond/A 4,064 7.27%/.95% Oren L. Herring, Jr. JTWROS C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina Joan B. Sawyer Municipal Bond/A 3,917 7.01%/.91% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina First Union National Bank- Municipal Bond/A 3,139 5.62%/.73% SC F/B/O David Edmiston Loan Acct Attn: Loan Officer C/O First Union National Bank 301 S Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo South Carolina Ruby B. Motsinger Municipal Bond/B 25,356 7.34%/6.13% Joseph Glenn Motsinger Melvin L. Motsinger Hilda M. Thompson C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank South Carolina Trust Accounts Municipal Bond/B 27,447 99.96%/6.38% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Duff M. Green Virginia 638 Kings Highway Municipal Bond/A 21,170 10.14%/2.71% Fredrickburg, VA 22405-3156 Fubs & Co. Febo Virginia Judith Z. Watson Municipal Bond/A 12,196 5.84%/1.56% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Virginia Howard S. Barger Municipal Bond/A 10,968 5.26%/1.41% Dorothy M. Barger C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Virginia Earl Wilson Watts, Jr., M.D. Municipal Bond/A 10,516 5.04%/1.35% and Barbara A. Watts C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 -18- Fubs & Co. Febo Virginia Harry S. Williams Municipal Bond/B 27,125 5.32%/3.48% Patsy Williams C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Virginia Trust Accounts Municipal Bond/Y 33,900 55.30%/4.35% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Virginia Trust Accounts Municipal Bond/Y 27,395 44.69%/3.51% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Florida Lisa L. Speer Trust Municipal Bond/A 58,750 6.75%/1.50% Richard W. Baker Trustee UAD 12/21/90 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Florida Trust Accounts Municipal Bond/Y 279,801 84.42%/7.17% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Florida Trust Accounts Municipal Bond/Y 51,623 15.58%/1.32% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Georgia Samuel A. Barber Municipal Bond/A 14,516 7.00%/1.40% Velma H. Barber C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Georgia Mrs. Ralph Marlet Municipal Bond/A 12,793 6.13%/1.23% C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Georgia Trust Accounts Municipal Bond/Y 31,394 75.12%/3.02% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank Georgia Trust Accounts Municipal Bond/Y 10,388 24.86%/1.00% Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo High Grade/A 24,437 7.34%/1.39% John A. Ptacek Trust John A. Ptacek TTEE U/A/D 09/10/91 C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo High Grade/A 245,558 73.76%/3.90% Kenneth G. May Phyllis E. May JT TEN C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 -19- Fubs & Co. Febo High Grade/B 22,559 9.52%/1.36% John Rullan and Rose Rullan C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo High Grade/B 12,831 5.41%/1.20% Alvin W. Morland and Gretchen B. Morland C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo High Grade/B 19,704 8.31%/1.31% Alma Harrison C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo High Grade/B 24,605 10.38%/1.39% James C. Smith C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank High Grade/Y 423,880 90.14%/6.72% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 First Union National Bank High Grade/Y 48,358 9.86%/.74% Trust Accounts Attn: Ginny Batten 11th Floor CMG-1151 301 S. Tryon Street Charlotte, NC 28288-0001 Foster & Foster High Grade/Y 424,877 19.64%/16.74% P.O. Box 1669 Greenwich, CT 06836-1669 Alden R. Carlson High Grade/Y 120,950 5.59%/1.92% Marilyn M. Carlson JT TEN C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Short-Intermediate/A 102,468 17.92%/11.95% Manuel Garcia and Adeline Garcia C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Short-Intermediate/A 49,212 8.61%/.94% International Gem Society Inc. C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. Febo Short-Intermediate/A 250,305 43.77%/4.77% First Union National Bank- FL F/B/O International Gem Society Inc Att: Susan Weiner "Loan Account" C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Fubs & Co. FBO Short-Intermediate/B 35,470 6.31%/.68% Mark E. Smith Melissa A. Smith JT TEN -20- C/O First Union National Bank 301 S. Tryon Street Charlotte, NC 28288-0001 Stephen A. Lieber Short-Intermediate-CA/Y 1 100%/0% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 Stephen A. Lieber Short-Intermediate-CA/Y 1 100%/0% C/O Lieber & Co. 2500 Westchester Avenue Purchase, NY 10577 INVESTMENT ADVISER (See also "Management of the Fund" in each Fund's Prospectus) The investment adviser of Short-Intermediate and Short-Intermediate-CA is Evergreen Asset Management Corp., a New York corporation, with offices at 2500 Westchester Avenue, Purchase, New York or ("Evergreen Asset" or the "Adviser."). Evergreen Asset is owned by First Union National Bank of North Carolina ("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union Corporation ("First Union"), a bank holding company headquartered in Charlotte, North Carolina. The investment adviser of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond, Florida High Income and High Grade is FUNB which provides investment advisory services through its Capital Management Group. The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and Co-Chief Executive Officer, Theodore J. Israel, Jr., Executive Vice President, Joseph J. McBrien, Senior Vice President and General Counsel, and George R. Gaspari, Senior Vice President and Chief Financial Officer. On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were acquired by First Union through certain of its subsidiaries. Evergreen Asset was acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with the succession of EAMC to the business of Evergreen Asset and its assumption of the name "Evergreen Asset Management Corp.", Short- Intermediate and Short-Intermediate-CA entered into a new investment advisory agreement with EAMC and into a distribution agreement with Evergreen Funds Distributor, Inc. (the "Distributor"), a subsidiary of Furman Selz Incorporated. At that time, EAMC also entered into a new sub-advisory agreement with Lieber pursuant to which Lieber provides certain services to Evergreen Asset in connection with its duties as investment adviser. The partnership interests in Lieber, a New York general partnership, were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned subsidiaries of FUNB. The business of Lieber is being continued. The new advisory and sub-advisory agreements were approved by the shareholders of Short-Intermediate and Short-Intermediate-CA at their meeting held on June 23, 1994, and became effective on June 30, 1994. Florida High Income, which commenced operations on June 30, 1995, entered into an advisory agreement with FUNB on June 30, 1995. -21- Under its Investment Advisory Agreement with each Fund, each Adviser has agreed to furnish reports, statistical and research services and recommendations with respect to each Fund's portfolio of investments. In addition, each Adviser provides office facilities to the Funds and performs a variety of administrative services. Each Fund pays the cost of all of its other expenses and liabilities, including expenses and liabilities incurred in connection with maintaining their registration under the Securities Act of 1933, as amended, and the 1940 Act, printing prospectuses (for existing shareholders) as they are updated, state qualifications, share certificates, mailings, brokerage, custodian and stock transfer charges, printing, legal and auditing expenses, expenses of shareholder meetings and reports to shareholders. Notwithstanding the foregoing, each Adviser will pay the costs of printing and distributing prospectuses used for prospective shareholders. The method of computing the investment advisory fee for each Fund is described in such Fund's Prospectus. The advisory fees paid by each Fund for the three most recent fiscal periods reflected in its registration statement are set forth below: FLORIDA MUNICIPAL BOND Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $171,732 $31,835 ------- ------ Waiver ($171,732) ($31,835) Net Advisory Fee 0 0 ========== ========== GEORGIA MUNICIPAL BOND Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $36,674 $5,416 ------- ------ Waiver ($36,674) ($5,416) Net Advisory Fee 0 0 ======== ========= NORTH CAROLINA MUNICIPAL BOND Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $287,040 $170,496 ------- ------- Waiver ($193,158) ($170,496) Net Advisory Fee $93,882 0 ========== ========== SOUTH CAROLINA MUNICIPAL BOND Year Ended 12/31/94 Advisory Fee $8,905 -------- Waiver ($8,905) Net Advisory Fee $ 0 ======== VIRGINIA MUNICIPAL BOND Year Ended Year Ended 12/31/94 12/31/93 Advisory Fee $24,942 $4,283 ------- ----- Waiver ($24,942) ($4,283) Net Advisory Fee 0 0 ======== ======== HIGH GRADE Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 Advisory Fee $599,854 $643,946 $356,258 ------- ------- ------- Waiver ($16,091) ($280,300) ($269,964) Net Advisory Fee $583,763 $363,646 $86,294 ========= ========== ========= SHORT-INTERMEDIATE Year Ended Year Ended Year Ended 8/31/94 8/31/93 8/31/92 Advisory Fee $301,565 $313,180 $135,976 ------- ------- ------- Waiver ($150,194) ($256,324) ($124,013) Net Advisory Fee $151,371 $56,856 $11,963 ======== ======== ======== Expense Reimbursement $ 0 $ 0 $63,773 -------- ------- ------ SHORT-INTERMEDIATE- CA Year Ended Year Ended Year Ended 8/31/94 8/31/93 8/31/92 Advisory Fee $164,447 $158,025 $213,131 ------- ------- ------- Waiver ($129,952) ($150,551) ($170,867) Net Advisory Fee $34,495 $7,474 $42,264 ======= ======= ======== Expense Reimbursement 0 $44,957 0 ------- ------ ------- Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade commenced operations on July 2, 1993, July 2, 1993, January 11, 1993, January 4, 1994, July 2, 1993 and February 21, 1992, respectively, and, therefore, the first year's figures set forth in the table above reflect for Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond and Virginia Municipal Bond investment advisory fees paid for the period from commencement of operations through December 31, 1993, with respect to South Carolina Municipal Bond, December 31, 1994 and, with respect to High Grade, December 31, 1992. Expense Limitations -22- Each Adviser's fee will be reduced by, or the Adviser will reimburse the Funds (except Short-Intermediate and Short-Intermediate-CA, which have specific percentage limitations described below) for any amount necessary to prevent such expenses (exclusive of taxes, interest, brokerage commissions and extraordinary expenses, but inclusive of the Adviser's fee) from exceeding the most restrictive of the expense limitations imposed by state securities commissions of the states in which the Funds' shares are then registered or qualified for sale. Reimbursement, when necessary, will be made monthly in the same manner in which the advisory fee is paid. Currently the most restrictive state expense limitation is 2.5% of the first $30,000,000 of the Fund's average daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of such assets in excess of $100,000,000. With respect to Short-Intermediate and Short-Intermediate CA, Evergreen Asset has agreed to reimburse each Fund to the extent that the Fund's aggregate operating expenses (including the Adviser's fee but excluding interest, taxes, brokerage commissions and extraordinary expenses, and, for Class A and Class C shares Rule 12b-1 distribution fees and shareholder servicing fees payable) exceed 1% of its average daily net assets for any fiscal year. The Investment Advisory Agreements are terminable, without the payment of any penalty, on sixty days' written notice, by a vote of the holders of a majority of each Fund's outstanding shares, or by a vote of a majority of each Trust's Trustees or by the respective Adviser. The Investment Advisory Agreements will automatically terminate in the event of their assignment. Each Investment Advisory Agreement provides in substance that the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser or of reckless disregard of its obligations thereunder. The Investment Advisory Agreements with respect to Florida High Income, Short-Intermediate and Short-Intermediate-CA were approved by each Fund's shareholders on June 23, 1994, became effective on June 30, 1994, (June 30, 1995 with respect to Florida High Income) and will continue in effect until June 30, 1996, (June 30, 1997 with respect to Florida High Income) and thereafter from year to year provided that their continuance is approved annually by a vote of a majority of the Trustees of each Trust including a majority of those Trustees who are not parties thereto or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting duly called for the purpose of voting on such approval or a majority of the outstanding voting shares of each Fund. With respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, the Investment Advisory Agreement dated February 28, 1985 and amended from time to time thereafter was last approved by the Trustees of Evergreen Investment Trust (formerly, First Union Funds) on April 20, 1995 and it will continue from year to year with respect to each Fund provided that such continuance is approved annually by a vote of a majority of the Trustees of Evergreen Investment Trust including a majority of those Trustees who are not parties thereto or "interested persons" of any such party cast in person at a meeting duly called for the purpose of voting on such approval or by a vote of a majority of the outstanding voting securities of each Fund. Certain other clients of each Adviser may have investment objectives and policies similar to those of the Funds. Each Adviser (including the sub-adviser) may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of each Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the Funds. When two or more of the clients of the Adviser (including one or more of the Funds) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. Although the investment objectives of the Funds are not the same, and their investment decisions are made independently of each other, they rely upon the same resources for investment advice and recommendations. Therefore, on occasion, when a particular security meets the different investment objectives of the various Funds, they may simultaneously purchase or sell the same security. This could have a detrimental effect on the price and quantity of the security available to each Fund. If simultaneous transactions -23- occur, the Adviser attempts to allocate the securities, both as to price and quantity, in accordance with a method deemed equitable to each Fund and consistent with their different investment objectives. In some cases, simultaneous purchases or sales could have a beneficial effect, in that the ability of one Fund to participate in volume transactions may produce better executions for that Fund. Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit purchase and sales transactions to be effected between each Fund and the other registered investment companies for which either Evergreen Asset or FUNB acts as investment adviser or between the Fund and any advisory clients of Evergreen Asset, FUNB or Lieber & Company. Each Fund may from time to time engage in such transactions but only in accordance with these procedures and if they are equitable to each participant and consistent with each participant's investment objectives. Prior to July 1, 1995, Federated Administrative Services, a subsidiary of Federated Investors, provided legal, accounting and other administrative personnel and support services to each of the portfolios of Evergreen Investment Trust. The Trust paid a fee for such services at the following annual rate: .15% on the first $250 million average daily net assets of the Trust; .125% on the next $250 million; .10% on the next $250 million and .075% on assets in excess of $250 million. For the fiscal year ended December 31, 1994, and for the period from July 2, 1993 (commencement of operations) to December 31, 1993, Florida Municipal Bond incurred $75,397 and $24,932, respectively, in administrative service costs, all of which were voluntarily waived. For the fiscal year ended December 31, 1994, and for the period from July 2, 1993 (commencement of operations) to December 31, 1993, Georgia Municipal Bond incurred $75,479 and $24,931, respectively, in administrative service costs, all of which were voluntarily waived. For the fiscal year ended December 31, 1994, and for the period from January 11, 1993 (commencement of operations) to December 31, 1993, North Carolina Municipal Bond incurred $75,476 and $48,493, respectively, in administrative service costs, of which $28,121 and $48,493 were voluntarily waived. For the period January 3, 1994 (commencement of operations) to December 31, 1994, South Carolina Municipal Bond incurred $104,356 in administrative service costs, all of which was voluntarily waived. For the fiscal year ended December 31, 1994, and for the period from July 2, 1993 (commencement of operations) to December 31, 1993, Virginia Municipal Bond incurred $75,479 and $24,931, respectively, in administrative service costs, all of which were voluntarily waived. For the fiscal years ended December 31, 1994, 1993, and for the period from February 21, 1992 (commencement of operations) to December 31, 1992, High Grade incurred $101,004, $112,663, and $65,451 in administrative service costs, of which $0, $0 and $25,395 were voluntarily waived, respectively. Commencing July 1, 1995, Evergreen Asset will provide administrative services to each of the portfolios of Evergreen Investment Trust for a fee based on the average daily net assets of each fund administered by Evergreen Asset for which Evergreen Asset or FUNB also serves as investment adviser, calculated daily and payable monthly at the following annual rates: .050% on the first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets in excess of $30 billion. Furman Selz Incorporated, the parent of the Distributor, serves as sub-administrator to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade and is entitled to receive a fee from each Fund calculated on the average daily net assets of each Fund at a rate based on the total assets of the mutual funds administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as investment adviser, calculated in accordance with the following schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25 billion. The total assets of mutual funds administered by Evergreen Asset for which Evergreen Asset or FUNB serves as investment adviser as of March 31, 1995 were approximately $7.95 billion. DISTRIBUTION PLANS Reference is made to "Management of the Fund - Distribution Plans and Agreements" in the Prospectus of each Fund for additional disclosure regarding the Funds' distribution arrangements. Distribution fees are accrued daily and paid monthly on the Class A and B shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class B shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, while at the same -24- time permitting the Distributor to compensate broker-dealers in connection with the sale of such shares. In this regard the purpose and function of the combined contingent deferred sales charge and distribution services fee on the Class B shares are the same as those of the front-end sales charge and distribution fee with respect to the Class A shares in that in each case the sales charge and/or distribution fee provide for the financing of the distribution of the Fund's shares. Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with respect to each of its Class A and Class B shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the amounts expended under the Plan and the purposes for which such expenditures were made to the Trustees of each Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of Trustees who are not "interested persons" of each Trust (as defined in the 1940 Act) are committed to the discretion of such disinterested Trustees then in office. Each Adviser may from time to time and from its own funds or such other resources as may be permitted by rules of the Securities and Exchange Commission make payments for distribution services to the Distributor; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Short-Intermediate and Short-Intermediate-CA commenced offering Class A or B shares on January 3, 1995 and Florida High Income commenced offering Class A and Class B shares on June 30, 1995. Each Plan with respect to such Funds became effective on December 30, 1994 (June 30, 1995 with respect to Florida High Income) and was initially approved by the sole shareholder of each Class of shares of each Fund with respect to which a Plan was adopted on that date and by the unanimous vote of the Trustees of each Trust, including the disinterested Trustees voting separately, at a meeting called for that purpose and held on December 13, 1994 (April 20, 1995 with respect to Florida High Income). The Distribution Agreements between each Fund and the Distributor, pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A, and Class B shares were also approved at the December 13, 1994 (April 20, 1995 with respect to Florida High Income) meeting by the unanimous vote of the Trustees, including the disinterested Trustees voting separately. Each Plan and Distribution Agreement will continue in effect for successive twelve-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of each Trust or by vote of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Class, and, in either case, by a majority of the Trustees of the Trust who are not parties to the Agreement or interested persons, as defined in the 1940 Act, of any such party (other than as Trustees of the Trust) and who have no direct or indirect financial interest in the operation of the Plan or any agreement related thereto. Prior to July 7, 1995, Federated Securities Corp., a subsidiary of Federated Investors, served as the distributor for Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade as well as other portfolios of Evergreen Investment Trust. The Distribution Agreements between each Fund and the Distributor pursuant to which distribution fees are paid under the Plans by each Fund with respect to its Class A and Class B shares were approved on April 20, 1995 by the unanimous vote of the Trustees including the disinterested Trustees voting separately. 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 A and Class B shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to each Fund and holders of Class A and Class B shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class A and Class B shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class A and Class B shares; assisting clients in changing dividend -25- options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class A and Class B shares. In addition to the Plans, Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade have each adopted a Shareholder Services Plan whereby shareholder servicing agents may receive fees from the Fund for providing services which include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance, and communicating or facilitating purchases and redemptions of Class B shares of the Fund. In the event that a Plan or Distribution Agreement is terminated or not continued with respect to one or more Classes of a Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund would not be obligated to pay the Distributor for any amounts expended under the Distribution Agreement not previously recovered by the Distributor from distribution services fees in respect of shares of such Class or Classes through deferred sales charges. All material amendments to any Plan or Distribution Agreement must be approved by a vote of the Trustees of a Trust or the holders of the Fund's outstanding voting securities, voting separately by Class, and in either case, by a majority of the disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular Class of shares of a Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the Class affected. With respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, amendments to the Shareholder Services Plan require a majority vote of the disinterested Trustees but do not require a shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement may be terminated (a) by a Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by Class or by a majority vote of the Trustees who are not "interested persons" as defined in the 1940 Act, or (b) by the Distributor. