-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OI+eOCKPu9J4eBLpsdpIKQL0qZVgxaAdod6TvPWew/c2f2zJsZrlP182z/yyPftN PuOksqEEM7d+xVecFxrE4A== 0000908737-97-000549.txt : 19971205 0000908737-97-000549.hdr.sgml : 19971205 ACCESSION NUMBER: 0000908737-97-000549 CONFORMED SUBMISSION TYPE: N-14AE PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971204 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN INVESTMENT TRUST CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-14AE SEC ACT: SEC FILE NUMBER: 333-41481 FILM NUMBER: 97732359 BUSINESS ADDRESS: STREET 1: 200 BERKELEY ST CITY: BOSTON E STATE: MA ZIP: 02116 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 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 N-14AE 1 1933 Act Registration No. 333- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-14AE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective [ ] Post-Effective Amendment No. Amendment No. EVERGREEN INVESTMENT TRUST (Exact Name of Registrant as Specified in Charter) Area Code and Telephone Number: (617) 210-3200 200 Berkeley Street Boston, Massachusetts 02116 ----------------------------------- (Address of Principal Executive Offices) Rosemary D. Van Antwerp, Esq. Keystone Investment Management Company 200 Berkeley Street Boston, Massachusetts 02116 ----------------------------------------- (Name and Address of Agent for Service) Copies of All Correspondence to: Robert N. Hickey, Esq. Sullivan & Worcester LLP 1025 Connecticut Avenue, N.W. Washington, D.C. 20036 Approximate date of proposed public offering: As soon as possible after the effective date of this Registration Statement. The Registrant has registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Section 24(f) under the Investment Company Act of 1940 (File No. 2- 94560); accordingly, no fee is payable herewith. Pursuant to Rule 429, this Registration Statement relates to the aforementioned registration on Form N-1A. A Rule 24f-2 Notice for the Registrant's fiscal year ended May 31, 1997 was filed with the Commission on or about ________, 1997. It is proposed that this filing will become effective on January 5, 1998 pursuant to Rule 488 of the Securities Act of 1933. EVERGREEN INVESTMENT TRUST CROSS REFERENCE SHEET Pursuant to Rule 481(a) under the Securities Act of 1933 Location in Prospectus/Proxy Item of Part A of Form N-14 Statement 1. Beginning of Registration Cross Reference Sheet; Cover Statement and Outside Page Front Cover Page of Prospectus 2. Beginning and Outside Table of Contents Back Cover Page of Prospectus 3. Fee Table, Synopsis and Comparison of Fees and Risk Factors Expenses; Summary; Comparison of Investment Objectives and Policies; Risks 4. Information About the Summary; Reasons for the Transaction Reorganization; Comparative Information on Shareholders' Rights; Exhibit A (Agreement and Plan of Reorganization) 5. Information about the Cover Page; Summary; Risks; Registrant Comparison of Investment Objectives and Policies; Comparative Information on Shareholders' Rights; Additional Information 6. Information about the Cover Page; Summary; Risks; Company Being Acquired Comparison of Investment Objective and Policies; Comparative Information on Shareholders' Rights; Additional Information 7. Voting Information Cover Page; Summary; Voting Information Concerning the Meeting 8. Interest of Certain Financial Statements and Persons and Experts Experts; Legal Matters 9. Additional Information Inapplicable Required for Reoffering by Persons Deemed to be Underwriters Item of Part B of Form N-14 10. Cover Page Cover Page 11. Table of Contents Omitted 12. Additional Information Statement of Additional About the Registrant Information of Evergreen High Grade Tax Free Fund dated September 3, 1997 13. Additional Information Statement of Additional about the Company Being Information of Blanchard Funds Acquired - Blanchard Flexible Tax-Free Bond Fund dated August 31, 1997 14. Financial Statements Financial Statements dated May 31, 1997 of Evergreen High Grade Tax Free Fund; Financial Statements of Blanchard Flexible Tax-Free Bond Fund dated September 30, 1997; Pro Forma Financial Statements Item of Part C of Form N-14 Incorporated by Reference to 15. Indemnification Part A Caption - "Comparative Information on Shareholders' Rights - Liability and Indemnification of Trustees" 16. Exhibits Item 16. Exhibits 17. Undertakings Item 17. Undertakings BLANCHARD FUNDS BLANCHARD FLEXIBLE TAX-FREE BOND FUND FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 January 5, 1998 Dear Shareholder, I am writing to shareholders of the Blanchard Flexible Tax-Free Bond Fund, a series of Blanchard Funds (the "Fund"), to inform you of a Special Shareholders' meeting to be held on February 20, 1998. Before that meeting, I would like your vote on the important issues affecting your Fund as described in the attached Prospectus/Proxy Statement. The Prospectus/Proxy Statement includes three proposals. The first proposal requests that shareholders consider and act upon an Agreement and Plan of Reorganization whereby all of the assets of the Fund would be acquired by Evergreen High Grade Tax Free Fund in exchange for Class A shares of Evergreen High Grade Tax Free Fund and the assumption by Evergreen High Grade Tax Free Fund of certain liabilities of the Fund. You will receive shares of Evergreen High Grade Tax Free Fund having an aggregate net asset value equal to the aggregate net asset value of your Fund shares. Details about Evergreen High Grade Tax Free Fund's investment objective, portfolio management team, performance, etc. are contained in the attached Prospectus/Proxy Statement. The transaction is a non-taxable event for shareholders. The second proposal requests shareholder consideration of an Interim Investment Advisory Agreement between the Fund and Virtus Capital Management, Inc. The third and final proposal requests shareholder consideration of an Interim Sub-Advisory Agreement between Virtus Capital Management, Inc. and United States Trust Company of New York. Information relating to the Interim Investment Advisory Agreement and the Interim Sub-Advisory Agreement is contained in the attached Prospectus/Proxy Statement. The Board of Trustees has unanimously approved the proposals and recommends that you vote FOR these proposals. I realize that this Prospectus/Proxy Statement will take time to review, but your vote is very important. Please take the time to familiarize yourself with the proposals presented and sign and return your proxy card in the enclosed postage-paid envelope today. If we do not receive your completed proxy card after several weeks, you may be contacted by our proxy solicitor, Shareholder Communications Corporation, who will remind you to vote your shares. Thank you for taking this matter seriously and participating in this important process. Sincerely, [Name] [Title] Blanchard Funds [SUBJECT TO COMPLETION, December 4, 1997 PRELIMINARY COPY] BLANCHARD FUNDS BLANCHARD FLEXIBLE TAX-FREE FUND FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 20, 1998 Notice is hereby given that a Special Meeting (the "Meeting") of Shareholders of Blanchard Flexible Tax-Free Bond Fund, a series of Blanchard Funds ("Tax-Free"), will be held at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, on February 20, 1998 at 2:00 p.m. for the following purposes: 1. To consider and act upon the Agreement and Plan of Reorganization (the "Plan") dated as of November 26, 1997, providing for the acquisition of all of the assets of Tax-Free Income by the Evergreen High Grade Tax Free Fund, a series of Evergreen Municipal Trust ("Evergreen Tax Free"), in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free. The Plan also provides for distribution of such shares of Evergreen Tax Free to shareholders of Tax-Free in liquidation and subsequent termination of Tax-Free. A vote in favor of the Plan is a vote in favor of the liquidation and dissolution of Tax-Free Income. 2. To consider and act upon the Interim Management Contract between Tax-Free and Virtus Capital Management, Inc. 3. To consider and act upon the Interim Sub-Advisory Agreement between Virtus Capital Management, Inc. and United States Trust Company of New York. 4. To transact any other business which may properly come before the Meeting or any adjournment or adjournments thereof. The Trustees of Blanchard Funds on behalf of Tax-Free have fixed the close of business on December 26, 1997 as the record date for the determination of shareholders of Tax-Free entitled to notice of and to vote at the Meeting or any adjournment thereof. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION. By Order of the Board of Trustees John W. McGonigle Secretary January 5, 1998 INSTRUCTIONS FOR EXECUTING PROXY CARDS The following general rules for signing proxy cards may be of assistance to you and may help to avoid the time and expense involved in validating your vote if you fail to sign your proxy card(s) properly. 1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the Registration on the proxy card(s). 2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing should conform exactly to a name shown in the Registration on the proxy card(s). 