-----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, RN3K9dqDkj7NX0/PdpRAblONRXCyuiPbgdAQ7LCdb73vEGMzjdm0tfhQYLEUOg49 KGhBmqc+rzFwInRduN1zfQ== 0000082693-95-000043.txt : 199507110000082693-95-000043.hdr.sgml : 19950711 ACCESSION NUMBER: 0000082693-95-000043 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950710 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: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-94560 FILM NUMBER: 95553052 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 497 1 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----