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to the Distributor. Any Distribution Agreement will terminate automatically in the event of its assignment. For the fiscal year ended December 31, 1994, Florida Municipal Bond incurred $23,034 in distribution service fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, Georgia Municipal Bond incurred $3,045 in distribution service fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, North Carolina Municipal Bond incurred $24,761 in distribution service fees on behalf of Class A shares. For the period from January 3, 1994 (commencement of operations) to December 31, 1994 South Carolina Municipal Bond incurred $393 in distribution services fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, Virginia Municipal Bond incurred $4,028 in distribution services fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, High Grade incurred $197,562 in distribution services fees on behalf of Class A shares. For the fiscal year ended December 31, 1994, Florida Municipal Bond incurred $178,862 in distribution service fees on behalf of Class B shares. For the fiscal year ended December 31, 1994, Georgia Municipal Bond incurred $44,866 in distribution services fees on behalf of Class B shares. For the fiscal year ended December 31, 1994, North Carolina Municipal Bond incurred $353,880 in distribution services fees on behalf of Class B shares. For the period from January 3, 1994 (commencement of operations) to December 31, 1994, South Carolina Municipal Bond incurred $11,793 in distribution services fees for Class B shares. For the fiscal year ended December 31, 1994, Virginia Municipal Bond incurred $24,447 in distribution services fees on behalf of Class B shares. For the fiscal year ended December 31, 1994, High Grade incurred $287,858 in distribution services fees on behalf of Class B shares. Shareholder Services Plans For the period ended December 31, 1994, Florida Municipal Bond incurred shareholder services fees of $19,489 on behalf of Class B shares; Georgia Municipal Bond incurred -26- shareholder services fees of $5,407 on behalf of Class B shares; North Carolina Municipal Bond incurred shareholder services fees of $35,677 on behalf of Class B shares; South Carolina Municipal Bond incurred shareholder service fees of $1,833 on behalf of Class B shares; Virginia Municipal Bond incurred shareholder service fees of $2,897 on behalf of Class B shares; and High Grade incurred shareholder service fees of $26,443 on behalf of Class B shares. ALLOCATION OF BROKERAGE Decisions regarding each Fund's portfolio are made by its Adviser, subject to the supervision and control of the Trustees. Orders for the purchase and sale of securities and other investments are placed by employees of the Adviser, all of whom, in the case of Evergreen Asset, are associated with Lieber. In general, the same individuals perform the same functions for the other funds managed by the Adviser. A Fund will not effect any brokerage transactions with any broker or dealer affiliated directly or indirectly with the Adviser unless such transactions are fair and reasonable, under the circumstances, to the Fund's shareholders. Circumstances that may indicate that such transactions are fair or reasonable include the frequency of such transactions, the selection process and the commissions payable in connection with such transactions. It is anticipated that most of the Funds purchase and sale transactions will be with the issuer or an underwriter or with major dealers in such securities acting as principals. Such transactions are normally on a net basis and generally do not involve payment of brokerage commissions. However, the cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriter. Purchases or sales from dealers will normally reflect the spread between bid and ask prices. In selecting firms to effect securities transactions, the primary consideration of each Fund shall be prompt execution at the most favorable price. A Fund will also consider such factors as the price of the securities and the size and difficulty of execution of the order. If these objectives may be met with more than one firm, the Fund will also consider the availability of statistical and investment data and economic facts and opinions helpful to the Fund. To the extent that receipt of these services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. Except with respect to North Carolina Municipal Bond, the transactions in which the Funds engage do not involve the payment of brokerage commissions and are executed with dealers other than Lieber. For the fiscal year ended December 31, 1994, and for the period from January 11, 1993 (commencement of operations) to December 31, 1993, North Carolina Municipal Bond paid $1,250 and $0, respectively, in commissions on brokerage transactions. ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus) Each Fund has qualified and intends to continue to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to 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; (b) derive less than 30% of its gross income from the sale or other disposition of securities, options, futures or forward contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the RIC's principal business of investing in securities (or options and futures with respect thereto) held for less than three months; and (c) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities and securities of other -27- regulated investment companies). By so qualifying, a Fund is not subject to Federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Dividends paid by a Fund from investment company taxable income generally will be taxed to the shareholders as ordinary income. Investment company taxable income includes net investment income and net realized short-term gains (if any). Any dividends received by a Fund from domestic corporations will constitute a portion of the Fund's gross investment income. It is anticipated that this portion of the dividends paid by a Fund (other than distributions of securities profits) will qualify for the 70% dividends-received deduction for corporations. Shareholders will be informed of the amounts of dividends which so qualify. Distributions of the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders (who are not exempt from tax) as long-term capital gain, regardless of the length of time the shares of a Fund have been held by such shareholders. Short-term capital gains distributions are taxable to shareholders who are not exempt from tax as ordinary income. Such distributions are not eligible for the dividends-received deduction. Any loss recognized upon the sale of shares of a Fund held by a shareholder for six months or less will be treated as a long-term capital loss to the extent that the shareholder received a long-term capital gain distribution with respect to such shares. Distributions of investment company taxable income and any net short-term capital gains will be taxable as ordinary income as described above to shareholders (who are not exempt from tax), whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the net asset value of a share of a Fund on the reinvestment date. Distributions by each Fund result in a reduction in the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable as ordinary income or capital gain as described above to shareholders (who are not exempt from tax), even though, from an investment standpoint, it may constitute a return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive what is in effect a return of capital upon the distribution which will nevertheless be taxable to shareholders subject to taxes. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gains or loss will be treated as a capital gain or loss if the shares are capital assets in the investor's hands and will be a long-term capital gain or loss if the shares have been held for more than one year. Generally, any loss realized on a sale or exchange will be disallowed to the extent shares disposed of are replaced within a period of sixty-one days beginning thirty days before and ending thirty days after the shares are disposed of. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares, and will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her Federal income tax return. Each shareholder should consult his or her own tax adviser to determine the state and local tax implications of Fund distributions. Shareholders who fail to furnish their taxpayer identification numbers to a Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% Federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisers about the applicability of the backup withholding provisions. -28- The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisers regarding specific questions relating to Federal, state and local tax consequences of investing in shares of a Fund. Each shareholder who is not a U.S. person should consult his or her tax adviser regarding the U.S. and foreign tax consequences of ownership of shares of a Fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. Special Tax Considerations To the extent that the Fund distributes exempt interest dividends to a shareholder, interest on indebtedness incurred or continued by such shareholder to purchase or carry shares of the Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or related persons) of facilities financed by "private activity" bonds (some of which were formerly referred to as "industrial development" bonds) should consult their tax advisers before purchasing shares of the Fund. "Substantial user" is defined generally as including a "non-exempt person" who regularly uses in its trade or business a part of a facility financed from the proceeds of industrial development bonds. The percentage of the total dividends paid by a Fund with respect to any taxable year that qualifies as exempt interest dividends will be the same for all shareholders of the Fund receiving dividends with respect to such year. If a shareholder receives an exempt interest dividend with respect to any share and such share has been held for six months or less, any loss on the sale or exchange of such share will be disallowed to the extent of the exempt interest dividend amount. NET ASSET VALUE The following information supplements that set forth in each Prospectus under the subheading "How to Buy Shares - How the Funds Value Their Shares" in the Section entitled "Purchase and Redemption of Shares". The public offering price of shares of a Fund is its net asset value, plus, in the case of Class A shares, a sales charge which will vary depending on the purchase alternative chosen by the investor, as more fully described in the Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge Alternative. " On each Fund business day on which a purchase or redemption order is received by a Fund and trading in the types of securities in which a Fund invests might materially affect the value of Fund shares, the per share net asset value of each such Fund is computed in accordance with the Declaration of Trust and By-Laws governing each Fund as of the next close of regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's total assets, less its liabilities, by the total number of its shares then outstanding. A Fund business day is any weekday, exclusive of national holidays on which the Exchange is closed and Good Friday. For each Fund, securities for which the primary market is on a domestic or foreign exchange and over-the-counter securities admitted to trading on the NASDAQ National List are valued at the last quoted sale or, if no sale, at the mean of closing bid and asked prices and portfolio bonds are presently valued by a recognized pricing service when such prices are believed to reflect the fair value of the security. Over-the-counter securities not included in the NASDAQ National List for which market quotations are readily available are valued at a price quoted by one or more brokers. If accurate quotations are not available, securities will be valued at fair value determined in good faith by the Board of Trustees. -29- The respective per share net asset values of the Class A, Class B and Class Y shares are expected to be substantially the same. Under certain circumstances, however, the per share net asset values of the Class B shares may be lower than the per share net asset value of the Class A shares (and, in turn, that of Class A shares may be lower than Class Y shares) as a result of the greater daily expense accruals, relative to Class A and Class Y shares, of Class B shares relating to distribution services fees (and, with respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, shareholder service fee) and, to the extent applicable, transfer agency fees and the fact that Class Y shares bear no additional distribution, shareholder service or transfer agency related fees. While it is expected that, in the event each Class of shares of a Fund realizes net investment income or does not realize a net operating loss for a period, the per share net asset values of the three classes will tend to converge immediately after the payment of dividends, which dividends will differ by approximately the amount of the expense accrual differential among the Classes, there is no assurance that this will be the case. In the event one or more Classes of a Fund experiences a net operating loss for any fiscal period, the net asset value per share of such Class or Classes will remain lower than that of Classes that incurred lower expenses for the period. PURCHASE OF SHARES The following information supplements that set forth in each Prospectus under the heading "Purchase and Redemption of Shares - How To Buy Shares." General Shares of each Fund will be offered on a continuous basis at a price equal to their net asset value plus an initial sales charge at the time of purchase (the "front-end sales charge alternative"), or with a contingent deferred sales charge (the deferred sales charge alternative"), as described below. Class Y shares which, as described below, are not offered to the general public, are offered without any front-end or contingent sales charges. Shares of each Fund are offered on a continuous basis through (i) investment dealers that are members of the National Association of Securities Dealers, Inc. and have entered into selected dealer agreements with the Distributor ("selected dealers"), (ii) depository institutions and other financial intermediaries or their affiliates, that have entered into selected agent agreements with the Distributor ("selected agents"), or (iii) the Distributor. The minimum for initial investments is $1,000; there is no minimum for subsequent investments. The subscriber may use the Share Purchase Application available from the Distributor for his or her initial investment. Sales personnel of selected dealers and agents distributing a Fund's shares may receive differing compensation for selling Class A or Class B shares. Investors may purchase shares of a Fund in the United States either through selected dealers or agents or directly through the Distributor. A Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. Each Fund will accept unconditional orders for its shares to be executed at the public offering price equal to the net asset value next determined (plus for Class A shares, the applicable sales charges), as described below. Orders received by the Distributor prior to the close of regular trading on the Exchange on each day the Exchange is open for trading are priced at the net asset value computed as of the close of regular trading on the Exchange on that day (plus for Class A shares the sales charges). In the case of orders for purchase of shares placed through selected dealers or agents, the applicable public offering price will be the net asset value as so determined, but only if the selected dealer or agent receives the order prior to the close of regular trading on the Exchange and transmits it to the Distributor prior to its close of business that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is responsible for transmitting such orders by 5:00 p.m. If the selected dealer or agent fails to do so, the investor's right to that day's closing price must be settled between the investor and the selected dealer or agent. If the selected dealer or agent receives the order after the close of regular trading on the Exchange, the price will be based on the net asset value determined as of the close of regular trading on the Exchange on the next day it is open for trading. -30- Following the initial purchase of shares of a Fund, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Share Purchase Application. Payment for shares purchased by telephone can be made only by Electronic Funds Transfer from a bank account maintained by the shareholder at a bank that is a member of the National Automated Clearing House Association ("ACH"). If a shareholder's telephone purchase request is received before 3:00 p.m. New York time on a Fund business day, the order to purchase shares is automatically placed the same Fund business day for non-money market funds, and two days following the day the order is received for money market funds, and the applicable public offering price will be the public offering price determined as of the close of business on such business day. Full and fractional shares are credited to a subscriber's account in the amount of his or her subscription. As a convenience to the subscriber, and to avoid unnecessary expense to a Fund, stock certificates representing Class Y shares of a Fund are not issued except upon written request to the Fund by the shareholder or his or her authorized selected dealer or agent. This facilitates later redemption and relieves the shareholder of the responsibility for and inconvenience of lost or stolen certificates. No certificates are issued for fractional shares, although such shares remain in the shareholder's account on the records of a Fund, or for Class A or B shares of any Fund. Alternative Purchase Arrangements Each Fund issues three classes of shares: (i) Class A shares, which are sold to investors choosing the front-end sales charge alternative; (ii) Class B shares, which are sold to investors choosing the deferred sales charge alternative; and (iii) Class Y shares, which are offered only to (a) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (b) certain investment advisory clients of the Advisers and their affiliates, and (c) institutional investors. The three classes of shares each represent an interest in the same portfolio of investments of the Fund, have the same rights and are identical in all respects, except that (I) only Class A and Class B shares are subject to a Rule 12b-1 distribution fee, (II) Class B shares of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade and subject to a shareholder service fee, (III) Class A shares bear the expense of the front-end sales charge and Class B shares bear the expense of the deferred sales charge, (IV) Class B shares bear the expense of a higher Rule 12b-1 distribution services fee and shareholder service fee than Class A shares and higher transfer agency costs, (V) with the exception of Class Y shares, each Class of each Fund has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution services (and, to the extent applicable, shareholder service) fee is paid which relates to a specific Class and other matters for which separate Class voting is appropriate under applicable law, provided that, if the Fund submits to a simultaneous vote of Class A and Class B shareholders an amendment to the Rule 12b-1 Plan that would materially increase the amount to be paid thereunder with respect to the Class A shares, the Class A shareholders and the Class B shareholders will vote separately by Class, and (VI) only the Class B shares are subject to a conversion feature. Each Class has different exchange privileges and certain different shareholder service options available. The alternative purchase arrangements permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares, and other circumstances. Investors should consider whether, during the anticipated life of their investment in the Fund, the accumulated distribution services (and, to the extent applicable, shareholder service) fee and contingent deferred sales charges on Class B shares prior to conversion would be less than the front-end sales charge and accumulated distribution services fee on Class A shares purchased at the same time, and to what extent such differential would be offset by the higher return of Class A shares. Class B shares will normally not be suitable for the investor who qualifies to purchase Class A shares at the lowest applicable sales charge. For this reason, the Distributor will reject any order (except orders for Class B shares from certain retirement plans) for more than $2,500,000 for Class B shares. Class A shares are subject to a lower distribution services fee and no shareholder service fee and, accordingly, pay correspondingly higher dividends per share than Class B shares. However, because front-end sales charges are deducted at the time of purchase, investors purchasing Class A shares would not have all their funds invested initially and, -31- therefore, would initially own fewer shares. Investors not qualifying for reduced front-end sales charges who expect to maintain their investment for an extended period of time might consider purchasing Class A shares because the accumulated continuing distribution (and, to the extent applicable, shareholder service) charges on Class B shares may exceed the front-end sales charge on Class A shares during the life of the investment. Again, however, such investors must weigh this consideration against the fact that, because of such front-end sales charges, not all their funds will be invested initially. Other investors might determine, however, that it would be more advantageous to purchase Class B shares in order to have all their funds invested initially, although remaining subject to higher continuing distribution services (and, to the extent applicable, shareholder service) fees and being subject to a contingent deferred sales charge for a seven-year period. For example, based on current fees and expenses, an investor subject to the 4.75% front-end sales charge would have to hold his or her investment approximately seven years for the Class B distribution services (and, to the extent applicable, shareholders service) fees, to exceed the front-end sales charge plus the accumulated distribution services fee of Class A shares. In this example, an investor intending to maintain his or her investment for a longer period might consider purchasing Class A shares. This example does not take into account the time value of money, which further reduces the impact of the Class B distribution services (and, to the extent applicable, shareholder service) fees on the investment, fluctuations in net asset value or the effect of different performance assumptions. With respect to each Fund, the Trustees have determined that currently no conflict of interest exists between or among the Class A, Class B and Class Y shares. On an ongoing basis, the Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws, will seek to ensure that no such conflict arises. Front-end Sales Charge Alternative--Class A Shares The public offering price of Class A shares for purchasers choosing the front-end sales charge alternative is the net asset value plus a sales charge as set forth in the Prospectus for each Fund. Shares issued pursuant to the automatic reinvestment of income dividends or capital gains distributions are not subject to any sales charges. The Fund receives the entire net asset value of its Class A shares sold to investors. The Distributor's commission is the sales charge set forth in the Prospectus for each Fund, less any applicable discount or commission "reallowed" to selected dealers and agents. The Distributor will reallow discounts to selected dealers and agents in the amounts indicated in the table in the Prospectus. In this regard, the Distributor may elect to reallow the entire sales charge to selected dealers and agents for all sales with respect to which orders are placed with the Distributor. Set forth below is an example of the method of computing the offering price of the Class A shares of each Fund. The example assumes a purchase of Class A shares of a Fund aggregating less than $100,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of Class A shares of each Fund at the end of each Fund's latest fiscal year.