3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy card(s) should be indicated unless it is reflected in the form of Registration. For example: REGISTRATION VALID SIGNATURE CORPORATE ACCOUNTS (1) ABC Corp. ABC Corp. (2) ABC Corp. John Doe, Treasurer (3) ABC Corp. c/o John Doe, Treasurer John Doe, Treasurer (4) ABC Corp. Profit Sharing Plan John Doe, Trustee TRUST ACCOUNTS (1) ABC Trust Jane B. Doe, Trustee (2) Jane B. Doe, Trustee Jane B. Doe u/t/d 12/28/78 CUSTODIAL OR ESTATE ACCOUNTS (1) John B. Smith, Cust. John B. Smith f/b/o John B. Smith, Jr. UGMA (2) John B. Smith, Jr. John B. Smith, Jr., Executor PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998 Acquisition of Assets of BLANCHARD FLEXIBLE TAX-FREE BOND FUND a series of Blanchard Funds Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 By and in Exchange for Shares of EVERGREEN HIGH GRADE TAX FREE FUND a series of Evergreen Municipal Trust 200 Berkeley Street Boston, Massachusetts 02116 This Prospectus/Proxy Statement is being furnished to shareholders of Blanchard Flexible Tax-Free Bond Fund ("Tax- Free") in connection with a proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to shareholders of Tax-Free for consideration at a Special Meeting of Shareholders to be held on February 20, 1998 at 2:00 p.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and any adjournments thereof (the "Meeting"). The Plan provides for all of the assets of Tax-Free to be acquired by Evergreen High Grade Tax Free Fund ("Evergreen Tax Free") in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free (hereinafter referred to as the "Reorganization"). Evergreen Tax Free and Tax-Free are sometimes hereinafter referred to individually as the "Fund" and collectively as the "Funds." Following the Reorganization, shares of Evergreen Tax Free will be distributed to shareholders of Tax-Free in liquidation of Tax- Free and such Fund will be terminated. Holders of shares of Tax- Free will receive Class A shares of Evergreen Tax Free having the same Rule 12b-1 distribution-related fees as the shares of Tax- Free held by such holders prior to the Reorganization. No initial sales charge will be imposed in connection with Class A shares of Evergreen Tax Free received by holders of shares of Tax-Free. As a result of the proposed Reorganization, shareholders of Tax-Free will receive that number of full and fractional Class A shares of Evergreen Tax Free having an aggregate net asset value equal to the aggregate net asset value of such shareholder's shares of Tax-Free. The Reorganization is being structured as a tax-free reorganization for federal income tax purposes. Evergreen Tax Free is a separate series of Evergreen Municipal Trust, an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). Evergreen Tax Free seeks a high level of federally tax free income that is consistent with preservation of capital. Such investment objective is substantially identical to that of Tax-Free. Shareholders of Tax-Free are also being asked to approve the Interim Management Contract with Virtus Capital Management, Inc., a subsidiary of First Union Corporation ("Virtus"), (the "Interim Advisory Agreement") with the same terms and fees as the previous advisory agreement between Tax-Free and Virtus and the Interim Sub-Advisory Agreement between Virtus and United States Trust Company of New York ("U.S. Trust") with the same terms and fees as the previous sub-advisory agreement between Virtus and U.S. Trust. The Interim Advisory Agreement and Interim Sub-Advisory Agreement will be in effect for the period of time between November 28, 1997, the date on which the merger of Signet Banking Corporation with and into a wholly-owned subsidiary of First Union Corporation was consummated, and the date of the Reorganization (scheduled for on or about February 27, 1998). This Prospectus/Proxy Statement, which should be retained for future reference, sets forth concisely the information about Evergreen Tax Free that shareholders of Tax-Free should know before voting on the Reorganization. Certain relevant documents listed below, which have been filed with the Securities and Exchange Commission ("SEC"), are incorporated in whole or in part by reference. A Statement of Additional Information dated January 5, 1998, relating to this Prospectus/Proxy Statement and the Reorganization which includes the financial statements of Evergreen Tax Free dated May 31, 1997 and Tax-Free dated September 30, 1997, has been filed with the SEC and is incorporated by reference in its entirety into this Prospectus/Proxy Statement. A copy of such Statement of Additional Information is available upon request and without charge by writing to Evergreen Tax Free at 200 Berkeley Street, Boston, Massachusetts 02116, or by calling toll-free 1-800-343- 2898. The Prospectus of Evergreen Tax Free relating to Class A and Class B shares dated September 3, 1997, as supplemented, and its Annual Report for the year ended May 31, 1997 are incorporated herein by reference in their entirety, insofar as they relate to Evergreen Tax Free Class A and Class B shares only, and not to any other fund described therein. Shareholders of Tax-Free will receive, with this Prospectus/Proxy Statement, copies of the Prospectus of Evergreen Tax Free. Additional information about Evergreen Tax Free is contained in its Statement of Additional Information of the same date which has been filed with the SEC and which is available upon request and without charge by writing to or calling Evergreen Tax Free at the address or telephone number listed in the preceding paragraph. The Prospectus of Tax-Free dated August 31, 1997, insofar as it relates to Tax-Free only, and not to any other funds described therein, is incorporated herein in its entirety by reference. Copies of the Prospectus and related Statement of Additional Information dated the same date are available upon request without charge by writing to Tax-Free at the address listed on the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863. Included as Exhibits A, B and C to this Prospectus/Proxy Statement are a copy of the Plan, the Interim Advisory Agreement and the Interim Sub-Advisory Agreement, respectively. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The shares offered by this Prospectus/Proxy Statement are not deposits or obligations of any bank and are not insured or otherwise protected by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency and involve investment risk, including possible loss of capital. TABLE OF CONTENTS Page COMPARISON OF FEES AND EXPENSES...............................................6 SUMMARY .....................................................................8 Proposed Plan of Reorganization......................................9 Tax Consequences....................................................10 Investment Objectives and Policies of the Funds.....................11 Comparative Performance Information for each Fund............................11 Management of the Funds.............................................12 Investment Advisers and Sub-Adviser.................................12 Administrators......................................................13 Portfolio Management................................................14 Distribution of Shares..............................................14 Purchase and Redemption.............................................15 Exchange Privileges.................................................16 Dividend Policy.....................................................16 Risks ...........................................................17 REASONS FOR THE REORGANIZATION...............................................17 Agreement and Plan of Reorganization................................20 Federal Income Tax Consequences.....................................22 Pro-forma Capitalization............................................24 Shareholder Information.............................................25 COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.............................25 COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS..............................27 Forms of Organization...............................................27 Capitalization......................................................27 Shareholder Liability...............................................28 Shareholder Meetings and Voting Rights..............................29 Liquidation or Dissolution..........................................29 Liability and Indemnification of Trustees...........................30 INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT.........................31 Introduction........................................................31 INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT.....................34 Introduction........................................................34 Comparison of the Interim Sub-Advisory Agreement and the Previous Sub-Advisory Agreement............................35 ADDITIONAL INFORMATION.......................................................36 VOTING INFORMATION CONCERNING THE MEETING....................................37 FINANCIAL STATEMENTS AND EXPERTS.............................................40 OTHER BUSINESS...............................................................40 EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D COMPARISON OF FEES AND EXPENSES The amounts for Class A shares of Evergreen Tax Free set forth in the following tables and in the examples are based on the expenses of Evergreen Tax Free for the fiscal year ended May 31, 1997. The amounts for shares of Tax-Free set forth in the following tables and in the examples are based on the expenses for Tax-Free for the fiscal year ended September 30, 1997. The pro forma amounts for Class A shares of Evergreen Tax Free are based on what the combined expenses would have been for Evergreen Tax Free for the fiscal year ending May 31, 1997. All amounts are adjusted for voluntary expense waivers. The following tables show for Evergreen Tax Free, Tax-Free and Evergreen Tax Free pro forma, assuming consummation of the Reorganization, the shareholder transaction expenses and annual fund operating expenses associated with an investment in the Class A shares of Evergreen Tax Free and shares of Tax-Free, as applicable.