Net Per Share Offering Asset Sales Price Value Charge Date Per Share Florida Municipal Bond $ 8.92 $.45 12/31/94 $ 9.37 Georgia Municipal Bond $ 8.74 $.44 12/31/94 $ 9.18 North Carolina Municipal Bond $ 9.16 $.46 12/31/94 $ 9.62 South Carolina Municipal Bond $ 8.62 $.43 12/31/94 $ 9.05 Virginia Municipal Bond $ 8.85 $.44 12/31/94 $ 9.29 -32- Florida High Income $10.00 $ 6/23/95 $10.50 High Grade $ 9.79 $.49 12/31/94 $10.28 Short- Intermediate $10.21 $.51 8/31/94 $10.72 Short- Intermediate- CA $10.09 $.50 8/31/94 $10.59
Prior to January 3, 1995, shares of the Funds other than Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade were offered exclusively on a no-load basis and, accordingly, no underwriting commissions were paid in respect of sales of shares of the Funds or retained by the Distributor. In addition, since Class B shares were not offered prior to January 3, 1995, contingent deferred sales charges have been paid to the Distributor with respect to Class B shares only since January 3, 1995. With respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade for the periods indicated, the following commissions were paid to and amounts were retained by Federated Securities Corp., which, prior to July 7, 1995, was the principal underwriter of portfolios of Evergreen Investment Trust: Year Ended Period from July 2, 1993 12/31/94 to December 31, 1993 Florida Municipal Bond Fund Commissions Received 2,000 132,000 Commissions Retained --- 20,000 Georgia Municipal Bond Commissions Received 103,000 15,000 Commissions Retained 6,000 2,000 Virginia Municipal Bond Commissions Received 62,000 49,000 Commissions Retained 6,000 7,000 * * * * * * * * * * * * North Carolina Municipal Bond Period from Year Ended January 11, 1993 12/31/94 to December 31, 1993 Commissions Received 210,000 35,000 Commissions Retained 3,000 5,000 * * * * * * * * * * * * South Carolina Municipal Bond Period from January 3, 1994 to December 31, 1994 Commissions Received 34,000 Commissions Retained 5,000 -33- * * * * * * * * * * * * High Grade Period from Year Ended Year Ended February 21, 1992 12/31/94 12/31/93 to December 31, 1992 ---------- ---------- -------------------- Commissions Received 82,000 549,000 --- Commissions Retained 5,000 82,000 Investors choosing the front-end sales charge alternative may under certain circumstances be entitled to pay reduced sales charges. The circumstances under which such investors may pay reduced sales charges are described below. Combined Purchase Privilege. Certain persons may qualify for the sales charge reductions by combining purchases of shares of one or more Evergreen mutual funds other than money market funds into a single "purchase", if the resulting "purchase" totals at least $100,000. The term "purchase" refers to: (i) a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own account(s); (ii) a single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or (iii) a single purchase for the employee benefit plans of a single employer. The term "purchase" also includes purchases by any "company", as the term is defined in the 1940 Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of a Fund or shares of other registered investment companies at a discount. The term "purchase" does not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit card holders of a company, policy holders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. A "purchase" may also include shares, purchased at the same time through a single selected dealer or agent, of any Evergreen mutual fund. Currently, the Evergreen mutual funds include: Evergreen Fund Evergreen Global Real Estate Equity Fund Evergreen U.S. Real Estate Equity Fund Evergreen Limited Market Fund, Inc. Evergreen Growth and Income Fund Evergreen Total Return Fund Evergreen American Retirement Fund Evergreen Small Cap Equity Income Fund Evergreen Tax Strategic Foundation Fund Evergreen Short-Intermediate Municipal Fund Evergreen Short-Intermediate Municipal Fund-CA Evergreen Tax Exempt Money Market Fund Evergreen Money Market Fund Evergreen Foundation Fund Evergreen Florida High Income Fund Evergreen Aggressive Growth Fund Evergreen Balanced Fund* Evergreen Utility Fund* Evergreen Value Fund* Evergreen U.S. Government Fund* Evergreen Fixed Income Fund* Evergreen Managed Bond Fund* Evergreen Emerging Markets Growth Fund* Evergreen International Equity Fund* Evergreen Treasury Money Market Fund* Evergreen Florida Municipal Bond Fund* Evergreen Georgia Municipal Bond Fund* Evergreen North Carolina Municipal Bond Fund* Evergreen South Carolina Municipal Bond Fund* Evergreen Virginia Municipal Bond Fund* Evergreen High Grade Tax Free Fund* * Prior to July 7, 1995, each Fund was named "First Union" instead of "Evergreen." -34- Prospectuses for the Evergreen mutual funds may be obtained without charge by contacting the Distributor or the Advisers at the address or telephone number shown on the front cover of this Statement of Additional Information. Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of additional Class A shares of a Fund may qualify for a Cumulative Quantity Discount. The applicable sales charge will be based on the total of: (i) the investor's current purchase; (ii) the net asset value (at the close of business on the previous day) of (a) all Class A and Class B shares of the Fund held by the investor and (b) all such shares of any other Evergreen mutual fund held by the investor; and (iii) the net asset value of all shares described in paragraph (ii) owned by another shareholder eligible to combine his or her purchase with that of the investor into a single "purchase" (see above). For example, if an investor owned Class A or B shares of an Evergreen mutual fund worth $200,000 at their then current net asset value and, subsequently, purchased Class A shares of a Fund worth an additional $100,000, the sales charge for the $100,000 purchase would be at the 3.00% rate applicable to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate. To qualify for the Combined Purchase Privilege or to obtain the Cumulative Quantity Discount on a purchase through a selected dealer or agent, the investor or selected dealer or agent must provide the Distributor with sufficient information to verify that each purchase qualifies for the privilege or discount. Statement of Intention. Class A investors may also obtain the reduced sales charges shown in the Prospectus by means of a written Statement of Intention, which expresses the investor's intention to invest not less than $100,000 within a period of 13 months in Class A shares (or Class A and Class B shares) of the Fund or any other Evergreen mutual fund. Each purchase of shares under a Statement of Intention will be made at the public offering price or prices applicable at the time of such purchase to a single transaction of the dollar amount indicated in the Statement of Intention. At the investor's option, a Statement of Intention may include purchases of Class A or B shares of the Fund or any other Evergreen mutual fund made not more than 90 days prior to the date that the investor signs a Statement of Intention; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included. Investors qualifying for the Combined Purchase Privilege described above may purchase shares of the Evergreen mutual funds under a single Statement of Intention. For example, if at the time an investor signs a Statement of Intention to invest at least $100,000 in Class A shares of the Fund, the investor and the investor's spouse each purchase shares of the Fund worth $20,000 (for a total of $40,000), it will only be necessary to invest a total of $60,000 during the following 13 months in shares of the Fund or any other Evergreen mutual fund, to qualify for the 3.75% sales charge on the total amount being invested (the sales charge applicable to an investment of $100,000). The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount. Shares purchased with the first 5% of such amount will be held in escrow (while remaining registered in the name of the investor) to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased, and such escrowed shares will be involuntarily redeemed to pay the additional sales charge, if necessary. Dividends on escrowed shares, whether paid in cash or reinvested in additional Fund shares, are not subject to escrow. When the full amount indicated has been purchased, the escrow will be released. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge -35- will be adjusted for the entire amount purchased at the end of the 13-month period. The difference in sales charge will be used to purchase additional shares of the Fund subject to the rate of sales charge applicable to the actual amount of the aggregate purchases. Investors wishing to enter into a Statement of Intention in conjunction with their initial investment in Class A shares of the Fund should complete the appropriate portion of the Subscription Application found in the Prospectus while current Class A shareholders desiring to do so can obtain a form of Statement of Intention by contacting a Fund at the address or telephone number shown on the cover of this Statement of Additional Information. Investments Through Employee Benefit and Savings Plans. Certain qualified and non-qualified benefit and savings plans may make shares of the Evergreen mutual funds available to their participants. Investments made by such employee benefit plans may be exempt from any applicable front-end sales charges if they meet the criteria set forth in the Prospectus under "Class A Shares-Front End Sales Charge Alternative". The Advisers may provide compensation to organizations providing administrative and recordkeeping services to plans which make shares of the Evergreen mutual funds available to their participants. Reinstatement Privilege. A Class A shareholder who has caused any or all of his or her shares of the Fund to be redeemed or repurchased may reinvest all or any portion of the redemption or repurchase proceeds in Class A shares of the Fund at net asset value without any sales charge, provided that such reinvestment is made within 30 calendar days after the redemption or repurchase date. Shares are sold to a reinvesting shareholder at the net asset value next determined as described above. A reinstatement pursuant to this privilege will not cancel the redemption or repurchase transaction; therefore, any gain or loss so realized will be recognized for Federal tax purposes except that no loss will be recognized to the extent that the proceeds are reinvested in shares of the Fund. The reinstatement privilege may be used by the shareholder only once, irrespective of the number of shares redeemed or repurchased, except that the privilege may be used without limit in connection with transactions whose sole purpose is to transfer a shareholder's interest in the Fund to his or her individual retirement account or other qualified retirement plan account. Investors may exercise the reinstatement privilege by written request sent to the Fund at the address shown on the cover of this Statement of Additional Information. Sales at Net Asset Value. In addition to the categories of investors set forth in the Prospectus, each Fund may sell its Class A shares at net asset value, i.e., without any sales charge, to: (i) certain investment advisory clients of the Advisers or their affiliates; (ii) officers and present or former Trustees of the Trust; present or former trustees of other investment companies managed by the Advisers; present or retired full-time employees of the Adviser; officers, directors and present or retired full-time employees of the Adviser, the Distributor, and their affiliates; officers, directors and present and full-time employees of selected dealers or agents; or the spouse, sibling, direct ancestor or direct descendant (collectively "relatives") of any such person; or any trust, individual retirement account or retirement plan account for the benefit of any such person or relative; or the estate of any such person or relative, if such shares are purchased for investment purposes (such shares may not be resold except to the Fund); (iii) certain employee benefit plans for employees of the Adviser, the Distributor. and their affiliates; (iv) persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer and approved by the Distributor, pursuant to which such persons pay an asset-based fee to such broker-dealer, or its affiliate or agent, for service in the nature of investment advisory or administrative services. These provisions are intended to provide additional job-related incentives to persons who serve the Funds or work for companies associated with the Funds and selected dealers and agents of the Funds. Since these persons are in a position to have a basic understanding of the nature of an investment company as well as a general familiarity with the Fund, sales to these persons, as compared to sales in the normal channels of distribution, require substantially less sales effort. Similarly, these provisions extend the privilege of purchasing shares at net asset value to certain classes of institutional investors who, because of their investment sophistication, can be expected to require significantly less than normal sales effort on the part of the Funds and the Distributor. -36- Deferred Sales Charge Alternative--Class B Shares Investors choosing the deferred sales charge alternative purchase Class B shares at the public offering price equal to the net asset value per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The Class B shares are sold without a front-end sales charge so that the full amount of the investor's purchase payment is invested in the Fund initially. Proceeds from the contingent deferred sales charge are paid to the Distributor and are used by the Distributor to defray the expenses of the Distributor related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to selected dealers and agents for selling Class B shares. The combination of the contingent deferred sales charge and the distribution services fee (and, with respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, the shareholder service fee) enables the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. The higher distribution services fee (and, with respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, the shareholder service fee) incurred by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than those related to Class A shares. Contingent Deferred Sales Charge. Class B shares which are redeemed within seven years of purchase will be subject to a contingent deferred sales charge at the rates set forth in the Prospectus charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no contingent deferred sales charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the contingent deferred sales charge, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. In determining the contingent deferred sales charge applicable to a redemption, it will be assumed, that the redemption is first of any Class A shares in the shareholder's Fund account, second of Class B shares held for over eight years or Class B shares acquired pursuant to reinvestment of dividends or distributions and third of Class B shares held longest during the eight-year period. To illustrate, assume that an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional Class B shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 Class B shares, 10 Class B shares will not be subject to charge because of dividend reinvestment. With respect to the remaining 40 Class B shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, of the $600 of the shares redeemed $400 of the redemption proceeds (40 shares x $10 original purchase price) will be charged at a rate of 4.0% (the applicable rate in the second year after purchase for a contingent deferred sales charge of $16). The contingent deferred sales charge is waived on redemptions of shares (i) following the death or disability, as defined in the Code, of a shareholder, or (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70-1/2. Conversion Feature. At the end of the period ending seven years after the end of the calendar month in which the shareholder's purchase order was accepted, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher distribution services fee imposed on Class B shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to reduce the distribution services fee paid by holders of Class B shares that have been outstanding long enough for the Distributor to have been compensated for the expenses associated with the sale of such shares. -37- For purposes of conversion to Class A, Class B shares purchased through the reinvestment of dividends and distributions paid in respect of Class B shares in a shareholder's account will be considered to be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A, an equal pro-rata portion of the Class B shares in the sub-account will also convert to Class A. The conversion of Class B shares to Class A shares is subject to the continuing availability of an opinion of counsel to the effect that (i) the assessment of the higher distribution services fee (and, with respect to Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade, shareholder service fee) and transfer agency costs with respect to Class B shares does not result in the dividends or distributions payable with respect to other Classes of a Fund's shares being deemed "preferential dividends" under the Code, and (ii) the conversion of Class B shares to Class A shares does not constitute a taxable event under Federal income tax law. The conversion of Class B shares to Class A shares may be suspended if such an opinion is no longer available at the time such conversion is to occur. In that event, no further conversions of Class B shares would occur, and shares might continue to be subject to the higher distribution services fee (and, in the case of Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and High Grade, the shareholder services fee) for an indefinite period which may extend beyond the period ending eight years after the end of the calendar month in which the shareholder's purchase order was accepted. Class Y Shares Class Y shares are not offered to the general public and are available only to (i) persons who at or prior to December 30, 1994 owned shares in a mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients of the Advisers and their affiliates, and (iii) institutional investors. Class Y shares do not bear any Rule 12b-1 distribution expenses and are not subject to any front-end or contingent deferred sales charges. GENERAL INFORMATION ABOUT THE FUNDS (See also "Other Information - General Information" in each Fund's Prospectus) Capitalization and Organization The Evergreen Florida High Income Municipal Bond, Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund-California are each separate series of Evergreen Municipal Trust, a Massachusetts business trust. Florida High Income, which is a newly created series of Evergreen Municipal Trust, acquired substantially all of the assets of ABT Florida High Income Municipal Bond Fund (the"ABT Fund") on June 30, 1995. The Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund, Evergreen North Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund, Evergreen Virginia Municipal Bond Fund and Evergreen High Grade Tax Free Fund, respectively, are each separate series of Evergreen Investment Trust, a Massachusetts business trust. On July 7, 1995, First Union Funds changed its name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds changed its name to First Union Funds. The above-named Trusts are individually referred to in this Statement of Additional Information as the "Trust" and collectively as the "Trusts." Each Trust is governed by a board of trustees. Unless otherwise stated, references to the "Board of Trustees" or "Trustees" in this Statement of Additional Information refer to the Trustees of all the Trusts. Florida High Income, Short-Intermediate and Short-Intermediate-CA may issue an unlimited number of shares of beneficial interest with a $0.0001 par value. Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade may issue an unlimited number of shares of beneficial interest without par value. All shares of these Funds have equal rights and privileges. Each share is entitled to one vote, to participate equally in dividends and distributions declared by the Funds and on liquidation to their proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of these Funds are fully paid, nonassessable and fully transferable when issued and have no pre-emptive, conversion or exchange rights. Fractional shares have proportionally the same rights, including voting rights, as are provided for a full share. -38- Under each Trust's Declaration of Trust, each Trustee will continue in office until the termination of the Fund or his or her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee upon a vote of two-thirds of the outstanding shares of beneficial interest of the Trust. Vacancies will be filled by a majority of the remaining Trustees, subject to the 1940 Act. As a result, normally no annual or regular meetings of shareholders will be held, unless otherwise required by the Declaration of Trust of each Trust or the 1940 Act. Shares have noncumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so and in such event the holders of the remaining shares so voting will not be able to elect any Trustees. The Trustees of each Trust are authorized to reclassify and issue any unissued shares to any number of additional series without shareholder approval. Accordingly, in the future, for reasons such as the desire to establish one or more additional portfolios of a Trust with different investment objectives, policies or restrictions, additional series of shares may be created by one or more Funds. Any issuance of shares of another series or class would be governed by the 1940 Act and the law of the State of Massachusetts. If shares of another series of a Trust were issued in connection with the creation of additional investment portfolios, each share of the newly created portfolio would normally be entitled to one vote for all purposes. Generally, shares of all portfolios would vote as a single series on matters, such as the election of Trustees, that affected all portfolios in substantially the same manner. As to matters affecting each portfolio differently, such as approval of the Investment Advisory Agreement and changes in investment policy, shares of each portfolio would vote separately. In addition any Fund may, in the future, create additional classes of shares which represent an interest in the same investment portfolio. Except for the different distribution related an other specific costs borne by such additional classes, they will have the same voting and other rights described for the existing classes of each Fund. Procedures for calling a shareholders' meeting for the removal of the Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940 Act will be available to shareholders of each Fund. The rights of the holders of shares of a series of a Fund may not be modified except by the vote of a majority of the outstanding shares of such series. An order has been received from the Securities and Exchange Commission permitting the issuance and sale of multiple classes of shares representing interests in each Fund. In the event a Fund were to issue additional Classes of shares other than those described herein, no further relief from the Securities and Exchange Commission would be required. Distributor Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York 10169, serves as each Fund's principal underwriter, and as such may solicit orders from the public to purchase shares of any Fund. The Distributor is not obligated to sell any specific amount of shares and will purchase shares for resale only against orders for shares. Under the Agreement between the Fund and the Distributor, the Fund has agreed to indemnify the Distributor, in the absence of its willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Counsel Sullivan & Worcester, Washington, D.C., serves as counsel to the Funds. Independent Auditors Price Waterhouse LLP has been selected to be the independent auditors of Florida High Income, Short-Intermediate and Short-Intermediate-CA. -39- KPMG Peat Marwick LLP has been selected to be the independent auditors of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade. PERFORMANCE INFORMATION Total Return From time to time a Fund may advertise its "total return." Computed separately for each class, the Fund's "total return" is its average annual compounded total return for recent one, five, and ten-year periods (or the period since the Fund's inception). The Fund's total return for such a period is computed by finding, through the use of a formula prescribed by the Securities and Exchange Commission, the average annual compounded rate of return over the period that would equate an assumed initial amount invested to the value of such investment at the end of the period. For purposes of computing total return, income dividends and capital gains distributions paid on shares of the Fund are assumed to have been reinvested when paid and the maximum sales charge applicable to purchases of Fund shares is assumed to have been paid. The Fund will include performance data for Class A, Class B, and Class Y shares in any advertisement or information including performance data of the Fund. With respect to Short-Intermediate and Short-Intermediate-CA, the shares of each Fund outstanding prior to January 3, 1995 have been reclassified as Class Y shares. With respect to Florida High Income, the Fund is the successor of the ABT Fund and the information presented is with respect to the ABT Fund's Class A shares, the only outstanding class. The average annual compounded total return for each Class of shares offered by the Funds for the most recently completed one, five and ten year fiscal periods is set forth in the table below. -40- FLORIDA MUNICIPAL 1 Year BOND Ended From inception* 12/31/94 to 12/31/94 Class A -13.49% -5.86% Class B -14.20% -5.84% Class Y -- -6.54% GEORGIA MUNICIPAL 1 Year BOND Ended From inception** 12/31/94 to 12/31/94 Class A -13.94% -7.16% Class B -14.66% -7.15% Class Y -- -6.87% NORTH CAROLINA 1 Year MUNICIPAL BOND Ended From inception*** 12/31/94 to 12/31/94 Class A -13.44% -1.89% Class B -14.16% -2.01% Class Y -- -7.03% SHORT-INTERMEDIATE 1 Year From 11/18/91 Ended (inception) 8/31/94 to 8/31/94 Class A -3.40% 3.95% Class B -3.41% 4.81 Class Y 1.42% 5.79% SHORT-INTERMEDIATE- 1 Year From 10/16/92 CA Ended (inception) 8/31/94 to 8/31/94 Class A -3.00% 2.12% Class B -3.04% 2.74% Class Y 1.84% 4.79% SOUTH CAROLINA From inception- MUNICIPAL BOND to 12/31/94 Class A -13.64% Class B -14.31 Class Y -7.14 VIRGINIA MUNICIPAL 1 Year From inception-- BOND Ended to 12/31/94 Class A -12.96% -6.05% Class B -13.63% -0.64% Class Y -- -5.82% HIGH GRADE 1 Year Ended From inception--- 12/31/94 to 12/31/94 Class A -12.12% -3.03% Class B -12.81% -0.48% Class Y -- -6.31% FLORIDA HIGH 1 Year From June 17, 1992 INCOME Ended (inception) to 12/31/94 12/31/94 Class A -9.43% -3.42% Class B Class Y * Inception date: Class A - July 5, 1993; Class B - July 1, 1993; Class Y - February 28, 1994. ** Inception date: Class A - July 1, 1993; Class B - July 1, 1993; Class Y - February 28, 1994. -41- *** Inception date: Class A - January 12, 1993; Class B - January 12, 1993; Class Y - February 28, 1994. - - Inception date: Class A - January 3, 1994; Class B - January 3, 1994; Class Y - - February 28, 1994. - -- Inception date: Class A - July 7, 1993; Class B - July 1, 1993; Class Y - February 28, 1994. - --- Inception date: Class A - February 25, 1992; Class B - January 12, 1993; Class Y - February 28, 1994. The performance numbers for Short-intermediate and Short-Intermediate-CA for the Class A, and Class B shares are hypothetical numbers based on the performance for Class Y shares as adjusted for any applicable front-end sales charge or contingent deferred sales charge. For Florida High Income the performance numbers for the Class B and Class Y shares are hypothetical numbers based upon the performance for the Class A shares as adjusted for any applicable contingent deferred sales charge. A Fund's total return is not fixed and will fluctuate in response to prevailing market conditions or as a function of the type and quality of the securities in a Fund's portfolio and its expenses. Total return information is useful in reviewing a Fund's performance but such information may not provide a basis for comparison with bank deposits or other investments which pay a fixed yield for a stated period of time. An investor's principal invested in a Fund is not fixed and will fluctuate in response to prevailing market conditions. YIELD CALCULATIONS From time to time, a Fund may quote its yield in advertisements or in reports or other communications to shareholders. Yield quotations are expressed in annualized terms and may be quoted on a compounded basis. Yields are computed by dividing the Fund's interest income (as defined in the SEC yield formula) for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive distributions during the period, dividing this figure by the Fund's net asset value per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. The formula for calculating yield is as follows: YIELD = 2[(a-b+1)6-1] cd Where a = Interest earned during the period b = Expenses accrued for the period (net of reimbursements) c = The average daily number of shares outstanding during the period that were entitled to receive dividends d = The maximum offering price per share on the last day of the period Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Gains and losses generally are excluded from the calculation. Income calculated for purposes of determining a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for a Fund may differ from the rate of distributions a Fund paid over the same period, or the net investment income reported in a Fund's financial statements. Tax Equivalent Yield The Funds invest principally in obligations the interest from which is exempt from federal income tax other than the AMT. In addition, the securities in which state-specific Funds invest will also, to the extent practicable, be exempt from such state's income taxes. However, from time to time the Funds may -42- make investment which generate taxable income. A Fund's tax-equivalent yield is the rate an investor would have to earn from a fully taxable investment in order to equal the Fund's yield after taxes. Tax-equivalent yields are calculated by dividing a Fund's yield by the result of one minus a stated federal or combined federal and state tax rate. (If only a portion of the Fund's yield is tax-exempt, only that portion is adjusted in the calculation.) Of course, no assurance can be given that a Fund will achieve any specific tax-exempt yield. If only a portion of the Fund's yield is tax-exempt, only that portion is adjusted in the calculation. Of course, no assurance can be given that the Fund will achieve any specific tax-exempt yield. The following formula is used to calculate Tax Equivalent Yield without taking into account state tax: Fund's Yield 1 - Fed Tax Rate The following formula is used to calculate Tax Equivalent Yield taking into account state tax: Fund's Yield 1 - Fed Tax Rate + (State Tax Rate - [State Tax Rate x Fed Tax Rate]) Yield information is useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' investment portfolios, portfolio maturity, operating expenses and market conditions. It should be recognized that in periods of declining interest rates the yields will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the yields will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the Fund's investments, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. The tax exempt and tax equivalent yields of each Fund for the thirty-day period ended December 31, 1994 (August 31, 1994 with respect to Short-Intermediate and Short-Intermediate- CA and April 30, 1995 with respect to Florida High Income and Florida Municipal Bond) for each Class of shares offered by the Funds is set forth in the table below. The table assumes the following combined federal and state tax rate: California - 36%; Florida - 28%; Georgia - 34%; North Carolina - 28%; South Carolina - 35%; Virginia - 33/25%. Yield Tax Equivalent Yield Florida High Income* Class A 6.46% 8.97% Class B -- -- Class Y -- -- Short-Intermediate** Class A -- -- Class B -- -- Class Y 4.23% 5.88% Short-Intermediate-CA** Class A -- -- Class B -- -- Class Y 4.10% 7.19% Florida Municipal Bond* Class A 4.98% 6.92% Class B -- -- Class Y -- -- -43- Georgia Municipal Bond Class A 5.90% 8.94% Class B 5.46% 8.27% Class Y 6.45% 9.77% North Carolina Municipal Bond Class A 5.43% 7.54% Class B 4.96% 6.89% Class Y 5.96% 8.28% South Carolina Municipal Bond Class A 5.97% 9.18% Class B 5.52% 8.49% Class Y 6.53% 10.05% Virginia Municipal Bond Class A 5.50% 8.30% Class B 5.03% 7.59% Class Y 6.00% 9.06% High Grade Class A 5.33% 7.40% Class B 4.85% 6.74% Class Y 5.85% 8.13% * Florida High Income and Florida Tax Free yields are based on the Class A SEC yield of the ABT Florida High Income Fund and ABT Florida Tax Free Fund. Florida High Income and Florida Tax Free acquired the net assets of ABT Florida High Income Fund and ABT Florida Tax Free Fund, respectively, on June 30, 1995 and are the successors to such funds for accounting purposes. **The Class A and B Shares of Short-Intermediate and Short-Intermediate-CA had not yet commenced operations at August 31, 1994. Non-Standardized Performance In addition to the performance information described above, a Fund may provide total return information for designated periods, such as for the most recent six months or most recent twelve months. This total return information is computed as described under "Total Return" above except that no annualization is made. GENERAL From time to time, a Fund may quote its performance in advertising and other types of literature as compared to the performance of the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman Brothers General Obligations Municipal Bond Index or any other commonly quoted index of common stock or municipal bond prices. The Standard & Poor's 500 Composite Stock Price Index and the Dow Jones Industrial Average are unmanaged indices of selected common stock prices. The Lehman Brothers General Obligations Municipal Bond Index is an unmanaged index of state general obligation debt issues which are rated A or better and represent a variety of coupon ranges. A Fund's performance may also be compared to those of other mutual funds having similar objectives. This comparative performance would be expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar independent services monitoring mutual fund performance. A Fund's performance will be calculated by assuming, to the extent applicable, reinvestment of all capital gains distributions and income dividends paid. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. Additional Information Any shareholder inquiries may be directed to the shareholder's broker or to each Adviser at the address or telephone number shown on the front cover of this Statement of Additional Information. This Statement of Additional Information does not contain all the information set forth in the Registration Statement filed by the Trusts with the Securities and Exchange Commission under the Securities Act of 1933. Copies of the Registration Statement may be obtained -44- at a reasonable charge from the Securities and Exchange Commission or may be examined, without charge, at the offices of the Securities and Exchange Commission in Washington, D.C. FINANCIAL STATEMENTS Each Fund's financial statements appearing in their most current fiscal year Annual Report (or in the case of Florida High Income, its balance sheet as of June 23, 1995) to shareholders and the report thereon of the independent auditors appearing therein, namely Price Waterhouse LLP (in the case of Florida High Income, Short-Intermediate and Short-Intermediate-CA), or KPMG Peat Marwick LLP (in the case of Florida Municipal Bond, Georgia Municipal Bond, North Carolina Municipal Bond, South Carolina Municipal Bond, Virginia Municipal Bond and High Grade) are incorporated by reference in this Statement of Additional Information. The Annual Reports to Shareholders for each Fund, which contain the referenced statements, are available upon request and without charge. -45- APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS NOTE RATINGS Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high quality, with margins of protection ample though not so large as in the preceding group. MIG-3 -- favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay principal and interest. BOND RATINGS Moody's Investors Service: Aaa -- judged to be the best quality, carry the smallest degree of investment risk; Aa -- judged to be of high quality by all standards; A -- possess many favorable investment attributes and are to be considered as higher medium grade obligations; Baa -- considered as medium grade obligations which are neither highly protected nor poorly secured. Moody's Investors Service also applies numerical indicators, 1, 2 and 3, to rating categories Aa through Baa. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group: AAA -- highest grade obligations, possesses the ultimate degree of protection as to principal and interest; AA -- also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree; A -- regarded as upper medium grade, have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions, interest and principal are regarded as safe; BBB -- regarded as having adequate capacity to pay interest and repay principal but are more susceptible than higher rated obligations to the adverse effects of changes in economic and trade conditions. Standard & Poor's Ratings Group applies indicators "+", no character, and "-" to the above rating categories AA through BBB. The indicators show relative standing within the major rating categories. Duff & Phelps: AAA - highest credit quality, with negligible risk factors; AA -- high credit quality, with strong protection factors and modest risk, which may vary very slightly from time to time because of economic conditions; A -- average credit quality with adequate protection factors, but with greater and more variable risk factors in periods of economic stress. The indicators "+" and "-" to the AA and A categories indicate the relative position of a credit within those rating categories. Fitch Investors Service: AAA -- highest credit quality, with an exceptionally strong ability to pay interest and repay principal; AA -- very high credit quality, with a very strong ability to pay interest and repay principal; A -- high credit quality, considered strong as regards principal and interest protection, but may be more vulnerable to adverse changes in economic conditions; and BBB -- satisfactory credit quality with adequate ability with regard to interest and principal, and likely to be affected by adverse changes in economic conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB categories indicate the relative position of a credit within those rating categories. COMMERCIAL PAPER RATINGS Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to denote relative strength within this highest classification. Standard & Poor's Ratings Group: "A" is the highest commercial paper rating category utilized by Standard & Poor's Ratings Group which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A" classification. -46- Duff & Phelps: Duff 1 is the highest commercial paper rating category utilized by Duff & Phelps which uses + or - to denote relative strength within this classification. Duff 2 represents good certainty of timely payment, with minimal risk factors. Duff 3 represents satisfactory protection factors, with risk factors larger and subject to more variation. Fitch Investors Service: F-1+ -- denotes exceptionally strong credit quality given to issues regarded as having strongest degree of assurance for timely payment; F-1 -- very strong credit quality, with only slightly less degree of assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a satisfactory degree of assurance for timely payment. -47- APPENDIX B - ADDITIONAL INFORMATION CONCERNING CALIFORNIA The following information as to certain California risk factors is given to investors in view of Short-Intermediate-CA's policy of investing primarily in California state and municipal issuers. The information is based primarily upon information derived from public documents relating to securities offerings of California state and municipal issuers, from independent municipal credit reports and historically reliable sources, but has not been independently verified by the Fund On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the California Constitution. The principal thrust of Article XIIIA is to limit the amount of ad valorem taxes on real property to one percent of the full cash value as determined by the county assessor. The assessed valuation of all real property may be increased, but not in excess of two percent per year, or decreased to reflect the rate of inflation or deflation as shown by the consumer price index. Article XIIIA requires a vote of two thirds of the qualified electorate to impose special taxes, and completely prohibits the imposition of any additional ad valorem, sales or transaction tax on real property (other than ad valorem taxes to repay general obligation bonds issued to acquire or improve real property), and requires the approval of two-thirds of all members of the State Legislature to change any state tax laws resulting in increased tax revenues. On November 6, 1979, California voters approved the initiative seeking to amend the California Constitution entitled "Limitation of Government Appropriations" which added Article XIIIB to the California Constitution. Under Article XIIIB state and local governmental entities have an annual appropriations limit and may not spend certain monies which are called appropriations subject to limitations (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Generally, the appropriations limit is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, population and services provided by these entities. Decreased in state and local revenues in future fiscal years as a consequence of these initiatives may continue to result in reductions in allocations of state revenues to California municipal issuers or reduce the ability of such California issuers to pay their obligations. With the apparent onset of recovery in California's economy, revenue growth over the next few years could recommence at levels that would enable California to restore fiscal stability. The political environment, however, combined with pressures on the state's financial flexibility, may frustrate its ability to reach this goal. Strong interests in long-established state programs ranging from low-cost public higher education access to welfare and health benefits join with the more recently emerging pressure for expanded prison construction and a heightened awareness and concern over the state's business climate. Adopted on July 8, 1994, the fiscal 1994 budget is designed to address California's accumulated deficit over a 22-month period. In order to balance the budget and generate sufficient cash to retire the $4 billion deficit Revenue Anticipation Warrant and a $3 billion Revenue Anticipation Note to be issued in July 1995, the state's fiscal plan relies upon aggressive assumptions of federal aid, projected at about $760 million in fiscal year 1995 and $2.8 billion in fiscal year 1995, to compensate the state for its costs of providing service to illegal immigrants. These assumptions, combined with fiscal year 1996 constitutionally mandated increases in spending for K-14 education, and continued growth in social services and corrections expenditures, are risky. To offset this risk, the state has enacted a Budget Adjustment Law, known as the "trigger" legislation, which established a set of backup budget adjustment mechanisms to address potential shortfalls in cash. The trigger mechanism will be in effect for both fiscal years 1995 and 1996. In July of 1994, S&P and Moody's lowered the general obligation bond rating of the state of California. The rating agencies explained their actions by citing the state's continuing deferral of substantial portions of its estimated $3.8 billion accumulated deficit; continuing structural budgetary constraints including a funding guarantee for K-14 education; overly optimistic expectation of federal aid to balance fiscal year 1995's budget and fiscal -48- year 19996's cash flow projections; and reliance upon a trigger mechanism to reduce spending if the plan's federal aid assumptions prove to be inflated. -49- APPENDIX C - ADDITIONAL INFORMATION CONCERNING FLORIDA Florida Municipal Bond and Florida High Income Fund invest in obligations of Florida issuers, which results in each Fund's performance being subject to risks associated with the overall conditions present within the state. The following information is a brief summary of the recent prevailing economic conditions and a general summary of the state's financial status. This information is based on official statements relating to securities that have been offered by Florida issuers and from other sources believed to be reliable, but should not be relied upon as a complete description of all relevant information. Florida is the twenty-second largest state, with an area of 54,136 square miles and a water area of 4,424 square miles. The state is 447 miles long and 361 miles wide with a tidal shoreline of almost 2,300 miles. According to the U.S. Census Bureau, Florida moved past Illinois in 1986 to become the fourth most populous state, and as of 1990, had an estimated population of 13.2 million. Services and trade continue to be the largest components of the Florida economy, reflecting the importance of tourism as well as the need to serve Florida's rapidly growing population. Agriculture is also an important part of the economy, particularly citrus fruits. Oranges have been the principal crop, accounting for 70% of the nation's output. Manufacturing, although of less significance, is a rapidly growing component of the economy. The economy also has substantial insurance, banking, and export participation. Unemployment rates have historically been below national averages, but have recently risen above the national rate. Section 215.32 of the Florida Statutes provides that financial operations of the State of Florida covering all receipts and expenditures be maintained through the use of three funds - the General Revenue Fund, the Trust Fund and the Working Capital Fund. The General Fund receives the majority of state tax revenues. The Working Capital Fund receives revenues in excess of appropriations and its balances are freely transferred to the General Revenue Fund as necessary. In November, 1992, Florida voters approved a constitutional amendment requiring the state of fund a Budget Stabilization Fund to 5% of general revenues, with funding to be phased in over five years beginning in fiscal 1995. The Working Capital Fund will become the Budget Stabilization Fund. Major sources of tax revenues to the General Revenue Fund are the sales and use tax, corporate income tax and beverage tax. The over- dependence on the sensitive sales tax creates vulnerability to recession. Accordingly, financial operations have been strained during the past few years, but the state has responded in a timely manner to maintain budgetary control. The state is highly vulnerable to hurricane damage. Hurricane Andrew devastated portions of southern Florida in August, 1992, costing billions of dollars in emergency relief, damage, and repair costs. However, the overall financial condition of the major issuers of municipal bond debt in the state were relatively unaffected by Hurricane Andrew, due to federal disaster assistance payments and the overall level of private insurance. However, it is possible that single revenue-based local bond issues could be severely impacted by storm damage in certain circumstances. Florida's debt structure is complex. Most state debt is payable from specified taxes and additionally secured by the full faith and credit of the state. Under the general obligation pledge, to the extent specified taxes are insufficient, the state is unconditionally required to make payment on bonds from all non-dedicated taxes. Each Fund's concentration in securities issued by the state and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying condition of the state, and its municipalities. -50- APPENDIX D - ADDITIONAL INFORMATION CONCERNING GEORGIA Because Georgia Municipal Bond will ordinarily invest 80% or more of its net assets in Georgia obligations, it is more susceptible to factors affecting Georgia issuers than