Comparison of Class A Shares of Evergreen Tax Free With Shares of Tax-Free Evergreen Evergreen Tax Free Tax Free Tax-Free Pro Forma --------- -------- -------- Shareholder Transaction Class A Shares Class A Expenses ------- ------ ------- Maximum Sales Load 4.75% None 4.75% Imposed on Purchases (as a percentage of offering price) Maximum Sales Load None None None Imposed on Reinvested Dividends (as a percentage of offering price) Contingent Deferred None None None Sales Charge (as a percentage of original purchase price or redemption proceeds, whichever is lower) Exchange Fee None None None Annual Fund Operating Expenses (as a percentage of average daily net assets) Management Fee (1) 0.50% 0.12% 0.50% 12b-1 Fees (2) 0.25% 0.00% 0.25% Other Expenses 0.28% 0.88% 0.28% ------ ------ ----- Annual Fund 1.03% (4) 1.00% 1.03% Operating Expenses ------ ------ ------ (3) ------ ------ ------
- --------------- (1) The management fee has been reduced to reflect the voluntary waiver by the investment adviser. The adviser can terminate this voluntary waiver at any time in its sole discretion. The maximum management fee is 0.70% in the case of Evergreen Tax Free and is 0.75% in the case of Tax-Free. (2) Class A shares of Evergreen Tax Free can pay up to 0.75% of average daily net assets as a 12b-1 fee. For the foreseeable future, the Class A 12b-1 fees will be limited to 0.25% of average daily net assets. (3) Total Fund Operating Expenses for Evergreen Tax Free and Tax-Free would have been 1.10% and 2.05%, respectively, absent the voluntary waivers. (4) Includes indirectly paid expenses. Examples. The following tables show for Evergreen Tax Free and Tax-Free, and for Evergreen Tax Free pro forma, assuming consummation of the Reorganization, examples of the cumulative effect of shareholder transaction expenses and annual fund operating expenses indicated above on a $1,000 investment in each class of shares for the periods specified, assuming (i) a 5% annual return, and (ii) redemption at the end of such period. In the case of Evergreen Tax Free pro forma, the example does not reflect the imposition of the 4.75% maximum sales load on purchases since Tax-Free shareholders who receive Class A shares of Evergreen Tax Free in the Reorganization or who purchase additional Class A shares subsequent to the Reorganization will not incur any sales load.
One Three Five Ten Year Years Years Years ---- ----- ----- ----- Evergreen Tax Free $58 $79 $102 $167 Class A Tax-Free $10 $32 $55 $122 Evergreen Tax Free $11 $33 $57 $126 - - Pro Forma Class A
The purpose of the foregoing examples is to assist Tax-Free shareholders in understanding the various costs and expenses that an investor in Evergreen Tax Free as a result of the Reorganization would bear directly and indirectly, as compared with the various direct and indirect expenses currently borne by a shareholder in Tax-Free. These examples should not be considered a representation of past or future expenses or annual return. Actual expenses may be greater or less than those shown. SUMMARY This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Prospectus/Proxy Statement and, to the extent not inconsistent with such additional information, the Prospectus of Evergreen Tax Free dated September 3, 1997, as supplemented, and the Prospectus of Tax-Free dated August 31, 1997 (which are incorporated herein by reference), the Plan, the Interim Advisory Agreement and the Interim Sub-Advisory Agreement, forms of which are attached to this Prospectus/Proxy Statement as Exhibits A, B and C, respectively. Proposed Plan of Reorganization The Plan provides for the transfer of all of the assets of Tax-Free in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free. The identified liabilities consist only of those liabilities reflected on the Fund's statement of assets and liabilities immediately preceding the Reorganization. The Plan also calls for the distribution of shares of Evergreen Tax Free to Tax-Free shareholders in liquidation of Tax-Free as part of the Reorganization. As a result of the Reorganization, the shareholders of Tax-Free will become the owners of that number of full and fractional Class A shares of Evergreen Tax Free having an aggregate net asset value equal to the aggregate net asset value of the shareholder's shares of Tax-Free as of the close of business immediately prior to the date that Tax-Free's assets are exchanged for shares of Evergreen Tax Free. See "Reasons for the Reorganization - Agreement and Plan of Reorganization." The Trustees of Blanchard Funds, including the Trustees who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Trustees"), have concluded that the Reorganization would be in the best interests of shareholders of Tax-Free, and that the interests of the shareholders of Tax-Free will not be diluted as a result of the transactions contemplated by the Reorganization. Accordingly, the Trustees have submitted the Plan for the approval of Tax-Free's shareholders. THE BOARD OF TRUSTEES OF BLANCHARD FUNDS RECOMMENDS APPROVAL BY SHAREHOLDERS OF TAX-FREE OF THE PLAN EFFECTING THE REORGANIZATION. The Trustees of Evergreen Municipal Trust have also approved the Plan, and accordingly, Evergreen Tax Free's participation in the Reorganization. Approval of the Reorganization on the part of Tax-Free will require the affirmative vote of a majority of Tax-Free's shares voted and entitled to vote, with all classes voting together as a single class at a Meeting at which a quorum of the Fund's shares is present. A majority of the outstanding shares entitled to vote, represented in person or by proxy, is required to constitute a quorum at the Meeting. See "Voting Information Concerning the Meeting." The merger (the "Merger") of Signet Banking Corporation ("Signet") with and into a wholly-owned subsidiary of First Union Corporation ("First Union") has been consummated and, as a result, by law the Merger terminated the investment advisory agreement between Virtus and Tax-Free and the sub-advisory agreement between Virtus and U.S. Trust. Prior to consummation of the Merger, Tax-Free received an order from the SEC which permitted the implementation, without formal shareholder approval, of a new investment advisory agreement between the Fund and Virtus and a new sub-advisory agreement between Virtus and U.S. Trust for a period of not more than 120 days beginning on the date of the closing of the Merger and continuing through the date the Interim Advisory Agreement and Interim Sub-Advisory Agreement are approved by the Fund's shareholders (but in no event later than April 30, 1998). The Interim Advisory Agreement and the Interim Sub-Advisory Agreement have the same terms and fees as the previous investment advisory agreement between Tax- Free and Virtus and the previous sub-advisory agreement between Virtus and U.S. Trust, respectively. The Reorganization is scheduled to take place on or about February 27, 1998. Approval of the Interim Advisory Agreement and Interim Sub- Advisory Agreement requires the affirmative vote of (i) 67% or more of the shares of Tax-Free present in person or by proxy at the Meeting, if holders of more than 50% of the shares of Tax- Free outstanding on the record date are present, in person or by proxy, or (ii) more than 50% of the outstanding shares of Tax- Free, whichever is less. See "Voting Information Concerning the Meeting." If the shareholders of Tax-Free do not vote to approve the Reorganization, the Trustees will consider other possible courses of action in the best interests of shareholders. Tax Consequences Prior to or at the completion of the Reorganization, Tax- Free will have received an opinion of counsel that the Reorganization has been structured so that no gain or loss will be recognized by the Fund or its shareholders for federal income tax purposes as a result of the receipt of shares of Evergreen Tax Free in the Reorganization. The holding period and aggregate tax basis of shares of Evergreen Tax Free that are received by Tax-Free's shareholders will be the same as the holding period and aggregate tax basis of shares of the Fund previously held by such shareholders, provided that shares of the Fund are held as capital assets. In addition, the holding period and tax basis of the assets of Tax-Free in the hands of Evergreen Tax Free as a result of the Reorganization will be the same as in the hands of the Fund immediately prior to the Reorganization, and no gain or loss will be recognized by Evergreen Tax Free upon the receipt of the assets of the Fund in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities. Investment Objectives and Policies of the Funds The investment objectives and policies of Evergreen Tax Free and Tax-Free are substantially identical. The investment objective of Evergreen Tax Free is to seek 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 the 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. The investment objective of Tax-Free is to provide a high level of current interest income exempt from federal income tax consistent with the preservation of principal. The Fund invests primarily in bonds of varying maturities issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies, authorities and instrumentalities, the interest from which, in the opinion of bond counsel for the issuer, is exempt from Federal income tax. The Fund has no restrictions on the maturities of bonds that it may purchase. Rather, it retains the flexibility to lengthen or shorten the overall maturity of its portfolio based on the Sub-Adviser's outlook on interest rate movements, as it attempts to reduce any price volatility. The Fund invests primarily in high quality, investment-grade bonds. See "Comparison of Investment Objectives and Policies" below. Comparative Performance Information for each Fund Discussions of the manner of calculation of total return are contained in the respective Prospectus and Statement of Additional Information of the Funds. The total return of Evergreen Tax Free and Tax-Free for the one and five year periods ended September 30, 1997, and for both Funds for the periods from inception through September 30, 1997 are set forth in the table below. The calculations of total return assume the reinvestment of all dividends and capital gains distributions on the reinvestment date and the deduction of all recurring expenses (including sales charges) that were charged to shareholders' accounts. Average Annual Total Return (1)