is a comparable municipal bond fund not concentrated in the obligations of issuers located in a single state. Georgia's rating reflects the state's positive economic trends, conservative financial management, improved financial position, and low debt burden. The state's recovery from the recent economic recession has been steady; the rate of recovery is better than regional trends, albeit half the rate of earlier recoveries. While this recovery does not meet the explosive patterns set in past cycles, recent state data reveal that Georgia ranks among the top five states in the nation in employment and total population growth. Stronger economic trends and conservative revenue forecasting resulted in the continuation of improved financial results for the fiscal year ended June 30, 1994. The state's general fund closed fiscal 1994 with a total fund balance position of $480.6 million, of which $249.5 million was in the revenue shortfall reserve fund (3% of revenues), marking the second consecutive year of build-up in that reserve. The mid-year adjustment reserve was fully funded at $89.1 million. The state's adopted budget fiscal 1995, called for an increase in state spending to $9.8 billion, up 6.5% from the prior period. Estimating that economic growth will be in the 6%-8% range for the second straight year, the budget report forecasted general fund revenues to grow to $9.4 billion, an increase of $490.0 million, or 5.5% above actual fiscal 1994 levels. Sales and income taxes account for the majority of that increase, despite a $100 million cut in personal income taxes. Additional revenues provided by lottery proceeds ($240 million) and indigent-care trust fund monies support the remaining spending. Revenues for the first three months of the current year are running nearly 8.4% above fiscal 1994 levels. Most of the increase is attributable to the growth in personal and corporate income and sales taxes. As a result, the state anticipates that fiscal 1995 will once again produce positive financial results. Except for the major building projects necessary for the 1996 Summer Olympics, it appears unlikely that areas in and around metropolitan Atlanta will experience the building construction rates of the mid to late 1980's. It further appears that many of Georgia's other cities are poised to participate in the recovery that inevitably will take place. The classification of the Fund under the Investment Company Act of 1940 as a "non-diversified" investment company allows the Fund to invest more than 5% of its assets in the securities of any issuer, subject to satisfaction of certain tax requirements. Because of the relatively small number of issues of Georgia obligations, the Fund is likely to invest a greater percentage of its assets in the securities of a single issuer than is an investment company which invests in a broad range of municipal obligations. Therefore, the Fund would be more susceptible than a diversified investment company to any single adverse economic or political occurrence or development affecting Georgia issuers. The Fund will also be subject to an increase risk of loss if the issuer is unable to make interest or principal payments or if the market value of such securities declines. It is also possible that there will not be sufficient availability of suitable Georgia tax-exempt obligations for the Fund to achieve its objective of providing income exempt from Georgia income tax. -51- APPENDIX E - ADDITIONAL INFORMATION CONCERNING NORTH CAROLINA Because North Carolina Municipal Bond will ordinarily invest 80% or more of its net assets in North Carolina obligations, it is more susceptible to factors affecting North Carolina (or the "State") issuers than is a comparable municipal bond fund not concentrated in the obligations of issuers located in a single state. North Carolina has an economy dependent on manufacturing and agriculture; however, diversification into trade and service areas is occurring. Historically, textiles and furniture dominated industry lines, but increased activity in financial services, research, and high technology manufacturing is now apparent. Tobacco remains the primary agricultural commodity. Economic development continues, and long-term personal income trends indicate gains, although wealth levels remain below those of the nation. Employment growth accelerated over the past two years, and unemployment rates remain below those of the nation. North Carolina is characterized by moderate debt levels (albeit with growing capital needs), favorable economic performance, and financial strengths exhibited over the past several years. North Carolina is one of only several states expected to sustain favorable economic expansion throughout the 1990s, according to the U.S. Bureau of Economic Analysis indicators. Economic growth in the State is bolstered by a lower-than-average cost of living, income levels at about 90% of U.S. averages - though it is much higher in the metropolitan centers - and a highly respected public and private higher education system, including the University of North Carolina at Chapel Hill and Duke University in Durham. The North Carolina State Constitution requires that the total expenditures of the State for a fiscal period shall not exceed the total of receipts during the fiscal period and the surplus remaining in the State Treasury at the beginning of the period. In certain of the past several years, the State has had to restrict expenditures to comply with the State Constitution. The State has long record of sound financial operations, and while the revenue system is narrow, the budget balancing law is strong and appropriate curbs are made when necessary. The state's finances, which enjoyed surpluses and adequate reserves throughout the 1980s, began reflecting economic downturn in fiscal 1990. Reserves were fully depleted during the recession, but through a combination of tax and spending actions and more recently, with the aid of economic recovery, have now been fully restored. Financial operations have been restored to their historically healthy position after a period of strain between fiscal years 1990 and 1992. Available unreserved balances and budget stabilization reserve totaled $440 million at the end of fiscal 1994 equivalent to 4.1% of annual expenditures. On a budgetary basis, fiscal 1994 ended with an $887.5 million balance; however, a portion of this balance has been appropriated for fiscal 1995 operations. Conservative revenue assumptions and sound budgeting practices should result in a similar balance at the end of 1995. The restoration of adequate reserve levels confirms the state's longstanding commitment to a sound financial position. Debt ratios are among the lowest in the country. State debt ratios will remain below national medians even after all of the $300 million of currently authorized debt is issued. Payout is rapid. North Carolina ranks among the top ten states in terms of economic growth, as measured by job and personal income growth. Diversification into financial services, research, and high technology manufacturing is reducing historical dependence on agriculture, textiles, and furniture manufacturing. As of December 31, 1994, general obligations of the State of North Carolina were rated Aaa/AAA/AAA by Moody's, S&P and Fitch Investors Service ("Fitch"), respectively. There can be no assurance that the economic conditions on which these ratings are based will continue or that particular bond issues may not be adversely affected by changes in economic, political or other conditions. North Carolina obligations also include obligations of the governments of Puerto Rico, the Virgin Islands and Guam to the extent these obligations are exempt from North -52- Carolina State personal income taxes. The Fund will not invest more than 5% of its net assets in the obligations of each of the Virgin Islands and Guam, but may invest without limitation in the obligations of Puerto Rico. Accordingly, the Fund may be adversely affected by local political and economic conditions and developments within Puerto Rico affecting the issuers of such obligations. -53- APPENDIX F - ADDITIONAL INFORMATION CONCERNING SOUTH CAROLINA The State of South Carolina has an economy dominated from the early 1920s to the present by textile industry, with over one of every three manufacturing workers directly or indirectly related to the textile industry. However, since 1950 the economic bases of the State have become more diversified, as the trade and service sectors and durable goods manufacturing industries have developed. Currently, Moody's rates South Carolina general obligations bonds "Aaa" and S&P rates such bonds "AA+." There can be no assurance that the economic conditions on which those ratings are based will continue or that particular bond issues may not be adversely affected by changes in the economic or political conditions. The South Carolina State Constitution mandates a balanced budget. If a deficit occurs, the General Assembly must account for it in the succeeding fiscal year. In addition, if a deficit appears likely, the State Budget and Control Board (the "State Board") may reduce appropriations during the current fiscal year as necessary to prevent the deficit. The State Constitution limits annual increases in State appropriations to the average growth rate of the economy of the State and annual increases in the number of State employees to the average growth of the population of the State. The State Constitution requires a General Reserve Fund ("General Fund") that equals three percent of General Fund revenue for the latest fiscal year. When deficits have occurred, the State has funded them out of the General Fund. The State Constitution also requires a Capital Reserve Fund ("Capital Fund") equal to two percent of General Fund revenue. Before March 1st of each year, the Capital Fund must be used to offset mid-year budget reductions before mandating cuts in operating appropriations, and after March 1st, the Capital Fund may be appropriated by a special vote of the General Assembly to finance previously authorized capital improvements or other nonrecurring purposes. Monies in the Capital Fund not appropriated or any appropriation for a particular project or item that has been reduced due to application of the monies to a year-end deficit must go back to the General Fund. The effects of the most recent military base-closing and consolidation legislation is having a negative effect on several sections of the State, particularly the Charleston area. During 1995, the Charleston Naval Base and Shipyard will begin closing down. The Navy has estimated that up to 38,000 jobs will be lost over the next several years. South Carolina Municipal Bond's concentration in securities issued by the State or its subdivisions provides a greater level of risk than an investment company which is diversified across a larger geographic area. For example, the passage of the North American Free Trade Agreement could result in increased competition for the State's textile industry due to the availability of less-expensive foreign labor. Presently, South Carolina subjects bonds issued by other states to its income tax. If this tax was declared unconstitutional, the value of bonds in the Fund could decline a small but measurable amount. Also, the Fund could become slightly less attractive to potential future investors. The Fund's investment adviser believes that the information summarized above describes some of the more significant matters relating to the Fund. The sources of the information are the official statements of issuers located in South Carolina, other publicly available documents, and oral statements from various State agencies. The Fund's investment adviser has not independently verified any of the information contained in the official statement, other publicly available documents, or oral statements from various State agencies. -54- APPENDIX G - ADDITIONAL INFORMATION CONCERNING VIRGINIA Virginia Municipal Bond invests in obligations of Virginia issuers, which results in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a brief summary of the recent prevailing economic conditions and a general summary of the State's financial status. This information is based on official statements relating to securities that have been offered by Virginia issuers and from other sources believed to be reliable, but should not be relied upon as a complete description of all relevant information. Virginia's credit strength is derived from a diversified economy, relatively low unemployment rates, strong financial management, and low debt burden. The State's economy benefits significantly from its proximity to Washington D.C. Government is the State's third- largest employment sector, comprising 21% of total employment. Other important sectors of the economy include shipbuilding, tourism, construction, and agriculture. Virginia is a very conservative debt issuer and has maintained debt levels that are low in relation to its substantial resources. Conservative policies also dominate the State's financial operations, and the State administration continually demonstrates its ability and willingness to adjust financial planning and budgeting to preserve financial balance. For example, economic weakness in the State and the region caused personal income and sales and corporate tax collections to fall below projected forecasts and placed the State under budgetary strain. The State reacted by reducing its revenue expectations for the 1990-92 biennium and preserved financial balance through a series of transfers, appropriation reductions, and other budgetary revisions. Management's actions resulted in a modest budget surplus for fiscal 1992, and another modest surplus was reported for fiscal 1993, which ended June 30th. The 1994 Virginia budget experienced a significant surplus due to an improving economy, including job growth of 3.0%/year overall. Overall, Virginia has a stable credit outlook due mainly to its diverse economy and resource base, as well as a conservative approach to financial operations. Revenue growth for 1994 was 6%. Budgets for 1995 and 1996 call for revenue growth of 6.1% and 5.8%, respectively. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State, its countries, and its municipalities. Virginia faces some economic uncertainties with respect to defense-cutbacks. Although Virginia's unemployment rate of 4.9% (as of August, 1994) is well below the national rate of 5.9%, the State has been able to make some gains in the services, government, and construction sectors when manufacturing and trade were down slightly. The effects of the most recent base-closing legislation were muted because of consolidation from out-of-state bases to Virginia installations. While military operations at the Pentagon are unlikely to be threatened, another round of base-closings scheduled for 1995 may jeopardize a number of Virginia installations. ****************************************************************************** PART C. OTHER INFORMATION. Item 24. Financial Statements and Exhibits: (a) Financial Statements: Incorporated into the Statement of Additional Information by reference to the Annual Reports of (1) Evergreen Value Fund (formerly, First Union Value Portfolio), (2) Evergreen Fixed Income Fund (formerly, First Union Fixed Income Portfolio), (3) Evergreen High Grade Tax Free Fund (formerly, First Union High Grade Tax Free Portfolio), (4) Evergreen Treasury Money Market Fund (formerly, First Union Treasury Money Market Portfolio), (5) Evergreen Balanced Fund (formerly, First Union Balanced Portfolio), (6) Evergreen Managed Bond Fund (formerly, First Union Managed Bond Portfolio), (7) Evergreen North Carolina Municipal Bond Fund (formerly, First Union North Carolina Municipal Bond Portfolio), (8) Evergreen U.S. Government Fund (formerly, First Union U.S. Government Portfolio), (9) Evergreen Florida Municipal Bond Fund (formerly, First Union Florida Municipal Bond Portfolio), (10) Evergreen Georgia Municipal Bond Fund (formerly, First Union Georgia Municipal Bond Portfolio), (11) Evergreen Virginia Municipal Bond Fund (formerly, First Union Virginia Municipal Bond Portfolio), (12) Evergreen Utility Fund (formerly, First Union Utility Portfolio), (13) Evergreen South Carolina Municipal Bond Fund (formerly, First Union South Carolina Municipal Bond Portfolio); (14) Evergreen Emerging Markets Growth Fund (formerly, First Union Emerging Markets Growth Portfolio); and (15) Evergreen International Equity Fund (formerly, First Union International Equity Portfolio). (b) Exhibits: (1) Copy of Declaration of Trust of the Registrant (1); (i) Copy of Amendment to Declaration of Trust (14); (ii) Copy of Form of Amendment to Declaration of Trust + (2) Copy of By-Laws of the Registrant (1); (i) Copy of amendment to the By-Laws of the Registrant (3); (3) Not applicable; (4) Copy of Specimen Certificate for Shares of Beneficial Interest of the Registrant (19); (5) Conformed copy of Investment Advisory Contract of the Registrant (21); (i) Conformed copy of Sub-Advisory Agreement between First Union National Bank of North Carolina and Marvin & Palmer Associates, Inc.(21); (ii) Conformed copy of Sub-Advisory Agreement between First Union National Bank of North Carolina and Boston International Advisors, Inc. (21); (6) Conformed copy of Distributor's Contract of the Registrant +; (i) Conformed copy of the previous Distributors Contract of the Registrant (21); (7) Conformed copy of Administrative Agreement of the Registrant +; (7a) Conformed copy of Sub-Administrator Agreement of the Registrant +; (8) Conformed copy of Custodian Contract of the Registrant (21); (9) Conformed copy of the Fund Accounting and Shareholder Recordkeeping Agreement of the Registrant (20); (i) Conformed copy of the previous Transfer Agency and Service Agreement of the Registrant (21); (ii) Conformed copy of Shareholder Services Plan (21); (iii) Conformed copy of Shareholder Services Agreement (21); (10) Copy of Opinion and Consent of Counsel as to legality of shares being registered (8); (11) Copy of Consent of Independent Auditors; + (12) Not applicable; (13) Copy of Initial Capital Understanding (1); (14) Model Plans used in establishment of Retirement Plans (2); (15) (i) Distribution Plan; (a) Copy of First Union Emerging Markets Growth Portfolio and First Union International Equity Portfolio - Class B Investment Shares (21); (i) Copy of First Union South Carolina Municipal Bond Portfolio - Class B Investment Shares (21); (ii) Copy of First Union Virginia Municipal Bond Portfolio, First Union Georgia Municipal Bond Portfolio, First Union Florida Municipal Bond Portfolio - Class B Investment Shares (21); (iii) Copy of First Union Utility Portfolio - Class B Investment Shares (21); (b) First Union Funds - Class C Investment Shares (17); (i) Conformed copy of Exhibit to Class C Investment Shares (21); (c) Conformed copy of First Union Funds - Class D Investment Shares (21); (ii) Rule 12b-1 Agreement (14); (iii) Copy of Amendment Number 5 to 12b-1 Agreement(21); (16) Copy of Schedules for Computation of Fund Performance Data (20.); (i) Copy of Schedules for Computation of Fund Performance Data for First Union Emerging Markets Growth Portfolio and First Union International Equity Portfolio; + (17) Copy of Financial Data Schedules; + (18) Not applicable; (19) Conformed copy of the Power of Attorney (19). + All exhibits have been filed electronically. (1) Response is incorporated by reference to Registrant's Initial Registration Statement on Form N-1A. (File Nos. 2-94560 and 811-4154). (2) Response is incorporated by reference to Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File Nos. 2-94560 and 811-4154). (5) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 11 filed on July 30, 1990 on Form N-1A (File Nos. 2-94560 and 811-4154). (11) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 20 filed on August 26, 1992 on Form N-1A (File Nos. 2- 94560 and 811-4154). (14) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 28 filed on April 15, 1993 on Form N-1A (File Nos. 2- 94560 and 811-4154). (15) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 29 filed on April 30, 1993 on Form N-1A (File Nos. 2- 94560 and 811-4154). (16) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 31 filed on June 14, 1993 on Form N-1A (File Nos. 2-94560 and 811-4154). (17) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 32 filed on November 2, 1993 on Form N-1A (File Nos. 2- 94560 and 811-4154). (18) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 33 filed on December 29, 1993 on Form N-1A (File Nos. 2- 94560 and 811-4154). (19) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 35 filed on February 25, 1994 on Form N-1A (File Nos. 2- 94560 and 811-4154). (20) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 36 filed on June 28, 1994 on Form N-1A (File Nos. 2-94560 and 811-4154). (21) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 38 filed on December 30, 1994 on Form N-1A (File Nos. 2- 94560 and 811-4154). Item 25. Persons Controlled by or Under Common Control with Registrant: None Item 26. Number of Holders of Securities: Number of Record Holders Title of Class as of June 15, 1995 Shares of beneficial interest (no par value) First Union Value Fund a) Y Shares 94 b) Class A Investment Shares 20,638 c) Class B Investment Shares 13,497 d) Class C Investment Shares 88 First Union Fixed Income Fund a) Y Shares 6 b) Class A Investment Shares 2,189 c) Class B Investment Shares 1,493 d) Class C Investment Shares 31 First Union High Grade Tax Free Fund (formerly, First Union Insured Tax Free Portfolio) a) Y Shares 15 b) Class A Investment Shares 3,078 c) Class B Investment Shares 1,733 First Union Treasury Money Market Fund a) Y Shares 7 b) Class A Investment Shares 3,730 First Union Balanced Fund a) Y Shares 6 b) Class A Investment Shares 4,385 c) Class B Investment Shares 10,389 d) Class C Investment Shares 48 First Union Managed Bond Fund a) Y Shares 64 First Union North Carolina Municipal Bond Fund a) Y Shares 19 b) Class A Investment Shares 568 c) Class B Investment Shares 2,365 First Union U.S. Government Fund a) Y Shares 8 b) Class A Investment Shares 2,114 c) Class B Investment Shares 13,019 d) Class C Investment Shares 0 First Union Florida Municipal Bond Fund a) Y Shares 21 b) Class A Investment Shares 393 c) Class B Investment Shares 1,151 First Union Georgia Municipal Bond Fund a) Y Shares 6 b) Class A Investment Shares 132 c) Class B Investment Shares 498 First Union Virginia Municipal Bond Fund a) Y Shares 9 b) Class A Investment Shares 125 c) Class B Investment Shares 280 First Union Utility Fund a) Y Shares 7 b) Class A Investment Shares 832 c) Class B Investment Shares 3,375 d) Class C Investment Shares 26 First Union South Carolina Municipal Bond Fund a) Y Shares 8 b) Class A Investment Shares 31 c) Class B Investment Shares 141 First Union Emerging Markets Growth Fund a) Y Shares 6 b) Class A Investment Shares 321 c) Class B Investment Shares 431 d) Class C Investment Shares 14 First Union International Equity Fund a) Y Shares 5 b) Class A Investment Shares 904 c) Class B Investment Shares 1,432 d) Class C Investment Shares 50 Item 27. Indemnification: (1.) - -------------------------------------- (1.) Response is incorporated by reference to Registrant's Post- Effective Amendment No. 35 filed on February 25, 1994 on Form N-1A (File Nos. 2-94560 and 811-4154). Item 28. Business and Other Connections of Investment Adviser: (a) For a description of the other business of the investment adviser, see the section entitled "Management of the Funds-Investment Adviser" in Part A. The Trustees and principal executive officers of the Fund's Investment Adviser, and the Directors of the Fund's Manager, are set forth in the following tables: FIRST UNION NATIONAL BANK OF NORTH CAROLINA BOARD OF DIRECTORS Ben Mayo Boddie Raymond A. Bryan, Jr. Chairman & CEO Chairman & CEO Boddie-Noell Enterprises, Inc. T.A. Loving Company P.O. Box 1908 P.O. Drawer 919 Rocky Mount, NC 27802 Goldsboro, NC 27530 John F.A.V. Cecil John W. Copeland President President Biltmore Dairy Farms, Inc. Ruddick Corporation P.O. Box 5355 2000 Two First Union Center Asheville, NC 28813 Charlotte, NC 28282 John Crosland, Jr. J. William Disher Chairman of the Board Chairman & President The Crosland Group, Inc. Lance Incorporated 135 Scaleybark Road P.O. Box 32368 Charlotte, NC 28209 Charlotte, NC 28232 Frank H. Dunn Malcolm E. Everett, III Chairman and CEO President First Union National Bank First Union National Bank of North Carolina of North Carolina One First Union Center 310 S. Tryon Street Charlotte, NC 28288-0006 Charlotte, NC 28288-0156 James F. Goodmon Shelton Gorelick President & Chief President Executive Officer SGIC, Inc. Capitol Broadcasting 741 Kenilworth Ave., Suite 200 Company, Inc. Charlotte, NC 28204 2619 Western Blvd. Raleigh, NC 27605 Charles L. Grace James E. S. Hynes President Chairman Cummins Atlantic, Inc. Hynes Sales Company, Inc. P.O. Box 240729 P.O. Box 220948 Charlotte, NC 28224-0729 Charlotte, NC 28222 Daniel W. Mathis Earl N. Phillips, Jr. Vice Chairman President First Union National Bank First Factors Corporation of North Carolina P.O. Box 2730 One First Union Center High Point, NC 27261 Charlotte, NC 28288-0009 J. Gregory Poole, Jr. John P. Rostan, III Chairman & President Senior Vice President Gregory Poole Equipment Company Waldensian Bakeries, Inc. P.O. Box 469 P.O. Box 220 Raleigh, NC 27602 Valdese, NC 28690 Nelson Schwab, III Charles M. Shelton, Sr. Chairman & CEO Chairman & CEO Paramount Parks The Shelton Companies, Inc 8720 Red Oak Boulevard, Suite 315 3600 One First Union Center Charlotte, NC 28217 Charlotte, NC 28202 George Shinn Harley F. Shuford, Jr. Owner and Chairman President and CEO Shinn Enterprises, Inc. Shuford Industries One Hive Drive P.O. Box 608 Charlotte, NC 28217 Hickory, NC 28603 FIRST UNION NATIONAL BANK OF NORTH CAROLINA EXECUTIVE OFFICERS James Maynor, President, First Union Mortgage Corporation; Austin A. Adams, Executive Vice President; Howard L. Arthur, Senior Vice President; Robert T. Atwood, Executive Vice President and Chief Financial Officer; Marion A. Cowell, Jr., Executive Vice President, Secretary and General Counsel; Edward E. Crutchfield, Jr., Chairman, CEO, First Union Corporation; Frank H. Dunn, Jr., Chairman and CEO; Malcolm E. Everett, III, President; John R. Georgius, President, First Union Corporation; James Hatch, Senior Vice President and Corporate Controller; Don R. Johnson, Executive Vice President; Mark Mahoney, Senior Vice President; Barbara K. Massa, Senior Vice President; Daniel W. Mathis, Vice Chairman; H. Burt Melton, Executive Vice President; Malcolm T. Murray, Jr., Executive Vice President; Alvin T. Sale, Executive Vice President; Louis A. Schmitt, Jr., Executive Vice President; Ken Stancliff, Senior Vice President and Corporate Treasurer; Richard K. Wagoner, Executive Vice President and General Fund Officer. All of the Executive Officers are located at the following address: First Union National Bank of North Carolina, One First Union Center, Charlotte, NC 28288. (b) For a description of the other business of the sub-adviser to First Union Emerging Markets Growth Portfolio ("Emerging Makrets Growth Fund"), see the section entitled "Management of First Union Funds-Sub-Advisers-Emerging Markets Growth Fund" in Part A. The Principals and principal executive officers of the Emerging Markets Growth Fund's Sub-Adviser, and the Members of the Advisory Board of the Sub-Adviser, are set forth in the following tables. Unless otherwise noted, the position listed under Other Stubstantial Business, Profession, Vocation or Employment is with Marvin & Palmer Associates, Inc.: MARVIN & PALMER ASSOCIATES, INC. Other Substantial Position With Business, Profession, Name the Sub-Adviser Vocation or Employment ---- --------------- ---------------------- David F. Marvin, CFA Chairman Portfolio Manager- Americas & Currency Stanley Palmer, CFA President Portfolio Manager- Non-U.S. Karen T. Buckley Senior Vice President and Chief Financial Officer Jon A. Stiklorius Senior Vice President Eugene J. Mulvaney Senior Vice President Terry B. Mason Vice President Portfolio Manager- Non-U.S. Jay F. Middleton Vice President Portfolio Manager- Americas Todd D. Marvin Vice President Portfolio Manager- Non-U.S. William Nord Vice President Robert P. Sanna Vice President David L. Schaen Vice President Raymond J. Deschenes Vice President ADVISORY BOARD MEMBERS Irving S. Shapiro Paul Craig Roberts William C. Lickle The Hon. Charles J. Pilliod, Jr. Charles L. Brown Dr.-Ing. Klaus G. Lederer Alexander F. Giacco The Rt. Hon. Lord Moore, P.C. (c) For a description of the other business of the sub-adviser to First Union International Equity Portfolio ("International Equity Fund"), see the section entitled "Management of First Union Funds-Sub-Advisers-International Equity Fund" in Part A. The Trustees and principal executive officers of the International Equity Fund's Sub-Adviser, and the Directors and officers of the Fund's Sub-Adviser, are set forth in the following tables. Unless otherwise noted, the position listed under Other Substantial Business, Profession, Vocation or Employment is with Boston International Advisors, Inc.: BOSTON INTERNATIONAL ADVISORS, INC. Other Substantial Position With Business, Profession, Name the Sub-Adviser Vocation or Employment ---- --------------- ---------------------- Lyle H. Davis President and Managing Director Robert E. Denneen, Jr. Vice President Portfolio Manager Dennis J. Fogarty Vice President Research Associate Maureen A. Ghublikian Managing Director Norman H. Meltz Vice President & Managing Director Patricia A. Thompson Vice President & Treasurer David A. Umstead Managing Director BOARD OF DIRECTORS George A. Chamberlain, III Philip A. Cooper Lyle H. Davis Norman H. Meltz David A. Umstead Item 29. Principal Underwriters Evergreen Funds Distributor, Inc. The Director and principal executive officers are: Director Michael C. Petrycki Officers Robert A. Hering President Michael C. Petrycki Vice President Gordon Forrester Vice President Lawrence Wagner VP, Chief Financial Officer Steven D. Blecher VP, Treasurer, Secretary Elizabeth Q. Solazzo Assistant Secretary Thalia M. Cody Assistant Secretary Evergreen Funds Distributor, Inc. acts as Distributor for the following registered investment companies or separate series thereof: The Evergreen Fund The Evergreen Real Estate Equity Trust: Evergreen Global Real Estate Equity Fund Evergreen U.S. Real Estate Equity Fund The Evergreen Limited Market Fund, Inc. Evergreen Growth and Income Fund The Evergreen Total Return Fund The Evergreen American Retirement Trust: The Evergreen American Retirement Fund Evergreen Small Cap Equity Income Fund The Evergreen Foundation Trust: Evergreen Foundation Fund Evergreen Tax Strategic Foundation Fund The Evergreen Municipal Trust: Evergreen Short-Intermediate Municipal Fund Evergreen Short-Intermediate Municipal Fund-CA Evergreen Florida High Income Municipal Bond Fund Evergreen Tax Exempt Money Market Fund The Evergreen Money Market Fund Evergreen Investment Trust Evergreen Emerging Markets Growth Fund Evergreen International Equity Fund Evergreen Balanced Fund Evergreen Value Fund Evergreen Utility Fund Evergreen Fixed Income Fund Evergreen Managed Bond Fund Evergreen U.S. Government Fund Evergreen Florida Municipal Bond Fund Evergreen Georgia Municipal Bond Fund Evergreen North Carolina Municipal Bond Fund Evergreen South Carolina Municipal Bond Fund Evergreen Virginia Municipal Bond Fund Evergreen High Grade Tax Free Fund Evergreen Treasury Money Market Fund Item 30. Location of Accounts and Records: All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at one of the following locations: Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase NY 10577 First Union National Bank of North Carolina One First Union Center, 301 S. College Street, Charlotte, North Carolina 28288 State Street Bank and Fund Company P.O. Box 8609, Boston, MA 02266-8609 Item 31. Management Services: Not applicable. Item 32. Undertakings: Registrant hereby undertakes to comply with the provisions of Section 16(c) of the 1940 Act with respect to the removal of Trustees and the calling of special shareholder meetings by shareholders. Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. ____________________ SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it has duly caused this Post-Effective Amendment No. 40 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in The City of New York, State of New York, on the 5th day of July, 1995. Evergreen Investment Trust by /s/John J. Pileggi ----------------------------- John J. Pileggi, Vice President Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 40 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signatures Title Date - ----------- ----- ---- /s/ John J. Pileggi - ------------------------------- Vice President and June 30, 1995 John J. Pileggi Assistant Treasurer /s/ James S. Howell - ------------------------------- Trustee June 30, 1995 James S. Howell /s/ Gerald M. McDonnell - ------------------------------- Trustee June 30, 1995 Gerald M. McDonnell /s/ Thomas L. McVerry - ------------------------------- Trustee June 30, 1995 Thomas L. McVerry /s/ William Walt Pettit - ------------------------------- Trustee June 30, 1995 William Walt Pettit /s/ Russell A. Salton, III, M.D - ------------------------------- Trustee June 30, 1995 Russell A. Salton, III, M.D /s/ Michael S. Scofield - ------------------------------- Trustee June 30, 1995 Michael S. Scofield INDEX TO EXHIBITS Exhibit Number Description 1 Form of Amendment to Declaration of Trust 6 Distribution Agreement 7 Administration Agreement 7a Sub-Administrator Agreement 11 Consent of Independent Accountants 16 Performance Quotation Computation 17 Financial Data Schedules Other Exhibits: Performance Schedule December 31, 1994 Annual Report EX-99.1 2 FORM AMENDMENT TO DECLARATION OF TRUST FIRST UNION FUNDS Certificate of Amendment The undersigned, being the Secretary of First Union Funds (hereinafter referred to as the "Trust"), a trust with transferable shares of the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY that, pursuant to the authority conferred upon the Trustees of the Trust by Article IX, Section 7 of the Agreement and Declaration of Trust, dated August 30, 1984, and as amended on December 30, 1988 and December 18, 1992, (and as so amended, referred to as the "Declaration of Trust"), and by the affirmative vote of a Majority of the Trustees at a meeting duly called and held on June 15, 1995, the Declaration of Trust is hereby amended as follows: 1. Effective July 7, 1995, Section 1 of Article 1 from the Declaration of Trust is amended to change the name of the Trust to be "Evergreen Investment Trust"; 2. Effective July 7, 1995, the names of the portfolios of the Trust set forth in the left-hand column below are amended to be the new names set forth in the right-hand column below. Old Name New Name First Union U.S. Government Portfolio Evergreen U.S. Government Fund First Union Balanced Portfolio Evergreen Balanced Fund First Union Utility Portfolio Evergreen Utility Fund First Union Value Portfolio Evergreen Value Fund First Union Fixed Income Portfolio Evergreen Fixed Income Fund First Union Managed Bond Portfolio Evergreen Managed Bond Fund First Union Emerging Markets Growth Portfolio Evergreen Emerging Markets Growth Fund First Union International Equity Evergreen International Equity Fund Portfolio First Union Treasury Money Market Evergreen Treasury Money Market Fund Portfolio First Union Florida Municipal Bond Portfolio Evergreen Florida Municipal Bond Fund First Union Georgia Municipal Bond Portfolio Evergreen Georgia Municipal Bond Fund First Union North Carolina Municipal Evergreen North Carolina Municipal Bond Portfolio Bond Fund First Union South Carolina Municipal Evergreen South Carolina Municipal Bond Portfolio Bond Fund First Union Virginia Municipal Bond Portfolio Evergreen Virginia Municipal Bond Fund First Union High Grade Tax Free Evergreen High Grade Tax Free Fund Portfolio IN WITNESS WHEREOF, the undersigned has set his/her hand and seal this _____ day of _____, 199_. __________________________ Secretary ACKNOWLEDGMENT STATE OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) __________, 199__ Then personally appeared the above-named ______________ and acknowledged the foregoing instrument to be his/her free act and deed. Before me ___________________________________ Notary Public My commission expires: ____________ EX-99.6 3 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT WHEREAS, Evergreen Investment Trust (the "Trust"), has adopted one or more Plans of Distribution with respect to certain Classes of shares of its separate investment series (each a "Plan", or collectively the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act") which Plans authorize the Trust on behalf of the Funds to enter into agreements regarding the distribution of such Classes of shares (the "Shares") of the separate investment series of the Trust (the "Funds") set forth on Exhibit A; and WHEREAS, the Trust has agreed that Evergreen Funds Distributor, Inc. (the "Distributor"), a Delaware corporation, shall act as the distributor of the Shares; and WHEREAS, the Distributor agrees to act as distributor of the Shares for the period of this Distribution Agreement (the "Agreement"); NOW, THEREFORE, in consideration of the agreements hereinafter contained, it is agreed as follows: 1. Services as Distributor 1.1. The Distributor agrees to use appropriate efforts to promote each Fund and to solicit orders for the purchase of Shares and will undertake such advertising and promotion as it believes reasonable in connection with such solicitation The services to be performed hereunder by the Distributor are described in more detail in Section 7 hereof. . In the event that the Trust establishes additional investment series with respect to which it desires to retain Evergreen Funds Distributor, Inc. to act as distributor for one or more Classes hereunder, it shall promptly notify the Distributor in writing. If the Distributor is willing to render such services it shall notify the Trust in writing whereupon such portfolio shall become a Fund and its designated Classes of shares of beneficial interest shall become Shares hereunder. 1.2. All activities by the Distributor and its agents and employees as the distributor of Shares shall comply with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the 1940 Act by the Securities and Exchange Commission (the "Commission") or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.3 In selling the Shares, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all Federal and state laws relating to the sale of such securities. Neither the Distributor, any selected dealer or any other person is authorized by the Trust to give any information or to make any representations, other than those contained in the Trust's registration statement (the "Registration Statement") or related Fund prospectus and statement of additional information ("Prospectus and Statement of Additional Information") and any sales literature specifically approved by the Trust. 1.4 The Distributor shall adopt and follow procedures, as approved by the officers of the Trust, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by investors and selected dealers on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the National Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. 1.5. The Distributor will transmit any orders received by it for purchase or redemption of Shares to the transfer agent and custodian for the applicable Fund. 1.6. Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by abnormal circumstances of any kind, the Trust's officers may decline to accept any orders for, or make any sales of Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.7. The Distributor will act only on its own behalf as principal if it chooses to enter into selling agreements with selected dealers or others. The Distributor shall offer and sell Shares only to such selected dealers as are members, in good standing, of the NASD. 1.8 The Distributor agrees to adopt compliance standards, in a form satisfactory to the Trust, governing the operation of the multiple class distribution system under which Shares are offered. 2. Duties of the Trust. 2.1. The Trust agrees at its own expense to execute any and all documents and to furnish, at its own expense, any and all information and otherwise to take all actions that may be reasonably necessary in connection with the qualification of Shares for sale in such states as the Trust and the Distributor may designate. 2.2. The Trust shall furnish from time to time, for use in connection with the sale of Shares such information with respect to the Funds and the Shares as the Distributor may reasonably request; and the Trust warrants that any such information shall be true and correct. Upon request, the Trust shall also provide or cause to be provided to the Distributor: (a) unaudited semi-annual statements of each Fund's books and accounts, (b) quarterly earnings statements of each Fund, (c) a monthly itemized list of the securities in each Fund, (d) monthly balance sheets as soon as practicable after the end of each month, and (e) from time to time such additional. information regarding each Fund's financial condition as the Distributor may reasonably request. 3. Representations of the Trust. 3.1. The Trust represents to the Distributor that it is registered under the 1940 Act and that the Shares of each of the Funds have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The Trust will file such amendments to its Registration Statement as may be required and will use its best efforts to ensure that such Registration Statement remains accurate. 4. Indemnification. 4.1. The Trust shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor within the meaning of Section 15 of the Securities Act against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), which the Distributor or such controlling person may incur under the Securities Act or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in the Registration Statement, as from time to time amended or supplemented, any prospectus or annual or interim report to shareholders of the Trust, or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Trust in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Trust in favor of the Distributor and any such controlling persons to be deemed to protect such Distributor or any such controlling persons thereof against any liability to the Trust or its security holders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Trust to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case maybe, shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Trust will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Trust elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the suit. In the event the Trust elects to assume the defense of any such suit and retain such counsel, the Distributor or such controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, but, in case the Trust does not elect to assume the defense of any such suit, it will reimburse the Distributor or such controlling person or persons, defendant or-defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Trust shall promptly notify the Distributor of the commencement of any litigation or proceed against it or any of its officers or directors in connection with the issuance or sale of any of the shares. 4.2. The Distributor shall indemnify and hold harmless the Trust and each of its directors and officers and each person, if any, who controls the Trust against any loss, liability, claim, damage or expense described in the foregoing indemnity contained in paragraph 4.1, but only with respect to statements or omissions made in reliance upon, and in conformity with, information furnished to the Trust in writing by or on behalf of the Distributor for use in connection with the Registration Statement, as from time to time amended, or the annual or interim reports to shareholders. In case any action shall be brought against the Trust or any persons so indemnified, in respect of which indemnity may be sought against the Distributor, the Distributor shall have the rights and duties given to the Trust, and the Trust and each person so indemnified shall have the rights and duties given to the Distributor by the provisions of paragraph 4.1. 5. Offering of Shares. 5.1. None of the Shares shall be offered by either the Distributor or the Trust under any of the provisions of this Agreement, and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust, if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act or if and so long as a current prospectus and statement of additional information as required by Section 10(b) (2) of the Securities Act, as amended, is not on file with the Commission; provided, however, that nothing contained in this paragraph 5.1 shall in any way restrict or have any application to or bearing upon the Trust's obligation to repurchase Shares from any shareholder in accordance with the provisions of the prospectus of each Fund or the Trust's prospectus or Declaration of Trust. 6. Amendments to Registration Statement and Other Material Events. 6.1. The Trust agrees to advise the Distributor as soon as reasonably practical by a notice in writing delivered to the Distributor: (a) of any request or action taken by the Commission which is material to the Distributor's obligations hereunder or (b) any material fact of which the Trust becomes aware which affects the Distributor's obligations hereunder. For purposes of this section, informal requests by or acts of the Staff of the Commission shall not be deemed actions of or requests by the Commission. 7. Compensation of Distributor. 7.1. (a) As promptly as possible after the first Business Day (as defined in the Prospectus) of each month this Agreement is in effect, the Trust shall compensate the Distributor for its distribution services rendered during the previous month (but not prior to the Commencement Date); by making payment to the Distributor in the amounts set forth on Exhibit A annexed hereto with respect to each Class of Shares of each Fund to which this Agreement is applicable. The compensation by the Trust of the Distributor is authorized pursuant to the Plan or Plans adopted by the Trust pursuant to Rule 12b-l under the 1940 Act. (b) Under this Agreement, the Distributor shall: (i) make payments to securities dealers and others engaged in the sale of Shares; (ii) make payments of principal and interest in connection with the financing of commission payments made by the Distributor in connection with the sale of Shares (iii) incur the expense of obtaining such support services, telephone facilities and shareholder services as may reasonably be required in connection with its duties hereunder; (iv) formulate and implement marketing and promotional activities, including, but not limited to, direct mail promotions and television, radio, newspaper, magazine and other mass media advertising; (v) prepare, print and distribute sales literature; (vi) prepare, print and distribute Prospectuses of the Funds and reports for recipients other than existing shareholders of the Funds; and (vii) provide to the Trust such information, analyses and opinions with respect to marketing and promotional activities as the Trust may, from time to time, reasonably request. (c) The Distributor shall prepare and deliver reports to the Treasurer of the Trust on a regular, at least monthly, basis, showing the distribution expenditures incurred by the Distributor in connection with its services rendered pursuant to this Agreement and the Plan and the purposes therefor, as well as any supplemental reports as the Trustees, from time to time, may reasonably request. (d) The Distributor may retain as a sales charge the difference between the current offering price of Shares, as set forth in the current prospectus for each Fund, and net asset value, less any reallowance that is payable in accordance with the sales charge schedule in effect at any given time with respect to the Shares (e) The Distributor may retain any contingent deferred sales charge ("CDSCs") payable with respect to the redemption of any Shares, provided however, that any CDSCs received by the Distributor shall first be applied by the Distributor or its assignee to any outstanding amounts payable or which may in the future be payable by the Distributor or its assignee under financing arrangements entered into in connection with the payment of commissions on the sale of Shares. (f) The Distributor may sell, assign, pledge or hypothecate its rights to receive compensation hereunder. The Trust acknowledges that, in connection with the financing of commission payments made by the Distributor in connection with the sale of Shares, the Distributor may sell and assign, and/or has sold and assigned, to Mutual Fund Funding 1994-1 the Distributor's interest in certain items of compensation payable to the Distributor hereunder, and that Mutual Fund Funding 1994-1 in turn may pledge or assign, and/or has assigned, such interest to First Union Corporation as lender to secure such financing. It is understood that an assignee may not further sell, assign, pledge, or hypothecate its right to receive such reimbursement unless such sale, assignment, pledge or hypothecation has been approved by the vote of the Board of the Trust, including a majority of the Disinterested Trustees, cast in person at a meeting called for the purpose of voting on such approval. (g) In addition to the foregoing, and in respect of its services hereunder and for similar services rendered to other investment companies for which First Union National Bank of North Carolina (the "Investment Adviser") serves as investment adviser, the Investment Adviser may pay to the Distributor an additional fee to be paid in such amount and manner as the Investment Adviser and Distributor may agree from time to time. 8. Confidentiality, Non-Exclusive Agency. 