1 Year Ended 5 Years From September Ended Inception To 30, September September Inception 1997 30, 1997 30, 1997 Date ------- ------- --------- --------- Evergreen 2.86% 5.81% 6.42% 2/21/92 Tax Free Class A shares Tax-Free 9.59% N/A 7.63% 8/12/93
- -------------- (1) Reflects waiver of advisory fees and reimbursements and/or waivers of expenses. Without such reimbursements and/or waivers, the average annual total return during the periods would have been lower. Important information about Evergreen Tax Free is also contained in management's discussion of Evergreen Tax Free's performance, attached hereto as Exhibit D. This information also appears in Evergreen Tax Free's most recent Annual Report. Management of the Funds The overall management of Evergreen Tax Free and of Tax-Free is the responsibility of, and is supervised by, the Board of Trustees of Evergreen Municipal Trust and Blanchard Funds, respectively. Investment Advisers and Sub-Adviser The Capital Management Group ("CMG") of First Union National Bank ("FUNB") serves as investment adviser to Evergreen Tax Free. FUNB is a subsidiary of First Union, the sixth largest bank holding company in the United States based on total assets as of September 30, 1997. CMG, Evergreen Asset Management Corp. ("Evergreen Asset") and Keystone Investment Management Company ("Keystone") manage the Evergreen Keystone family of mutual funds with assets of approximately $40 billion as of November 30, 1997. For further information regarding CMG, FUNB and First Union, see "Management of the Funds - Investment Advisers" in the Prospectus of Evergreen Tax Free. CMG manages investments and supervises the daily business affairs of Evergreen Tax Free. CMG is entitled to receive an annual fee for its services equal to 0.50% of the Fund's average daily net assets. Virtus serves as the investment adviser for Tax-Free. As investment adviser, Virtus is responsible for providing or procuring for the Fund all management and administrative services. In carrying out its obligations, Virtus provides or arranges for investment research and supervision of the Fund's investments; selects and evaluates the performance of the Fund's sub-adviser (U.S. Trust); and conducts or arranges for a continuous program of appropriate sale or other disposition of the Fund's assets, subject at all times to the direction of the Board of Trustees. Virtus compensates U.S. Trust from the advisory fee received from Tax-Free. See "Information Regarding the Interim Sub-Advisory Agreement." For its services as investment adviser, Virtus receives a fee at an annual rate of 0.75% of the Fund's average daily net assets. Each investment adviser may, at its discretion, reduce or waive its fee or reimburse a Fund for certain of its other expenses in order to reduce its expense ratios. Each investment adviser may reduce or cease these voluntary waivers and reimbursements at any time. Administrators Evergreen Investment Services ("EIS") serves as administrator to Evergreen Tax Free. As administrator, EIS provides facilities, equipment and personnel to Evergreen Tax Free and is entitled to receive an administration fee from the Fund based on the aggregate average daily net assets of all the mutual funds advised by CMG and its affiliates, calculated in accordance with the following schedule: 0.050% on the first $7 billion, 0.035% on the next $3 billion, 0.030% on the next $5 billion, 0.020% on the next $10 billion, 0.015% on the next $5 billion and 0.010% on assets in excess of $30 billion. Federated Administrative Services ("FAS") provides Tax-Free with certain administrative personnel and services including shareholder servicing and certain legal and accounting services. FAS is entitled to receive a fee for such services at the following annual rates: 0.15% on the first $250 million of average daily net assets of combined assets of the funds in the Blanchard/Virtus mutual fund family; 0.125% on the next $250 million of such assets, 0.10% on the next $250 million of such assets, and 0.075% on assets in excess of $750 million. Portfolio Management The portfolio manager of Evergreen Tax Free 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 and was portfolio manager of Evergreen National Tax Free Fund, the assets of which were acquired by the Fund on July 7, 1995, since that fund's inception in 1992. Distribution of Shares Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services, acts as underwriter of Evergreen Tax Free's shares. EDI distributes the Fund's shares directly or through broker-dealers, banks (including FUNB), or other financial intermediaries. Evergreen Tax Free offers three classes of shares: Class A, Class B and Class Y. Each class has separate distribution arrangements. (See "Distribution-Related and Shareholder Servicing-Related Expenses" below.) No class bears the distribution expenses relating to the shares of any other class. In the proposed Reorganization, shareholders of Tax-Free will receive Class A shares of Evergreen Tax Free. Class A shares of Evergreen Tax Free have substantially similar arrangements with respect to the imposition of Rule 12b-1 distribution and service fees as the shares of Tax-Free. Because the Reorganization will be effected at net asset value without the imposition of a sales charge, Evergreen Tax Free shares acquired by shareholders of Tax-Free pursuant to the proposed Reorganization would not be subject to any initial sales charge or contingent deferred sales charge as a result of the Reorganization. The following is a summary description of charges and fees for the Class A shares of Evergreen Tax Free which will be received by Tax-Free shareholders in the Reorganization. More detailed descriptions of the distribution arrangements applicable to the classes of shares are contained in each Fund's respective Prospectus and each Fund's respective Statement of Additional Information. Class A Shares. Class A shares are sold at net asset value plus an initial sales charge and, as indicated below, are subject to distribution-related fees. For a description of the initial sales charges applicable to purchases of Class A shares, see "Purchase and Redemption of Shares - How to Buy Shares" in the Prospectus for Evergreen Tax Free. Holders of shares of Tax-Free who receive Class A shares of Evergreen Tax Free in the Reorganization will be able to purchase additional Class A shares of Evergreen Tax Free and of any other Evergreen fund at net asset value. No initial sales charge will be imposed. Additional information regarding the classes of shares of each Fund is included in its respective Prospectus and Statement of Additional Information. Distribution-Related Expenses. Evergreen Tax Free has adopted a Rule 12b-1 plan with respect to its Class A shares under which the Class may pay for distribution-related expenses at an annual rate which may not exceed 0.75% of average daily net assets attributable to the Class. Payments with respect to Class A shares are currently limited to 0.25% of average daily net assets attributable to the Class, which amount may be increased to the full plan rate for the Fund by the Trustees without shareholder approval. Tax-Free has adopted a Rule 12b-1 plan with respect to its shares under which such shares may pay for distribution-related expenses at an annual rate of 0.25% of average daily net assets. Additional information regarding the Rule 12b-1 plans adopted by each Fund is included in its respective Prospectus and Statement of Additional Information. Purchase and Redemption Procedures Information concerning applicable sales charges and distribution-related fees is provided above. Investments in the Funds are not insured. The minimum initial purchase requirement for Evergreen Tax Free is $1,000 and the minimum investment for Tax-Free is $3,000 ($2,000 for qualified pension plans). Tax- Free has a minimum investment requirement of $200 for subsequent investments. There is no minimum for subsequent purchases of shares of Evergreen Tax Free. Each Fund provides for telephone, mail or wire redemption of shares at net asset value as next determined after receipt of a redemption request on each day the New York Stock Exchange ("NYSE") is open for trading. Additional information concerning purchases and redemptions of shares, including how each Fund's net asset value is determined, is contained in the respective Prospectus for each Fund. Each Fund may involuntarily redeem shareholders' accounts that have less than $1,000 of invested funds. All funds invested in each Fund are invested in full and fractional shares. The Funds reserve the right to reject any purchase order. Exchange Privileges Tax-Free currently permits shareholders to exchange such shares for shares of another fund in the Blanchard Group of Funds or for Investment shares of other funds