8.1. The Distributor agrees on behalf of itself and its employees to treat confidentially and as proprietary information of the Trust all records and other information relative to the Funds and its prior, present or potential shareholders, and not to use such records and information for any purpose other than performance of its responsibilities and to obtain approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where the Distributor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. 9. Term. 9.1. This Agreement shall continue until June 30, 1996 and thereafter for successive annual periods, provided such continuance is specifically approved at least annually by (i) a vote of the majority of the Trustees of the Trust and (ii) a vote of the majority of those Trustees of the Trust who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan, in this Agreement or any agreement related to the Plan (the "Independent Trustees") by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable at any time, with respect to the Trust, without penalty, (a) on not less than 60 days' written notice by vote of a majority of the Independent Trustees, or by vote of the holders of a majority of the outstanding voting securities of the Trust, or (b) upon not less than 60 days' written notice by the Distributor. This Agreement may remain in effect with respect to a Fund even if it has been terminated in accordance with this paragraph with respect to one or more other Funds of the Trust. This Agreement will also terminate automatically in the event of its assignment. (As used in this Agreement, the terms "majority of the outstanding voting securities", "interested persons", and "assignment" shall have the same meaning as such terms have in the 1940 Act.) 10. Miscellaneous. 10.1. This Agreement shall be governed by the laws of the State of New York. 10.2. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their constructions or effect. 10.3 The obligations of the Trust hereunder are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Trust and only the Trust's property shall be bound. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the 7th day of July, 1995. EVERGREEN FUNDS DISTRIBUTOR, INC. EVERGREEN INVESTMENT TRUST By: /s/Gordon Forrester By: /s/ John J. Pileggi Title: Gordon Forrester, Vice President Title: John J. Pileggi, President EXHIBIT A To Distribution Agreement between Evergreen Funds Distributor, Inc.and FIRST UNION FUNDS FUNDS AND CLASSES COVERED BY THIS AGREEMENT: Evergreen Value Fund CLASS A SHARES Evergreen Balanced Fund CLASS A SHARES CLASS B SHARES CLASS B SHARES CLASS C SHARES CLASS C SHARES Evergreen International CLASS A SHARES Evergreen Emerging CLASS A SHARES Equity Fund CLASS B SHARES Markets Growth Fund CLASS B SHARES CLASS C SHARES CLASS C SHARES Evergreen Utility Fund CLASS A SHARES Evergreen Value Fund CLASS A SHARES CLASS B SHARES CLASS B SHARES CLASS C SHARES CLASS C SHARES Evergreen U.S. CLASS A SHARES Evergreen Fixed Income CLASS A SHARES Government Fund CLASS B SHARES Fund CLASS B SHARES CLASS C SHARES CLASS C SHARES Evergreen Managed CLASS A SHARES Evergreen Florida CLASS A SHARES Bond Fund CLASS B SHARES Municipal Bond Fund CLASS B SHARES Evergreen Georgia CLASS A SHARES Evergreen North Carolina CLASS A SHARES Municipal Bond Fund CLASS B SHARES Municipal Bond Fund CLASS B SHARES Evergreen South Carolina CLASS A SHARES Evergreen Virginia CLASS A SHARES Municipal Bond Fund CLASS B SHARES Municipal Bond Fund CLASS B SHARES Evergreen High Grade CLASS A SHARES Evergreen Treasury CLASS A SHARES Tax Free Fund CLASS B SHARES Money Market Fund Distribution Fees 1. During the term of this Agreement, the Trust will pay to the Distributor a quarterly fee with respect to each of the Funds and Classes of Shares thereof listed above. This fee will be computed at the annual rate of .25 of 1% of the average net asset value on an annual basis of Class A Shares of each Fund; and .75 of 1% of the average net asset value on an annual basis of Class B and Class C Shares of each Fund. 2. For the quarterly period in which the Agreement becomes effective or terminates, there shall be an appropriate proration of any fee payable on the basis of the number of days that the Agreement is in effect during the quarter. IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to the Distribution Agreement between the parties dated June 30, 1995 to be executed by their officers designated below as of the 30th day of June, 1995. EVERGREEN FUNDS DISTRIBUTOR, INC. EVERGREEN INVESTMENT TRUST By: /s/Gordon Forrester By: /s/ John J. Pileggi Title: Gordon Forrester, Vice President Title: John J. Pileggi, President EX-99.7 4 ADMINISTARTIVE SERVICES AGREEMENT ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement is made as of this __th day of _____ 1995 between First Union Funds, a Massachusetts business trust (herein called the "Trust"), and Evergreen Asset Management Corp., a New York corporation (herein called "EAMC"). WHEREAS, the Trust is a Massachusetts business trust consisting of one or more portfolios which operates as an open-end management investment company and is so registered under the Investment Company Act of 1940; and WHEREAS, the Trust desires to retain EAMC as its Administrator to provide it with administrative services, and EAMC is willing to render such services. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties hereto agree as follows: 1. Appointment of Administrator. The Trust hereby appoints EAMC as Administrator of the Trust and each of its portfolios on the terms and conditions set forth in this Agreement; and EAMC hereby accepts such appointment and agrees to perform the services and duties set forth in Section 2 of this Agreement in consideration of the compensation provided for in Section 4 hereof. 2. Services and Duties. As Administrator, and subject to the supervision and control of the Trustees of the Trust, EAMC will hereafter provide facilities, equipment and personnel to carry out the following administrative services for operation of the business and affairs of the Trust and each of its portfolios: (a) prepare, file and maintain the Trust's governing documents, including the Declaration of Trust (which has previously been prepared and filed), the By- laws, minutes of meetings of Trustees and shareholders, and proxy statements for meetings of shareholders; (b) prepare and file with the Securities and Exchange Commission and the appropriate state securities authorities the registration statements for the Trust and the Trust's shares and all amendments thereto, reports to regulatory authorities and shareholders, prospectuses, proxy statements, and such other documents as may be necessary or convenient to enable the Trust to make a continuous offering of its shares; (c) prepare, negotiate and administer contracts on behalf of the Trust with, among others, the Trust's distributor, custodian and transfer agent; (d) supervise the Trust's fund accounting agent in the maintenance of the Trust's general ledger and in the preparation of the Trust's financial statements, including oversight of expense accruals and payments and the determination of the net asset value of the Trust's assets and of the Trust's shares, and of the declaration and payment of dividends and other distributions to shareholders; (e) calculate performance data of the Trust for dissemination to information services covering the investment company industry; (f) prepare and file the Trust's tax returns; (g) examine and review the operations of the Trust's custodian and transfer agent; (h) coordinate the layout and printing of publicly disseminated prospectuses and reports; (i) prepare various shareholder reports; (j) assist with the design, development and operation of new portfolios of the Trust; (k) coordinate shareholder meetings; (l) provide general compliance services; and (m) advise the Trust and its Trustees on matters concerning the Trust and its affairs. The foregoing, along with any additional services that EAMC shall agree in writing to perform for the Trust hereunder, shall hereafter be referred to as "Administrative Services." Administrative Services shall not include any duties, functions, or services to be performed for the Trust by the Trust's investment adviser, distributor, custodian or transfer agent pursuant to their agreements with the Trust. 3. Expenses. EAMC shall be responsible for expenses incurred in providing office space, equipment and personnel as may be necessary or convenient to provide the Administrative Services to the Trust. The Trust shall be responsible for all other expenses incurred by EAMC on behalf of the Trust, including without limitation postage and courier expenses, printing expenses, registration fees, filing fees, fees of outside counsel and independent auditors, insurance premiums, fees payable to Trustees who are not EAMC employees, and trade association dues. 4. Compensation. For the Administrative Services provided, the Trust hereby agrees to pay and EAMC hereby agrees to accept as full compensation for its services rendered hereunder an administrative fee, calculated daily and payable monthly, at an annual rate determined in accordance with the table below. Aggregate Daily Net Assets of Funds Administered by EAMC For Which EAMC or First Union Administrative National Bank of North Carolina Fee Serve as Investment Adviser .050% on the first $7 billion .035% on the next $3 billion .030% on the next $5 billion .020% on the next $10 billion .015% on the next $5 billion .010% on assets in excess of $30 billion Each portfolio of the Trust shall pay a portion of the administrative fee equal to the rate determined above times that portfolios average annual daily net assets. 5. Responsibility of Administrator. EAMC shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from wilful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. EAMC shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Trust) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Any person, even though also an officer, director, partner, employee or agent of EAMC, who may be or become an officer, trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or acting on any business of the Trust (other than services or business in connection with the duties of EAMC hereunder) to be rendering such services to or acting solely for the Trust and not as an officer, director, partner, employee or agent or one under the control or direction of EAMC even though paid by EAMC. 6. Duration and Termination. (a) This Agreement shall be in effect until July____, 1997, and shall continue in effect from year to year thereafter, provided it is approved, at least annually, by a vote of a majority of Trustees of the Trust including a majority of the disinterested Trustees. (b) This Agreement may be terminated at any time, without payment of any penalty, on sixty (60) day's prior written notice by a vote of a majority of the Trust's Trustees or by EAMC. 7. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 8. Notices. Notices of any kind to be given to the Trust hereunder by EAMC shall be in writing and shall be duly given if delivered to the Trust and to its investment adviser at the following address: First Union National Bank of North Carolina, One First Union Center, Charlotte, NC 28288. Notices of any kind to be given to EAMC hereunder by the Trust shall be in writing and shall be duly given if delivered to EAMC at 2500 Westchester Avenue, Purchase, New York 10577, Attention: General Counsel. 9. Limitation of Liability. EAMC is hereby expressly put on notice of the limitation of liability as set forth in Article IX of the Declaration of Trust and agrees that the obligations pursuant to this Agreement of a particular portfolio and of the Trust with respect to that particular portfolio be limited solely to the assets of that particular portfolio, and EAMC shall not seek satisfaction of any such obligation from the assets of any other portfolio, the shareholders of any portfolio, the Trustees, officers, employees or agents of the Trust, or any of them. 10. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provison of this Agreement shall be held or made invalid by a court or regulatory agency decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Subject to the provisions of Section 5 hereof, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by New York law; provided, however, that nothing herein shall be construed in a manner inconsistent with the Investment Company Act of 1940 or any rule or regulation promulgated by the Securities and Exchange Commission thereunder. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. FIRST UNION FUNDS By____________________ Its:__________________ Attest:_________________ Its:_______________________ EVERGREEN ASSET MANAGEMENT CORP. By_________________________________________ Its:_______________________________________ Attest:________________________ Its:___________________________ EX-99.7A 5 SUB ADMINISTRATOR AGREEMENT SUB-ADMINISTRATOR AGREEMENT This Sub-Administrator Agreement is made as of this 7th day of July, 1995 between First Union Funds, a Massachusetts business trust (herein called the "Trust"), and Furman Selz Incorporated, a New York corporation (herein called "Furman"). WHEREAS, the Trust is a Massachusetts business trust consisting of one or more portfolios which operates as an open-end management investment company and is so registered under the Investment Company Act of 1940; and WHEREAS, the Trust has appointed Evergreen Asset Management Corp. ("EAMC") as administrator to the Trust and desires to retain Furman as its Sub-Administrator to provide it with certain additional administrative services not provided for under its arrangement with EAMC ("Sub-Administrative Services"), and Furman is willing to render such services. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties hereto agree as follows: 1. Appointment of Sub-Administrator. The Trust hereby appoints Furman as Sub-Administrator of the Trust and each of its portfolios on the terms and conditions set forth in this Agreement; and Furman hereby accepts such appointment and agrees to perform the services and duties set forth in Section 2 of this Agreement in consideration of the compensation provided for in Section 4 hereof. 2. Services and Duties. As Sub-Administrator, and subject to the supervision and control of the Trustees of the Trust, Furman will hereafter provide facilities, equipment and personnel to carry out the following Sub-Administrative services to assist in the operation of the business and affairs of the Trust and each of its portfolios: (a) provide individuals reasonably acceptable to the Trustees of the Trust for nomination, appointment or election as officers of the Trust and who will be responsible for the management of certain of the Trust's affairs as determined from time to time by the Trustees; (b) review filings with the Securities and Exchange Commission and state securities authorities that have been prepared on behalf of the Trust by the administrator and take such actions as may be reasonably requested by the administrator to effect such filings; (c) verify, authorize and transmit to the Trust's Custodian, Transfer Agent and Dividend Disbursing Agent all necessary instructions for the disbursement of cash, issuance of shares, tender and receipt of portfolio securities, payment of expenses and payment of dividends; and (d) advise the Trust and its Trustees on matters concerning the Trust and its affairs. Furman may, in addition, agree in writing to perform additional Sub-Administrative Services for the Trust. Sub-Administrative Services shall not include any duties, functions, or services to be performed for the Trust by the Trust's investment adviser, administrator, distributor, custodian or transfer agent pursuant to their agreements with the Trust. 3. Expenses. Furman shall be responsible for expenses incurred in providing office space, equipment and personnel as may be necessary or convenient to provide the Sub-Administrative Services to the Trust. The Trust shall be responsible for all other expenses incurred by Furman on behalf of the Trust, including without limitation postage and courier expenses, printing expenses, registration fees, filing fees, fees of outside counsel and independent auditors, insurance premiums, fees payable to Trustees who are not Furman employees, and trade association dues. 4. Compensation. For the Sub-Administrative Services provided, the Trust hereby agrees to pay and Furman hereby agrees to accept as full compensation for its services rendered hereunder a sub-administrative fee, calculated daily and payable monthly at an annual rate determined in accordance with the table below. Aggregate Daily Net Assets of Sub-Administrative Funds Administered by EAMC Fee as a % of For Which EAMC or First Union Average Annual National Bank of North Carolina Daily Net Assets Serve as Investment Adviser .0100% on the first $7 billion .0075% on the next $3 billion .0050% on the next $15 billion .0040% on assets in excess of $25 billion Each portfolio of the Trust shall pay a portion of the sub-administrative fee equal to the rate determined above times that portfolio's average annual daily net assets. 5. Responsibility of Sub-Administrator. Furman shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from wilful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. Furman shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Trust) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Any person, even though also an officer, director, partner, employee or agent of Furman, who may be or become an officer, trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or acting on any business of the Trust (other than services or business in connection with the duties of Furman hereunder) to be rendering such services to or acting solely for the Trust and not as an officer, director, partner, employee or agent or one under the control or direction of Furman even though paid by Furman. 6. Duration and Termination. (a) This Agreement shall be in effect until July____, 1997, and shall continue in effect from year to year thereafter, provided it is approved, at least annually, by a vote of a majority of Trustees of the Trust, including a majority of the disinterested Trustees. (b) This Agreement may be terminated at any time, without payment of any penalty, on sixty (60) day's prior written notice by a vote of a majority of the Trust's Trustees or by Furman. 7. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 8. Notices. Notices of any kind to be given to the Trust hereunder by Furman shall be in writing and shall be duly given if delivered to the Trust and to its investment adviser at the following address: First Union National Bank of North Carolina, One First Union Center, Charlotte, NC 28288. Notices of any kind to be given to Furman hereunder by the Trust shall be in writing and shall be duly given if delivered to Furman at 237 Park Avenue, New York, New York 10022, Attention: General Counsel. 9. Limitation of Liability. Furman is hereby expressly put on notice of the limitation of liability as set forth in Article IX of the Declaration of Trust and agrees that the obligations pursuant to this Agreement of a particular portfolio and of the Trust with respect to that particular portfolio be limited solely to the assets of that particular portfolio, and Furman shall not seek satisfaction of any such obligation from the assets of any other portfolio, the shareholders of any portfolio, the Trustees, officers, employees or agents of the Trust, or any of them. 10. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provison of this Agreement shall be held or made invalid by a court or regulatory agency decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Subject to the provisions of Section 5 hereof, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by New York law; provided, however, that nothing herein shall be construed in a manner inconsistent with the Investment Company Act of 1940 or any rule or regulation promulgated by the Securities and Exchange Commission thereunder. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. FIRST UNION FUNDS By____________________ Its:____________________ Attest:_________________ Its:____________________ FURMAN SELZ INCORPORATED By_________________________________________ Its:_______________________________________ Attest:________________________ Its:___________________________ EX-99.AUDITOR 6 Exhibit 11 under Form N-1A Exhibit 23 under Item 601/Reg SK INDEPENDENT AUDITORS' CONSENT The Board of Trustees First Union Funds: With respect to the Prospectuses and Statements of Additional Information included in this Post Effective Amendment No. 40 to the Registration Statement on Form N-1A of Evergreen Investment Trust, formerly First Union Funds, we consent to the use of our reports, dated February 13, 1995, incorporated by reference and to the references to our Firm under the headings "Financial Highlights" in Part A of the Registration Statement and "Financial Statements" in Part B of the Registration Statement. o First Union Money Market Portfolio; o First Union Tax Free Money Market Portfolio; o First Union Treasury Money Market Portfolio; o First Union Fixed Income Portfolio; o First Union Managed Bond Portfolio' o First Union U.S. Government Portfolio; o First Union Balanced Portfolio; o First Union Unity Portfolio; o First Union Value Portfolio; o First Union Emerging Markets Growth Portfolio; o First Union International Equity Portfolio; o First Union Florida Municipal Bond Portfolio; o First Union Georgia Municipal Bond Portfolio; o First Union North Carolina Municipal Bond Portfolio; o First Union South Carolina Municipal Bond Portfolio; o First Union Virginia Municipal Bond Portfolio; and o First Union High Grade Tax Free Portfolio. By: KPMG Peat Marwick LLP KPMG Peat Marwick LLP Pittsburgh, Pennsylvania July 5, 1995 EX-99.16 7
Exhibit 16 (i) under Form N-1A Exhibit 99 under Item 601/Reg. Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Emerging - A Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/5/94 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 12/31/94 100.000 0.000000000 0.00000 $8.17 100.000 $8.17 $817.00 $1,000 (1+T) = End Value T = -18.30%
EX-99.16 8
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Emerging - B Price/ Share= $10.50 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/5/94 95.238 0.000000000 0.00000 $10.00 95.238 $10.00 $952.38 12/31/94 95.238 0.000000000 0.00000 $8.17 95.238 $8.17 $778.10 $1,000 (1+T) = End Value T = -22.19%
EX-99.16 9
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Emerging - C Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/5/94 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 12/31/94 100.000 0.000000000 0.00000 $8.16 100.000 $7.75 $775.00 $1,000 (1+T) = End Value T = -22.50%
EX-99.16 10
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Emerging - D Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/5/94 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 12/31/94 100.000 0.000000000 0.00000 $8.16 100.000 $8.08 $808.00 $1,000 (1+T) = End Value T = -19.20%
EX-99.16 11
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Int'l Eq - A Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.08 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/2/94 100.000 0.000000000 0.00000 $10.08 100.000 $10.08 $1,008.00 12/21/94 100.000 0.006000000 0.00140 $9.35 100.079 $9.35 $935.74 12/31/94 100.079 0.000000000 0.00000 $9.49 100.079 $9.49 $949.75 $1,000 (1+T) = End Value T = -5.02%
EX-99.16 12
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Int'l Eq - B Price/ Share= $10.50 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/1/94 95.238 0.000000000 0.00000 $10.00 95.238 $10.00 $952.38 12/21/94 95.238 0.001000000 0.00140 $9.35 95.263 $9.35 $890.70 12/31/94 95.263 0.000000000 0.00000 $9.49 95.263 $9.49 $904.04 $1,000 (1+T) = End Value T = -9.60%
EX-99.16 13
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Int'l Eq - C Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/1/94 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 12/21/94 100.000 0.000000000 0.00140 $9.35 100.015 $9.35 $935.14 12/31/94 100.015 0.000000000 0.00000 $9.48 100.015 $9.01 $901.13 $1,000 (1+T) = End Value T = -9.89%
EX-99.16 14
Schedule for Computation Initial of Fund Performance Data Invest of: $1,000 Offering First Un. Int'l Eq - D Price/ Share= $10.00 Return Since Inception ending 12/31/94 NAV= $10.00 FYE: December 31 Begin Capital Reinvest Ending Total DECLARED: ANNUALLY Reinvest Period Dividend Gain Price Period Ending Invest PAID: ANNUALLY Dates Shares /Share /Share /Share Shares Price Value 9/1/94 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 12/21/94 100.000 0.000000000 0.00140 $9.35 100.015 $9.35 $935.14 12/31/94 100.015 0.000000000 0.00000 $9.48 100.015 $9.39 $939.14 $1,000 (1+T) = End Value T = -6.09%
EX-27.FINANDATASCHED 15
6 1 Evergreen Balanced Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 906,344,902 923,650,524 7,421,951 28,949 0 931,101,424 3,397,140 0 7,790,923 11,188,063 0 902,497,045 3,671,118 2,901,446 495,614 0 (384,920) 0 17,305,622 41,009,712 16,691,618 25,575,851 0 6,774,853 35,492,616 15,321,171 (72,298,630) (21,484,843) 0 1,519,114 699,327 0 1,428,629 845,164 186,207 59,259,731 340,833 (456) 0 0 4,621,512 0 6,774,853 922,366,159 12.070 0.430 (0.710) 0.430 0.190 0 11.170 89 0 0.000
EX-27.FINANDATASCHED 16
6 2 Evergreen Balanced Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 906,344,902 923,650,524 7,421,951 28,949 0 931,101,424 3,397,140 0 7,790,923 11,188,063 0 902,497,045 8,947,916 5,420,479 495,614 0 (384,920) 0 17,305,622 100,051,739 16,691,618 25,575,851 0 6,774,853 35,492,616 15,321,171 (72,298,630) (21,484,843) 0 2,795,862 1,691,363 0 4,255,156 1,102,578 374,859 59,259,731 340,833 (456) 0 0 4,621,512 0 6,774,853 922,366,159 12.080 0.360 (0.710) 0.360 0.190 0 11.180 148 0 0.000
EX-27.FINANDATASCHED 17
6 3 Evergreen Balanced Fund Class C 12-MOS Dec-31-1994 Dec-31-1994 906,344,902 923,650,524 7,421,951 28,949 0 931,101,424 3,397,140 0 7,790,923 11,188,063 0 902,497,045 17,479 0 495,614 0 (384,920) 0 17,305,622 195,200 16,691,618 25,575,851 0 6,774,853 35,492,616 15,321,171 (72,298,630) (21,484,843) 0 1,794 3,132 0 17,041 0 438 59,259,731 340,833 (456) 0 0 4,621,512 0 6,774,853 922,366,159 12.000 0.180 (0.610) 0.210 0.190 0 11.170 164 0 0.000
EX-27.FINANDATASCHED 18
6 4 Evergreen Balanced Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 906,344,902 923,650,524 7,421,951 28,949 0 931,101,424 3,397,140 0 7,790,923 11,188,063 0 902,497,045 69,701,984 62,962,620 495,614 0 (384,920) 0 17,305,622 778,656,710 16,691,618 25,575,851 0 6,774,853 35,492,616 15,321,171 (72,298,630) (21,484,843) 0 31,021,065 13,311,813 0 20,165,185 17,187,695 3,761,875 59,259,731 340,833 (456) 0 0 4,621,512 0 6,774,853 922,366,159 12.070 0.460 (0.710) 0.460 0.190 0 11.170 64 0 0.000
EX-27.FINANDATASCHED 19
6 5 Evergreen Emerging Markets Growth Fund Class A 4-MOS Dec-31-1994 Dec-31-1994 9,824,308 8,355,931 118,855 919 0 8,475,705 0 0 52,252 52,252 0 9,991,162 106,190 0 3,717 0 (103,062) 0 (1,468,364) 867,049 20,058 23,839 0 40,180 3,717 (103,062) (1,468,364) (1,567,709) 0 0 0 0 107,331 1,141 0 8,423,453 0 0 0 0 35,047 0 91,117 7,222,755 10.000 0.000 (1.830) 0.000 0.000 0 8.170 178 0 0.000
EX-27.FINANDATASCHED 20
6 6 Evergreen Emerging Markets Growth Fund Class B 4-MOS Dec-31-1994 Dec-31-1994 9,824,308 8,355,931 118,855 919 0 8,475,705 0 0 52,252 52,252 0 9,991,162 194,720 0 3,717 0 (103,062) 0 (1,468,364) 1,589,047 20,058 23,839 0 40,180 3,717 (103,062) (1,468,364) (1,567,709) 0 0 0 0 202,997 8,277 0 8,423,453 0 0 0 0 35,047 0 91,117 7,222,755 10.000 (0.020) (1.820) 0.000 0.000 0 8.160 253 0 0.000
EX-27.FINANDATASCHED 21
6 7 Evergreen Emerging Markets Growth Fund Class C 4-MOS Dec-31-1994 Dec-31-1994 9,824,308 8,355,931 118,855 919 0 8,475,705 0 0 52,252 52,252 0 9,991,162 10,933 0 3,717 0 (103,062) 0 (1,468,364) 89,236 20,058 23,839 0 40,180 3,717 (103,062) (1,468,364) (1,567,709) 0 0 0 0 10,933 0 0 8,423,453 0 0 0 0 35,047 0 91,117 7,222,755 10.000 (0.020) (1.820) 0.000 0.000 0 8.160 253 0 0.000
EX-27.FINANDATASCHED 22
6 8 Evergreen Emerging Markets Growth Fund Y Shares 4-MOS Dec-31-1994 Dec-31-1994 9,824,308 8,355,931 118,855 919 0 8,475,705 0 0 52,252 52,252 0 9,991,162 719,827 0 3,717 0 (103,062) 0 (1,468,364) 5,878,121 20,058 23,839 0 40,180 3,717 (103,062) (1,468,364) (1,567,709) 0 0 0 0 724,945 5,118 0 8,423,453 0 0 0 0 35,047 0 91,117 7,222,755 10.000 0.010 (1.840) 0.000 0.000 0 8.170 153 0 0.000
EX-27.FINANDATASCHED 23
6 9 Evergreen Fixed Income Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 403,108,910 378,307,627 5,596,256 528 0 383,904,411 0 0 1,615,293 1,615,293 0 412,844,774 2,009,397 2,193,753 219,997 0 (5,974,370) 0 (24,801,283) 19,126,757 0 29,194,972 0 2,781,015 26,413,957 (6,020,616) (31,162,934) (10,769,593) 0 1,390,210 1,063 0 496,948 797,380 116,076 (25,897,070) 43,154 65,625 0 0 2,022,773 0 2,781,015 404,221,272 10.420 0.650 (0.910) 0.640 0.000 0 9.520 75 0 0.000
EX-27.FINANDATASCHED 24
6 10 Evergreen Fixed Income Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 403,108,910 378,307,627 5,596,256 528 0 383,904,411 0 0 1,615,293 1,615,293 0 412,844,774 1,846,547 849,941 219,997 0 (5,974,370) 0 (24,801,283) 17,624,970 0 29,194,972 0 2,781,015 26,413,957 (6,020,616) (31,162,934) (10,769,593) 0 813,680 679 0 1,377,400 439,397 58,604 (25,897,070) 43,154 65,625 0 0 2,022,773 0 2,781,015 404,221,272 10.440 0.580 (0.920) 0.560 0.000 0 9.540 150 0 0.000
EX-27.FINANDATASCHED 25
6 11 Evergreen Fixed Income Fund Class C 12-MOS Dec-31-1994 Dec-31-1994 403,108,910 378,307,627 5,596,256 528 0 383,904,411 0 0 1,615,293 1,615,293 0 412,844,774 53,685 0 219,997 0 (5,974,370) 0 (24,801,283) 512,570 0 29,194,972 0 2,781,015 26,413,957 (6,020,616) (31,162,934) (10,769,593) 0 6,924 0 0 54,641 1,243 287 (25,897,070) 43,154 65,625 0 0 2,022,773 0 2,781,015 404,221,272 9.850 0.180 (0.300) 0.180 0.000 0 9.550 165 0 0.000
EX-27.FINANDATASCHED 26
6 12 Evergreen Fixed Income Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 403,108,910 378,307,627 5,596,256 528 0 383,904,411 0 0 1,615,293 1,615,293 0 412,844,774 36,238,495 36,106,822 219,997 0 (5,974,370) 0 (24,801,283) 345,024,821 0 29,194,972 0 2,781,015 26,413,957 (6,020,616) (31,162,934) (10,769,593) 0 24,026,300 17,637 0 10,329,803 12,477,326 2,279,195 (25,897,070) 43,154 65,625 0 0 2,022,773 0 2,781,015 404,221,272 10.430 0.650 (0.910) 0.650 0.000 0 9.520 65 0 0.000
EX-27.FINANDATASCHED 27
6 13 Evergreen Florida Municipal Bond Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 36,767,689 34,121,872 2,806,269 250,529 0 37,178,670 1,204,682 0 764,706 1,969,388 0 39,922,184 974,131 784,075 0 0 (2,067,085) 0 (2,645,817) 8,689,087 0 2,002,836 0 355,461 1,647,375 (2,059,403) (3,012,525) (3,424,553) 0 478,019 0 0 769,573 606,508 26,991 8,715,800 0 (7,682) 0 0 171,732 0 617,411 34,621,310 10.340 0.490 (1.420) 0.490 0.000 0 8.920 64 0 0.000
EX-27.FINANDATASCHED 28
6 14 Evergreen Florida Municipal Bond Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 36,767,689 34,121,872 2,806,269 250,529 0 37,178,670 1,204,682 0 764,706 1,969,388 0 39,922,184 2,775,663 1,777,823 0 0 (2,067,085) 0 (2,645,817) 24,756,282 0 2,002,836 0 355,461 1,647,375 (2,059,403) (3,012,525) (3,424,553) 0 1,098,233 0 0 1,596,854 661,049 62,035 8,715,800 0 (7,682) 0 0 171,732 0 617,411 34,621,310 10.340 0.430 (1.420) 0.430 0.000 0 8.920 122 0 0.000
EX-27.FINANDATASCHED 29
6 15 Evergreen Florida Municipal Bond Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 36,767,689 34,121,872 2,806,269 250,529 0 37,178,670 1,204,682 0 764,706 1,969,388 0 39,922,184 197,806 0 0 0 (2,067,085) 0 (2,645,817) 1,763,913 0 2,002,836 0 355,461 1,647,375 (2,059,403) (3,012,525) (3,424,553) 0 71,123 0 0 287,077 90,201 930 8,715,800 0 (7,682) 0 0 171,732 0 617,411 34,621,310 9.990 0.420 (1.070) 0.420 0.000 0 8.920 39 0 0.000
EX-27.FINANDATASCHED 30
6 16 Evergreen Georgia Municipal Bond Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 8,195,670 8,044,749 533,096 81,438 0 8,659,283 0 0 76,672 76,672 0 9,620,985 158,671 80,206 0 0 (887,457) 0 (150,917) 1,386,598 0 425,227 0 74,397 350,830 (887,457) (185,649) (722,276) 0 64,118 0 0 100,861 27,500 5,104 4,073,637 0 0 0 0 36,674 0 300,817 7,482,921 10.190 0.480 (1.450) 0.480 0.000 0 8.740 53 0 0.000
EX-27.FINANDATASCHED 31
6 17 Evergreen Georgia Municipal Bond Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 8,195,670 8,044,749 533,096 81,438 0 8,659,283 0 0 76,672 76,672 0 9,620,985 790,862 362,215 0 0 (887,457) 0 (150,917) 6,911,706 0 425,227 0 74,397 350,830 (887,457) (185,649) (722,276) 0 278,937 0 0 586,440 180,297 22,504 4,073,637 0 0 0 0 36,674 0 300,817 7,482,921 10.190 0.430 (1.450) 0.430 0.000 0 8.740 113 0 0.000
EX-27.FINANDATASCHED 32
6 18 Evergreen Georgia Municipal Bond Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 8,195,670 8,044,749 533,096 81,438 0 8,659,283 0 0 76,672 76,672 0 9,620,985 32,533 0 0 0 (887,457) 0 (150,917) 284,307 0 425,227 0 74,397 350,830 (887,457) (185,649) (722,276) 0 7,775 0 0 32,285 41 289 4,073,637 0 0 0 0 36,674 0 300,817 7,482,921 9.830 0.420 (1.090) 0.420 0.000 0 8.740 31 0 0.000
EX-27.FINANDATASCHED 33
6 19 Evergreen High Grade Tax Free Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 96,691,204 92,714,663 3,782,801 9,832 0 96,507,296 1,440,086 0 637,530 2,077,616 0 99,317,449 5,888,392 9,085,725 0 0 (911,228) 0 (3,976,541) 57,676,448 0 7,261,577 0 1,421,839 5,839,738 (912,236) (15,618,845) (10,691,343) 0 3,977,507 0 0 555,825 3,992,062 238,904 (47,952,744) 0 1,008 0 0 599,854 0 1,437,929 120,153,198 11.160 0.520 (1.370) 0.520 0.000 0 9.790 101 0 0.000
EX-27.FINANDATASCHED 34
6 20 Evergreen High Grade Tax Free Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 96,691,204 92,714,663 3,782,801 9,832 0 96,507,296 1,440,086 0 637,530 2,077,616 0 99,317,449 3,311,416 3,678,178 0 0 (911,228) 0 (3,976,541) 32,434,792 0 7,261,577 0 1,421,839 5,839,738 (912,236) (15,618,845) (10,691,343) 0 1,722,197 0 0 619,543 1,088,820 102,516 (47,952,744) 0 1,008 0 0 599,854 0 1,437,929 120,153,198 11.160 0.460 (1.370) 0.460 0.000 0 9.790 158 0 0.000
EX-27.FINANDATASCHED 35
6 21 Evergreen High Grade Tax Free Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 96,691,204 92,714,663 3,782,801 9,832 0 96,507,296 1,440,086 0 637,530 2,077,616 0 99,317,449 440,914 0 0 0 (911,228) 0 (3,976,541) 4,318,440 0 7,261,577 0 1,421,839 5,839,738 (912,236) (15,618,845) (10,691,343) 0 140,034 0 0 532,658 93,031 1,287 (47,952,744) 0 1,008 0 0 599,854 0 1,437,929 120,153,198 10.920 0.460 (1.130) 0.460 0.000 0 9.790 76 0 0.000
EX-27.FINANDATASCHED 36
6 22 Evergreen International Equity Fund Class A 4-MOS Dec-31-1994 Dec-31-1994 33,619,561 32,529,132 1,454,068 513,899 0 34,497,099 1,278,665 0 1,078,907 2,357,572 0 33,215,142 267,930 0 50,645 0 (32,131) 0 (1,094,129) 2,544,906 133,535 22,775 0 91,351 64,959 (27,654) (1,094,129) (1,056,824) 0 259 363 0 271,932 4,068 65 32,139,527 0 0 0 0 60,885 0 152,717 22,659,955 10.000 0.020 (0.520) 0.000 0.000 0 9.500 126 0 0.000
EX-27.FINANDATASCHED 37
6 23 Evergreen International Equity Fund Class B 4-MOS Dec-31-1994 Dec-31-1994 33,619,561 32,529,132 1,454,068 513,899 0 34,497,099 1,278,665 0 1,078,907 2,357,572 0 33,215,142 589,954 0 50,645 0 (32,131) 0 (1,094,129) 5,602,374 133,535 22,775 0 91,351 64,959 (27,654) (1,094,129) (1,056,824) 0 0 811 0 601,778 11,910 86 32,139,527 0 0 0 0 60,885 0 152,717 22,659,955 10.000 0.000 (0.500) 0.000 0.000 0 9.500 202 0 0.000
EX-27.FINANDATASCHED 38
6 24 Evergreen International Equity Fund Class C 4-MOS Dec-31-1994 Dec-31-1994 33,619,561 32,529,132 1,454,068 513,899 0 34,497,099 1,278,665 0 1,078,907 2,357,572 0 33,215,142 17,132 0 50,645 0 (32,131) 0 (1,094,129) 162,663 133,535 22,775 0 91,351 64,959 (27,654) (1,094,129) (1,056,824) 0 0 24 0 17,281 151 3 32,139,527 0 0 0 0 60,885 0 152,717 22,659,955 10.000 0.030 (0.540) 0.000 0.000 0 9.490 201 0 0.000
EX-27.FINANDATASCHED 39
6 25 Evergreen International Equity Fund Y Shares 4-MOS Dec-31-1994 Dec-31-1994 33,619,561 32,529,132 1,454,068 513,899 0 34,497,099 1,278,665 0 1,078,907 2,357,572 0 33,215,142 2,509,397 0 50,645 0 (32,131) 0 (1,094,129) 23,829,584 133,535 22,775 0 91,351 64,959 (27,654) (1,094,129) (1,056,824) 0 14,055 3,279 0 2,526,593 17,935 739 32,139,527 0 0 0 0 60,885 0 152,717 22,659,955 10.000 0.020 (0.510) 0.010 0.000 0 9.500 106 0 0.000
EX-27.FINANDATASCHED 40
6 26 Evergreen Managed Bond Fund 12-MOS Dec-31-1994 Dec-31-1994 94,045,952 88,641,814 1,686,686 9,732 0 90,338,232 0 0 19,977 19,977 0 97,083,445 9,656,565 10,423,512 86,211 0 (1,447,263) 0 (5,404,138) 90,318,255 0 7,723,172 0 731,145 6,992,027 (1,440,454) (10,390,618) (4,839,045) 0 6,989,831 0 0 2,292,625 3,747,274 687,702 (18,748,815) 84,015 265,646 0 0 523,270 0 741,832 104,607,670 10.460 0.660 (1.110) 0.660 0.000 0 9.350 70 0 0.000
EX-27.FINANDATASCHED 41
6 27 Evergreen Money Market Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 117,348,946 117,348,946 774,341 266,050 0 118,389,337 0 0 504,767 504,767 0 117,884,570 95,759,773 88,171,593 0 0 0 0 0 95,759,773 0 4,704,152 0 659,620 4,044,532 0 0 4,044,532 0 3,515,478 0 0 397,451,193 393,034,505 3,171,491 20,598,278 0 0 0 0 372,483 0 1,035,455 107,186,093 1.000 0.040 0.000 0.040 0.000 0 1.000 61 0 0.000
EX-27.FINANDATASCHED 42
6 30 Evergreen North Carolina Municipal Bond Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 58,054,613 56,090,745 1,395,541 28,487 0 57,514,773 3,501,210 0 776,633 4,277,843 0 60,114,254 871,144 1,200,415 0 0 (4,913,456) 0 (1,963,868) 7,978,824 0 3,392,113 0 726,686 2,665,427 (4,913,456) (3,925,063) (6,173,092) 0 503,283 0 0 417,470 782,865 36,125 (4,669,716) 0 0 0 0 287,040 0 947,965 57,459,852 10.610 0.490 (1.450) 0.490 0.000 0 9.160 79 0 0.000
EX-27.FINANDATASCHED 43
6 31 Evergreen North Carolina Municipal Bond Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 58,054,613 56,090,745 1,395,541 28,487 0 57,514,773 3,501,210 0 776,633 4,277,843 0 60,114,254 4,872,069 4,256,330 0 0 (4,913,456) 0 (1,963,868) 44,615,693 0 3,392,113 0 726,686 2,665,427 (4,913,456) (3,925,063) (6,173,092) 0 2,144,310 0 0 1,588,728 1,136,420 163,431 (4,669,716) 0 0 0 0 287,040 0 947,965 57,459,852 10.610 0.440 (1.450) 0.440 0.000 0 9.160 137 0 0.000
EX-27.FINANDATASCHED 44
6 32 Evergreen North Carolina Municipal Bond Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 58,054,613 56,090,745 1,395,541 28,487 0 57,514,773 2,501,210 0 776,633 4,277,843 0 60,114,254 70,162 0 0 0 (4,913,456) 0 (1,963,868) 642,413 0 3,392,113 0 726,686 2,665,427 (4,913,456) (3,925,063) (6,173,092) 0 17,834 0 0 74,100 4,358 420 (4,669,716) 0 0 0 0 287,040 0 947,965 57,459,852 10.300 0.430 (1.140) 0.430 0.000 0 9.160 59 0 0.000
EX-27.FINANDATASCHED 45
6 33 Evergreen South Carolina Municipal Bond Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 3,085,384 2,865,603 55,538 7,014 0 2,928,155 0 0 67,415 67,415 0 3,113,930 36,221 0 0 0 (33,409) 0 (219,781) 312,283 0 102,498 0 14,019 88,479 (33,409) (219,781) (164,711) 0 9,315 0 0 41,168 5,193 246 2,860,740 0 0 0 0 8,905 0 200,311 1,804,750 10.000 0.460 (1.380) 0.460 0.000 0 8.620 25 0 0.000
EX-27.FINANDATASCHED 46
6 34 Evergreen South Carolina Municipal Bond Port Class B 12-MOS Dec-31-1994 Dec-31-1994 3,085,384 2,865,603 55,538 7,014 0 2,928,155 0 0 67,415 67,415 0 3,113,930 284,889 0 0 0 (33,409) 0 (219,781) 2,456,224 0 102,498 0 14,019 88,479 (33,409) (219,781) (164,711) 0 76,164 0 0 304,136 25,441 6,194 2,860,740 0 0 0 0 8,905 0 200,311 1,804,750 10.000 0.410 (1.380) 0.410 0.000 0 8.620 87 0 0.000
EX-27.FINANDATASCHED 47
6 35 Evergreen South Carolina Municipal Bond Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 3,085,384 2,865,603 55,538 7,014 0 2,928,155 0 0 67,415 67,415 0 3,113,930 10,698 0 0 0 (33,409) 0 (219,781) 92,233 0 102,498 0 14,019 88,479 (33,409) (219,781) (164,711) 0 3,000 0 0 10,721 24 1 2,860,740 0 0 0 0 8,905 0 200,311 1,804,750 9.740 0.430 (1.120) 0.430 0.000 0 8.620 0 0 0.000
EX-27.FINANDATASCHED 48
6 38 Evergreen Treasury Money Market Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 919,906,581 919,906,581 4,728,315 25,088 0 924,659,984 0 0 6,689,127 6,689,127 0 917,970,857 755,050,277 261,474,610 0 0 0 0 0 755,050,277 0 31,059,144 0 2,886,497 28,172,647 0 0 28,172,647 0 18,913,691 0 0 2,181,392,175 1,692,374,918 4,558,410 290,387,561 0 0 0 0 2,549,955 0 4,945,841 728,558,327 1.000 0.040 0.000 0.040 0.000 0 1.000 50 0 0.000
EX-27.FINANDATASCHED 49
6 39 Evergreen Treasury Money Market Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 919,906,581 919,906,581 4,728,315 25,088 0 924,659,984 0 0 6,689,127 6,689,127 0 917,970,857 162,920,580 366,108,686 0 0 0 0 0 162,920,580 0 31,059,144 0 2,886,497 28,172,647 0 0 28,172,647 0 9,258,956 0 0 630,963,750 834,151,856 0 290,387,561 0 0 0 0 2,549,955 0 4,945,841 728,558,327 1.000 0.040 0.000 0.040 0.000 0 1.000 20 0 0.000
EX-27.FINANDATASCHED 50
6 40 Evergreen U.S. Government Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 257,279,633 233,072,226 3,774,727 107,686 0 236,954,639 0 0 1,817,095 1,817,095 0 266,791,733 2,613,820 3,866,686 0 0 (7,446,782) 0 (24,207,407) 23,705,652 0 21,549,057 0 3,855,865 17,693,192 (5,468,380) (23,253,985) (11,029,173) 0 2,207,479 0 0 593,469 1,959,939 113,604 (54,895,564) 0 (1,978,402) 0 0 1,355,420 0 3,961,388 270,169,757 10.050 0.660 (0.980) 0.660 0.000 0 9.070 96 0 0.000
EX-27.FINANDATASCHED 51
6 41 Evergreen U.S. Government Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 257,279,633 233,072,226 3,774,727 107,686 0 236,954,639 0 0 1,817,095 1,817,095 0 266,791,733 21,565,544 23,556,315 0 0 (7,446,782) 0 (24,207,407) 195,570,908 0 21,549,057 0 3,855,865 17,693,192 (5,468,380) (23,253,985) (11,029,173) 0 14,400,952 0 0 4,261,379 7,017,488 765,338 (54,895,564) 0 (1,978,402) 0 0 1,355,420 0 3,961,388 270,169,757 10.050 0.610 (0.980) 0.610 0.000 0 9.070 154 0 0.000
EX-27.FINANDATASCHED 52
6 42 Evergreen U.S. Government Fund Class C 12-MOS Dec-31-1994 Dec-31-1994 257,279,633 233,072,226 3,774,727 107,686 0 236,954,639 0 0 1,817,095 1,817,095 0 266,791,733 29,324 0 0 0 (7,446,782) 0 (24,207,407) 265,962 0 21,549,057 0 3,855,865 17,693,192 (5,468,380) (23,253,985) (11,029,173) 0 2,793 0 0 29,225 0 99 (54,895,564) 0 (1,978,402) 0 0 1,355,420 0 3,961,388 270,169,757 9.390 0.200 (0.320) 0.200 0.000 0 9.070 171 0 0.000
EX-27.FINANDATASCHED 53
6 43 Evergreen U.S. Government Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 257,279,633 233,072,226 3,774,727 107,686 0 236,954,639 0 0 1,817,095 1,817,095 0 266,791,733 1,719,550 1,441,612 0 0 (7,446,782) 0 (24,207,407) 15,595,022 0 21,549,057 0 3,855,865 17,693,192 (5,468,380) (23,253,985) (11,029,173) 0 1,081,968 0 0 1,020,057 838,664 96,545 (54,895,564) 0 (1,978,402) 0 0 1,355,420 0 3,961,388 270,169,757 10.050 0.690 (0.980) 0.690 0.000 0 9.070 71 0 0.000
EX-27.FINANDATASCHED 54
6 44 Evergreen Utility Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 40,728,944 38,332,674 299,178 35,840 0 38,667,692 0 0 355,966 355,966 0 40,781,719 465,691 0 19,933 0 (93,656) 0 (2,396,270) 4,190,305 1,413,163 261,177 0 323,813 1,350,527 (93,656) (2,396,270) (1,139,399) 0 191,065 0 0 1,050,103 601,659 17,247 38,311,726 0 0 0 0 153,458 0 582,808 31,610,617 10.000 0.450 (1.010) 0.440 0.000 0 9.000 53 0 0.000
EX-27.FINANDATASCHED 55
6 45 Evergreen Utility Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 40,728,944 38,332,674 299,178 35,840 0 38,667,692 0 0 355,966 355,966 0 40,781,719 3,197,871 0 19,933 0 (93,656) 0 (2,396,270) 28,792,123 1,413,163 261,177 0 323,813 1,350,527 (93,656) (2,396,270) (1,139,399) 0 922,823 0 0 3,519,138 406,297 85,030 38,311,726 0 0 0 0 153,458 0 582,808 31,610,617 10.000 0.390 (1.010) 0.380 0.000 0 9.000 127 0 0.000
EX-27.FINANDATASCHED 56
6 46 Evergreen Utility Fund Class C 12-MOS Dec-31-1994 Dec-31-1994 40,728,944 38,332,674 299,178 35,840 0 38,667,692 0 0 355,966 355,966 0 40,781,719 14,199 0 19,933 0 (93,656) 0 (2,396,270) 127,883 1,413,163 261,177 0 323,813 1,350,527 (93,656) (2,396,270) (1,139,399) 0 1,182 0 0 14,069 0 130 38,311,726 0 0 0 0 153,458 0 582,808 31,610,617 9.330 0.120 (0.330) 0.110 0.000 0 9.010 194 0 0.000
EX-27.FINANDATASCHED 57
6 47 Evergreen Utility Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 40,728,944 38,332,674 299,178 35,840 0 38,667,692 0 0 355,966 355,966 0 40,781,719 577,662 0 19,933 0 (93,656) 0 (2,396,270) 5,201,415 1,413,163 261,177 0 323,813 1,350,527 (93,656) (2,396,270) (1,139,399) 0 210,047 0 5,477 580,992 23,687 20,357 38,311,726 0 0 0 0 153,458 0 582,808 31,610,617 9.510 0.370 (0.500) 0.370 0.000 0.010 9.000 40 0 0.000
EX-27.FINANDATASCHED 58
6 48 Evergreen Value Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 802,372,539 807,634,310 4,234,547 743 0 811,869,600 3,938,539 0 7,314,288 11,252,827 0 796,232,544 11,360,202 10,774,671 0 (434,532) (443,010) 0 5,261,771 188,807,184 27,496,851 2,443,286 0 6,384,245 23,555,892 37,989,054 (46,787,958) 14,756,988 0 5,495,722 8,939,524 0 1,358,029 1,612,008 839,511 87,593,169 0 (131,832) (635,325) 0 3,850,673 0 6,384,245 771,316,305 17.630 0.520 (0.200) 0.510 0.820 0 16.620 93 0 0.000
EX-27.FINANDATASCHED 59
6 49 Evergreen Value Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 802,372,539 807,634,310 4,234,547 743 0 811,869,600 3,938,539 0 7,314,288 11,252,827 0 796,232,544 6,274,003 3,400,580 0 (434,532) (443,010) 0 5,261,771 104,298,562 27,496,851 2,443,286 0 6,384,245 23,555,892 37,989,054 (46,787,958) 14,756,988 0 1,952,154 4,906,369 24,340 3,054,952 575,508 393,979 87,593,169 0 (131,832) (635,325) 0 3,850,673 0 6,384,245 771,316,305 17.630 0.420 (0.200) 0.410 0.820 0 16.620 153 0 0.000
EX-27.FINANDATASCHED 60
6 50 Evergreen Value Fund Class C 12-MOS Dec-31-1994 Dec-31-1994 802,372,539 807,634,310 4,234,547 743 0 811,869,600 3,938,539 0 7,314,288 11,252,827 0 796,232,544 29,207 0 0 (434,532) (443,010) 0 5,261,771 485,037 27,496,851 2,443,286 0 6,384,245 23,555,892 37,989,054 (46,787,958) 14,756,988 0 2,060 22,671 951 27,701 34 1,540 87,593,169 0 (131,832) (635,325) 0 3,850,673 0 6,384,245 771,316,305 18.280 0.190 (0.810) 0.190 0.820 0.040 16.610 168 0 0.000
EX-27.FINANDATASCHED 61
6 51 Evergreen Value Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 802,372,539 807,634,310 4,234,547 743 0 811,869,600 3,938,539 0 7,314,288 11,252,827 0 796,232,544 30,516,178 26,269,966 0 (434,532) (443,010) 0 5,261,771 507,025,990 27,496,851 2,443,286 0 6,384,245 23,555,892 37,989,054 (46,787,958) 14,756,988 0 15,879,870 24,431,670 0 10,949,430 8,880,310 2,177,091 87,593,169 0 (131,832) (635,325) 0 3,850,673 0 6,384,245 771,316,305 17.630 0.560 (0.200) 0.560 0.820 0 16.610 68 0 0.000
EX-27.FINANDATASCHED 62
6 52 Evergreen Virginia Municipal Bond Fund Class A 12-MOS Dec-31-1994 Dec-31-1994 6,328,243 5,918,576 128,923 11,176 0 6,058,675 247,561 0 44,273 291,834 0 6,435,061 181,494 128,122 0 0 (258,553) 0 (409,667) 1,605,460 0 282,191 0 45,279 236,912 (258,553) (435,700) (457,341) 0 82,301 0 0 86,681 40,827 7,518 2,226,205 0 0 0 0 24,942 0 275,294 5,045,735 10.190 0.470 (1.340) 0.470 0.000 0 8.850 53 0 0.000
EX-27.FINANDATASCHED 63
6 53 Evergreen Virginia Municipal Bond Fund Class B 12-MOS Dec-31-1994 Dec-31-1994 6,328,243 5,918,576 128,923 11,176 0 6,058,675 247,561 0 44,273 291,834 0 6,435,061 431,550 219,346 0 0 (258,553) 0 (409,667) 3,817,255 0 282,191 0 45,279 236,912 (258,553) (435,700) (457,341) 0 148,091 0 0 259,308 60,204 13,100 2,226,205 0 0 0 0 24,942 0 275,294 5,045,735 10.190 0.420 (1.340) 0.420 0.000 0 8.850 112 0 0.000
EX-27.FINANDATASCHED 64
6 54 Evergreen Virginia Municipal Bond Fund Y Shares 12-MOS Dec-31-1994 Dec-31-1994 6,328,243 5,918,576 128,923 11,176 0 6,058,675 247,561 0 44,273 291,834 0 6,435,061 38,906 0 0 0 (258,553) 0 (409,667) 344,126 0 282,191 0 45,279 236,912 (258,553) (435,700) (457,341) 0 6,520 0 0 42,022 3,209 93 2,226,205 0 0 0 0 24,942 0 275,294 5,045,735 9.830 0.410 (0.980) 0.410 0.000 0 8.850 28 0 0.000
-----END PRIVACY-ENHANCED MESSAGE-----