managed by Virtus. In addition, such shares may be exchanged for shares of Federated Emerging Market Fund. Holders of shares of a class of Evergreen Tax Free generally may exchange their shares for shares of the same class of any other Evergreen fund. Tax-Free shareholders will be receiving Class A shares of Evergreen Tax Free in the Reorganization and, accordingly, with respect to shares of Evergreen Tax Free received by Tax-Free shareholders in the Reorganization, the exchange privilege is limited to the Class A shares of other Evergreen funds. No sales charge is imposed on an exchange. An exchange which represents an initial investment in another Evergreen fund must amount to at least $1,000. The current exchange privileges, and the requirements and limitations attendant thereto, are described in each Fund's respective Prospectus and Statement of Additional Information. Dividend Policy Each Fund declares dividends from its net investment income daily and distributes such dividends monthly. Distributions of any net realized gains of a Fund will be made at least annually. Shareholders 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. Dividends and distributions are reinvested in additional shares of the same class of the respective Fund, or paid in cash, as a shareholder has elected. See the respective Prospectus of each Fund for further information concerning dividends and distributions. After the Reorganization, shareholders of Tax-Free who have elected to have their dividends and/or distributions reinvested will have dividends and/or distributions received from Evergreen Tax Free reinvested in shares of Evergreen Tax Free. Shareholders of Tax-Free who have elected to receive dividends and/or distributions in cash will receive dividends and/or distributions from Evergreen Tax Free in cash after the Reorganization, although they may, after the Reorganization, elect to have such dividends and/or distributions reinvested in additional shares of Evergreen Tax Free. Each of Evergreen Tax Free and Tax-Free has qualified and intends to continue to qualify to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, so long as each Fund distributes all of its net investment company taxable income and any net realized gains to shareholders, it is expected that a Fund will not be required to pay any federal income taxes on the amounts so distributed. A 4% nondeductible excise tax will be imposed on amounts not distributed if a Fund does not meet certain distribution requirements by the end of each calendar year. Each Fund anticipates meeting such distribution requirements. Risks Since the investment objectives and policies of each Fund are substantially identical, the risks involved in investing in each Fund's shares are similar. For a discussion of each Fund's objectives and policies, see "Comparison of Investment Objectives and Policies." There is no assurance that investment performances will be positive and that the Funds will meet their investment objectives. Neither Fund may invest more than 5% of its assets in securities of any one issuer or purchase more than 10% of the outstanding voting securities of any one issuer. As a diversified portfolio under the 1940 Act, these restrictions apply to 75% of the assets of Evergreen Tax Free. However, because Tax-Free is a non-diversified portfolio for purposes of the 1940 Act, these 5% restrictions apply to 50% of the assets of Tax-Free. The remaining 50% of the assets of Tax-Free may be invested up to 25% in the securities of a single issuer. Nondiversification may increase investment risks. The ability of the Funds to meet their investment objectives is 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 fixed income securities held by the Funds. REASONS FOR THE REORGANIZATION On July 18, 1997, First Union entered into an Agreement and Plan of Merger with Signet, which provided, among other things, for the Merger of Signet with and into a wholly-owned subsidiary of First Union. The Merger was consummated on November 28, 1997. As a result of the Merger it is expected that FUNB and its affiliates will succeed to the investment advisory and administrative functions currently performed for Tax-Free by various units of Signet and various unaffiliated parties. It is also expected that Signet will no longer, upon completion of the Reorganization and similar reorganizations of other funds in the Signet mutual fund family, provide investment advisory or administrative services to investment companies. At a regular meeting held on September 16, 1997, the Board of Trustees of Blanchard Funds considered and approved the Reorganization as in the best interests of shareholders of Tax- Free and determined that the interests of existing shareholders of Tax-Free will not be diluted as a result of the transactions contemplated by the Reorganization. In addition, the Trustees approved the Interim Advisory Agreement and Interim Sub-Advisory Agreement with respect to Tax-Free. As noted above, Signet has merged with and into a wholly-owned subsidiary of First Union. Signet is the parent company of Virtus, investment adviser to the mutual funds which comprise Blanchard Funds. The Merger caused, as a matter of law, termination of the investment advisory agreement between each series of Blanchard Funds and Virtus and the sub-advisory agreement between Virtus and U.S. Trust with respect to the Fund. Blanchard Funds have received an order from the SEC which permits Virtus and U.S. Trust to continue to act as Tax-Free's investment adviser and sub-adviser, respectively, without shareholder approval, for a period of not more than 120 days from the date the Merger was consummated (November 28, 1997) to the date of shareholder approval of a new investment advisory agreement and sub-advisory agreement. Accordingly, the Trustees considered the recommendations of Signet in approving the proposed Reorganization. In approving the Plan, the Trustees reviewed various factors about the Funds and the proposed Reorganization. There are substantial similarities between Evergreen Tax Free and Tax-Free. Specifically, Evergreen Tax Free and Tax-Free have substantially identical investment objectives and policies and comparable risk profiles. See "Comparison of Investment Objectives and Policies" below. At the same time, the Board of Trustees evaluated the potential economies of scale associated with larger mutual funds and concluded that operational efficiencies may be achieved upon the combination of Tax-Free with an Evergreen fund with a greater level of assets. As of September 30, 1997, Evergreen Tax Free's net assets were approximately $103 million and Tax-Free's net assets were approximately $24 million. In addition, assuming that an alternative to the Reorganization would be to propose that Tax-Free continue its existence and be separately managed by CMG or one of its affiliates, Tax-Free would be offered through common distribution channels with the substantially similar Evergreen Tax Free. Tax- Free would also have to bear the cost of maintaining its separate existence. Signet and FUNB believe that the prospect of dividing the resources of the Evergreen mutual fund organization between two substantially identical funds could result in each Fund being disadvantaged due to an inability to achieve optimum size, performance levels and the greatest possible economies of scale. Accordingly, for the reasons noted above and recognizing that there can be no assurance that any economies of scale or other benefits will be realized, Signet and FUNB believe that the proposed Reorganization would be in the best interests of each Fund and its shareholders. The Board of Trustees of Blanchard Funds met and considered the recommendation of Signet and FUNB and, in addition, considered among other things, (i) the terms and conditions of the Reorganization; (ii) whether the Reorganization would result in the dilution of shareholders' interests; (iii) expense ratios, fees and expenses of Evergreen Tax Free and Tax-Free; (iv) the comparative performance records of each of the Funds; (v) compatibility of their investment objectives and policies; (vi) the investment experience, expertise and resources of CMG; (vii) the service and distribution resources available to the Evergreen funds and the broad array of investment alternatives available to shareholders of the Evergreen funds; (viii) the personnel and financial resources of First Union and its affiliates; (ix) the fact that FUNB will bear the expenses incurred by Tax-Free in connection with the Reorganization; (x) the fact that Evergreen Tax Free will assume certain identified liabilities of Tax-Free; and (xi) the expected federal income tax consequences of the Reorganization. The Trustees also considered the benefits to be derived by shareholders of Tax-Free from the sale of its assets to Evergreen Municipal. In this regard, the Trustees considered the potential benefits of being associated with a larger entity and the economies of scale that could be realized by the participation in such an entity by shareholders of Tax-Free. In addition, the Trustees considered that there are alternatives available to shareholders of Tax-Free, including the ability to redeem their shares, as well as the option to vote against the Reorganization. During their consideration of the Reorganization the Trustees met with Fund counsel and counsel to the Independent Trustees regarding the legal issues involved. The Trustees of Evergreen Municipal Trust also concluded at a meeting on September 17, 1997 that the proposed Reorganization would be in the best interests of shareholders of Evergreen Tax Free and that the interests of the shareholders of Evergreen Tax Free would not be diluted as a result of the transactions contemplated by the Reorganization. THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE SHAREHOLDERS OF TAX-FREE APPROVE THE PROPOSED REORGANIZATION. Agreement and Plan of Reorganization The following summary is qualified in its entirety by reference to the Plan (Exhibit A hereto). The Plan provides that Evergreen Tax Free will acquire all of the assets of Tax-Free in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free on or about February 27, 1998 or such other date as may be agreed upon by the parties (the "Closing Date"). Prior to the Closing Date, Tax-Free will endeavor to discharge all of its known liabilities and obligations. Evergreen Tax Free will not assume any liabilities or obligations of Tax-Free other than those reflected in an unaudited statement of assets and liabilities of Tax-Free prepared as of the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on the business day immediately prior to the Closing Date. The number of full and fractional shares of each class of Evergreen Tax Free to be received by the shareholders of Tax-Free will be determined by multiplying the respective outstanding class of shares of Tax-Free by a factor which shall be computed by dividing the net asset value per share of the respective class of shares of Tax-Free by the net asset value per share of the respective class of shares of Evergreen Tax Free. Such computations will take place as of the close of regular trading on the NYSE on the business day immediately prior to the Closing Date. The net asset value per share of each class will be determined by dividing assets, less liabilities, in each case attributable to the respective class, by the total number of outstanding shares. State Street Bank and Trust Company, the custodian for Evergreen Tax Free, will compute the value of each Fund's respective portfolio securities. The method of valuation employed will be consistent with the procedures set forth in the Prospectus and Statement of Additional Information of Evergreen Tax Free, Rule 22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's Division of Investment Management. At or prior to the Closing Date, Tax-Free will have declared a dividend or dividends and distribution or distributions which, together with all previous dividends and distributions, shall have the effect of distributing to the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder has previously elected) all of the Fund's net investment company taxable income for the taxable period ending on the Closing Date (computed without regard to any deduction for dividends paid) and all of its net capital gains realized in all taxable periods ending on the Closing Date (after reductions for any capital loss carryforward). As soon after the Closing Date as conveniently practicable, Tax-Free will liquidate and distribute pro rata to shareholders of record as of the close of business on the Closing Date the full and fractional shares of Evergreen Tax Free received by Tax- Free. Such liquidation and distribution will be accomplished by the establishment of accounts in the names of the Fund's shareholders on the share records of Evergreen Tax Free's transfer agent. Each account will represent the respective pro rata number of full and fractional shares of Evergreen Tax Free due to the Fund's shareholders. All issued and outstanding shares of Tax-Free, including those represented by certificates, will be canceled. The shares of Evergreen Tax Free to be issued will have no preemptive or conversion rights. After such distributions and the winding up of its affairs, Tax-Free will be terminated. In connection with such termination, Blanchard Funds will file with the SEC an application for termination as a registered investment company. The consummation of the Reorganization is subject to the conditions set forth in the Plan, including approval by Tax- Free's shareholders, accuracy of various representations and warranties and receipt of opinions of counsel, including opinions with respect to those matters referred to in "Federal Income Tax Consequences" below. Notwithstanding approval of Tax-Free's shareholders, the Plan may be terminated (a) by the mutual agreement of Tax-Free and Evergreen Tax Free; or (b) at or prior to the Closing Date by either party (i) because of a breach by the other party of any representation, warranty, or agreement contained therein to be performed at or prior to the Closing Date if not cured within 30 days, or (ii) because a condition to the obligation of the terminating party has not been met and it reasonably appears that it cannot be met. The expenses of Tax-Free in connection with the Reorganization (including the cost of any proxy soliciting agent) will be borne by FUNB whether or not the Reorganization is consummated. No portion of such expenses will be borne directly or indirectly by Tax-Free or its shareholders. There are not any liabilities or any expected reimbursements in connection with the 12b-1 Plan of Tax-Free. As a result, no 12b-1 liabilities will be assumed by Evergreen Tax Free following the Reorganization. If the Reorganization is not approved by shareholders of Tax-Free, the Board of Trustees of Blanchard Funds will consider other possible courses of action in the best interests of shareholders. Federal Income Tax Consequences The Reorganization is intended to qualify for federal income tax purposes as a Tax-Free reorganization under section 368(a) of the Code. As a condition to the closing of the Reorganization, Tax-Free will receive an opinion of counsel to the effect that, on the basis of the existing provisions of the Code, U.S. Treasury regulations issued thereunder, current administrative rules, pronouncements and court decisions, for federal income tax purposes, upon consummation of the Reorganization: (1) The transfer of all of the assets of Tax-Free solely in exchange for shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities, followed by the distribution of Evergreen Tax Free's shares by Tax-Free in dissolution and liquidation of Tax-Free, will constitute a "reorganization" within the meaning of section 368(a)(1)(C) of the Code, and Evergreen Tax Free and Tax-Free will each be a "party to a reorganization" within the meaning of section 368(b) of the Code; (2) No gain or loss will be recognized by Tax-Free on the transfer of all of its assets to Evergreen Tax Free solely in exchange for Evergreen Tax Free's shares and the assumption by Evergreen Tax Free of certain identified liabilities of Tax-Free or upon the distribution of Evergreen Tax Free's shares to Tax- Free's shareholders in exchange for their shares of Tax-Free; (3) The tax basis of the assets transferred will be the same to Evergreen Tax Free as the tax basis of such assets to Tax-Free immediately prior to the Reorganization, and the holding period of such assets in the hands of Evergreen Tax Free will include the period during which the assets were held by Tax-Free; (4) No gain or loss will be recognized by Evergreen Tax Free upon the receipt of the assets from Tax-Free solely in exchange for the shares of Evergreen Tax Free and the assumption by Evergreen Tax Free of certain identified liabilities of Tax- Free; (5) No gain or loss will be recognized by Tax-Free's shareholders upon the issuance of the shares of Evergreen Tax Free to them, provided they receive solely such shares (including fractional shares) in exchange for their shares of Tax-Free; and (6) The aggregate tax basis of the shares of Evergreen Tax Free, including any fractional shares, received by each of the shareholders of Tax-Free pursuant to the Reorganization will be the same as the aggregate tax basis of the shares of Tax-Free held by such shareholder immediately prior to the Reorganization, and the holding period of the shares of Evergreen Tax Free, including fractional shares, received by each such shareholder will include the period during which the shares of Tax-Free exchanged therefor were held by such shareholder (provided that the shares of Tax-Free were held as a capital asset on the date of the Reorganization). Opinions of counsel are not binding upon the Internal Revenue Service or the courts. If the Reorganization is consummated but does not qualify as a Tax-Free reorganization under the Code, shareholders of Tax-Free would recognize a taxable gain or loss equal to the difference between his or her tax basis in his or her Fund shares and the fair market value of Evergreen Tax Free shares he or she received. Shareholders of Tax-Free should consult their tax advisers regarding the effect, if any, of the proposed Reorganization in light of their individual circumstances. It is not anticipated that the securities of the combined portfolio will be sold in significant amounts in order to comply with the policies and investment practices of Evergreen Tax Free. Since the foregoing discussion relates only to the federal income tax consequences of the Reorganization, shareholders of Tax-Free should also consult their tax advisers as to the state and local tax consequences, if any, of the Reorganization. Pro-forma Capitalization The following table sets forth the capitalizations of Evergreen Tax Free and Tax-Free as of September 30, 1997 and the capitalization of Evergreen Tax Free on a pro forma basis as of that date, giving effect to the proposed acquisition of assets at net asset value. The pro forma data reflects an exchange ratio of approximately _____ Class A shares of Evergreen Tax Free issued for each share of Tax-Free.
Capitalization of Tax-Free, Evergreen Tax Free and Evergreen Tax Free (Pro Forma) Evergreen Tax Free (After Evergreen Reorgani- Tax-Free Tax Free zation) --------- -------- ------------ Net Assets Shares $24,076,686 N/A N/A Class A........................ N/A $45,817,820 $69,894,506 Class B........................ N/A $32,427,388 $32,427,388 Class Y . . . . N/A $24,636,669 $24,636,699 Total Net Assets....................... $24,076,686 $102,881,877 $126,958,563 Net Asset Value Per Share Shares $5.56 N/A N/A Class A........................ N/A $11.19 $11.19 Class B........................ N/A $11.19 $11.19 Evergreen Tax Free (After Evergreen Reorgani- Tax-Free Tax Free zation) --------- -------- ------------ Class Y . . . . N/A $11.19 $11,19 Shares Outstanding Shares $4,328,344 N/A N/A Class A........................ N/A $4,094,883 $6,245,517 Class B........................ N/A $2,898,047 $2,898,047 Class Y . . . . N/A $2,201,748 $2,201,748 All Classes.................... $4,328,344 $9,194,678 $11,345,312
The table set forth above should not be relied upon to reflect the number of shares to be received in the Reorganization; the actual number of shares to be received will depend upon the net asset value and number of shares outstanding of each Fund at the time of the Reorganization. Shareholder Information As of December 26, 1997 (the "Record Date"), there were shares of beneficial interest of Tax-Free outstanding. As of October 31, 1997, the officers and Trustees of Blanchard Funds beneficially owned as a group less than 1% of the outstanding shares of Tax-Free. To Tax-Free's knowledge, the following persons owned beneficially or of record more than 5% of Tax-Free's total outstanding shares as of October 31, 1997:
Percentage of Percentage of Shares of No. of Shares Before Class After Name and Address Shares Reorganization Reorganization Stephens, Inc. 111 Center Street Little Rock, AR 72201-3507 ______% Class A William J. Harnett Waldorf, MD ______% Class A
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES The following discussion is based upon and qualified in its entirety by the descriptions of the respective investment objectives, policies and restrictions set forth in the respective Prospectus and Statement of Additional Information of the Funds. The investment objective, policies and restrictions of Evergreen Tax Free can be found in the Prospectus of Evergreen Tax Free under the caption "Investment Objectives and Policies." Evergreen Tax Free's Prospectus also offers additional funds advised by affiliates of FUNB. These additional funds are not involved in the Reorganization, their investment objectives and policies are not discussed in this Prospectus/Proxy Statement and their shares are not offered hereby. The investment objective, policies and restrictions of Tax-Free can be found in the Prospectus of the Fund under the caption "The Funds' Investment Objectives and Policies." Unlike the investment objective of Tax-Free, which is fundamental, the investment objective of Evergreen Tax Free is non-fundamental and can be changed by the Board of Trustees without shareholder approval. The investment objective of Evergreen Tax Free is to seek a high level of federally tax free income that is consistent with preservation of capital. At least 65% of the value of Evergreen Tax Free's assets will be invested in high grade bonds. High grade bonds means: bonds insured by a municipal bond insurance company which is rated AAA by S&P and/or Aaa by 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. Evergreen Tax Free may invest in municipal 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 statistical rating organization ("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. In addition, the Fund may invest up to 35% of its assets in general obligation municipal bonds which are rated BBB by S&P, Baa by Moody's or bear a similar rating from another SRO. These 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. The investment objective of Tax-Free is to provide a high level of current interest income exempt from federal income tax consistent with the preservation of principal. The Fund invests at least 65% of its assets in municipal obligations which are determined by the Fund's sub-adviser to present minimal credit risks. Tax-Free invests in substantially identical types of municipal obligations in which Evergreen Tax Free invests. However, Tax-Free invests only in (1) municipal bonds that are rated "A" or better by Moody's or by S&P, or in lower rated municipal bonds that are deemed by the sub-adviser to be comparable to A-rated issues; (2) municipal notes rated MIG-2 or VMIG-2 by Moody's or SP-2 or better by S&P; and (3) municipal commercial paper rated Prime-2 or better by Moody's or A-2 or better by S&P. Under normal conditions, each Fund will maintain at least 80% of its assets in obligations exempt from federal income tax including the alternative minimum tax. The characteristics of each investment policy and the associated risks are described in each Fund's respective Prospectus and Statement of Additional Information. The Funds have other investment policies and restrictions which are also set forth in the Prospectus and Statement of Additional Information of each Fund. COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS Forms of Organization Evergreen Municipal Trust and Blanchard Funds are open-end management investment companies registered with the SEC under the 1940 Act, which continuously offer shares to the public. Evergreen Municipal Trust is organized as a Delaware business trust and Blanchard Funds is organized as a Massachusetts business trust. Each Trust is governed by a Declaration of Trust, By-Laws and a Board of Trustees. Each Trust is also governed by applicable Delaware, Massachusetts and federal law. Evergreen Tax Free is a series of Evergreen Municipal Trust and Tax-Free is a series of Blanchard Funds. As set forth in the Supplement to Evergreen Tax Free's Prospectus, effective December 22, 1997, Evergreen High Grade Tax Free, a series of Evergreen Investment Trust, a Massachusetts business trust, was reorganized (the "Delaware Reorganization") into a corresponding series (Evergreen Tax Free) of Evergreen Municipal Trust. In connection with the Delaware Reorganization, the Fund's investment objectives were reclassified from "fundamental" to "non-fundamental" and therefore may be changed without shareholder approval; the Fund adopted certain standardized investment restrictions; and eliminated or reclassified from fundamental to non-fundamental certain of the Fund's other fundamental investment restrictions. Capitalization The beneficial interests in Evergreen Tax Free are represented by an unlimited number of transferable shares of beneficial interest, $.001 par value per share. The beneficial interests in Tax-Free are represented by an unlimited number of transferable shares of beneficial interest without par value. The respective Declaration of Trust under which each Fund has been established permits the Trustees to allocate shares into an unlimited number of series, and classes thereof, with rights determined by the Trustees, all without shareholder approval. Fractional shares may be issued. Each Fund's shares represent equal proportionate interests in the assets belonging to the Funds. Shareholders of each Fund are entitled to receive dividends and other amounts as determined by the Trustees. Shareholders of each Fund vote separately, by class, as to matters, such as approval of or amendments to Rule 12b-1 distribution plans, that affect only their particular class and by series as to matters, such as approval of or amendments to investment advisory agreements or proposed reorganizations, that affect only their particular series. Shareholder Liability Under Massachusetts law, shareholders of a business trust could, under certain circumstances, be held personally liable for the obligations of the business trust. However, the Declaration of Trust under which Tax-Free was established disclaims shareholder liability for acts or obligations of the series and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or the Trustees. The Declaration of Trust provides for indemnification out of the series property for all losses and expenses of any shareholder held personally liable for the obligations of the series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which a disclaimer is inoperative and the series or the trust itself would be unable to meet its obligations. Under Delaware law, shareholders of a Delaware business trust are entitled to the same limitation of personal liability extended to stockholders of Delaware corporations. No similar statutory or other authority limiting business trust shareholder liability exists in any other state. As a result, to the extent that Evergreen Municipal Trust or a shareholder is subject to the jurisdiction of courts in those states, the courts may not apply Delaware law, and may thereby subject shareholders of a Delaware trust to liability. To guard against this risk, the Declaration of Trust of Evergreen Municipal Trust (a) provides that any written obligation of the Trust may contain a statement that such obligation may only be enforced against the assets of the Trust or the particular series in question and the obligation is not binding upon the shareholders of the Trust; however, the omission of such a disclaimer will not operate to create personal liability for any shareholder; and (b) provides for indemnification out of trust property of any shareholder held personally liable for the obligations of Evergreen Municipal Trust. Accordingly, the risk of a shareholder of Evergreen Municipal Trust incurring financial loss beyond that shareholder's investment because of shareholder liability is limited to circumstances in which: (i) the court refuses to apply Delaware law; (ii) no contractual limitation of liability was in effect; and (iii) the Trust itself would be unable to meet its obligations. In light of Delaware law, the nature of the Trust's business, and the nature of its assets, the risk of personal liability to a shareholder of Evergreen Municipal Trust is remote. Shareholder Meetings and Voting Rights Neither Evergreen Municipal Trust on behalf of Evergreen Tax Free nor Blanchard Funds on behalf of Tax-Free is required to hold annual meetings of shareholders. However, a meeting of shareholders for the purpose of voting upon the question of removal of a Trustee must be called when requested in writing by the holders of at least 10% of the outstanding shares of Evergreen Municipal Trust or Blanchard Funds. In addition, each is required to call a meeting of shareholders for the purpose of electing Trustees if, at any time, less than a majority of the Trustees then holding office were elected by shareholders. Each Trust currently does not intend to hold regular shareholder meetings. Each Trust does not permit cumulative voting. Except when a larger quorum is required by applicable law, a majority of the outstanding shares entitled to vote of each Fund constitutes a quorum for consideration of such matter. For Evergreen Tax Free and Tax-Free, a majority of the votes cast and entitled to vote, is sufficient to act on a matter (unless otherwise specifically required by the applicable governing documents or other law, including the 1940 Act). Under the Declaration of Trust of Evergreen Municipal Trust, each share of Evergreen Tax Free is entitled to one vote for each dollar of net asset value applicable to each share. Under the voting provisions governing Tax-Free, each share is entitled to one vote. Over time, the net asset values of the mutual funds which are each a series of Blanchard Funds have changed in relation to one another and are expected to continue to do so in the future. Because of the divergence in net asset values, a given dollar investment in a fund which is a series of Blanchard Funds and which has a lower net asset value will purchase more shares and, under the current voting provisions of Blanchard Funds, have more votes, than the same investment in a series with a higher net asset value. Under the Declaration of Trust of Evergreen Municipal Trust, voting power is related to the dollar value of a shareholder's investment rather than to the number of shares held. Liquidation or Dissolution In the event of the liquidation of Evergreen Tax Free and Tax-Free, the shareholders are entitled to receive, when, and as declared by the Trustees, the excess of the assets belonging to such Fund or attributable to the class over the liabilities belonging to the Fund or attributable to the class. In either case, the assets so distributable to shareholders of the Fund will be distributed among the shareholders in proportion to the number of shares of a class of the Fund held by them and recorded on the books of the Fund. Liability and Indemnification of Trustees The Declaration of Trust of Blanchard Funds provides that no Trustee shall be liable for errors of judgment or mistakes of fact or law. No Trustee shall be subject to liability unless such Trustee is found to have acted in bad faith, with willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The Declaration of Trust of Blanchard Funds provides that a present or former Trustee or officer is entitled to indemnification against liabilities and expenses with respect to claims related to his or her position with the Trust, provided that no indemnification shall be provided to a Trustee or officer against any liability to the Trust or any series thereof or the shareholders of any series by reasons of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Under the Declaration of Trust of Evergreen Municipal Trust, a Trustee is liable to the Trust and its shareholders only for such Trustee's own willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of the office of Trustee or the discharge of such Trustee's functions. As provided in the Declaration of Trust, each Trustee of the Trust is entitled to be indemnified against all liabilities against him or her, including the costs of litigation, unless it is determined that the Trustee (i) did not act in good faith in the reasonable belief that such Trustee's action was in or not opposed to the best interests of the Trust; (ii) had acted with willful misfeasance, bad faith, gross negligence or reckless disregard of such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause to believe that such Trustee's conduct was unlawful (collectively, "disabling conduct"). A determination that the Trustee did not engage in disabling conduct and is, therefore, entitled to indemnification may be based upon the outcome of a court action or administrative proceeding or by (a) a vote of a majority of those Trustees who are neither "interested persons" within the meaning of the 1940 Act nor parties to the proceeding or (b) an independent legal counsel in a written opinion. The Trust may also advance money for such litigation expenses provided that the Trustee undertakes to repay the Trust if his or her conduct is later determined to preclude indemnification and certain other conditions are met. The foregoing is only a summary of certain characteristics of the operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law and is not a complete description of those documents or law. Shareholders should refer to the provisions of such Declarations of Trust, By-Laws, Delaware and Massachusetts law directly for more complete information. INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT Introduction In view of the Merger discussed above, and the factors discussed below, the Board of Trustees of Blanchard Funds recommends that shareholders of Tax-Free approve the Interim Advisory Agreement. The Merger became effective on November 28, 1997. Pursuant to an order received from the SEC all fees payable under the Interim Advisory Agreement will be placed in escrow and paid to Virtus if shareholders approve the contract within 120 days of its effective date. The Interim Advisory Agreement will remain in effect until the earlier the Closing Date for the Reorganization or two years from its effective date. The terms of the Interim Advisory Agreement are essentially the same as the Previous Advisory Agreement (as defined below). The only difference between the Previous Advisory Agreement and the Interim Advisory Agreement, if approved by shareholders, is the length of time each Agreement is in effect. A description of the Interim Advisory Agreement pursuant to which Virtus continues as investment adviser to Tax-Free, as well as the services to be provided by Virtus pursuant thereto is set forth below under "Advisory Services." The description of the Interim Advisory Agreement in this Prospectus/Proxy Statement is qualified in its entirety by reference to the Interim Advisory Agreement, attached hereto as Exhibit B. Virtus, a Maryland corporation formed in 1995 to succeed to the business of Signet Asset Management, is an indirect wholly-owned subsidiary of First Union. Virtus' address is 707 East Main Street, Suite 1300, Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to an Investment Advisory Contract dated July 12, 1995. As used herein, the Investment Advisory Agreement, as amended, for Tax-Free is referred to as the "Previous Advisory Agreement." At a meeting of the Board of Trustees of Blanchard Funds held on September 16, 1997, the Trustees, including a majority of the Independent Trustees, approved the Interim Advisory Agreement for Tax-Free. The Trustees have authorized Blanchard Funds, on behalf of Tax-Free, to enter into the Interim Advisory Agreement with Virtus. Such Agreement became effective on November 28, 1997. If the Interim Advisory Agreement for Tax-Free is not approved by shareholders, the Trustees will consider appropriate actions to be taken with respect to Tax-Free's investment advisory arrangements at that time. The Previous Advisory Agreement was last approved by the Trustees, including a majority of the Independent Trustees, on May 11, 1997. Comparison of the Interim Advisory Agreement and the Previous Advisory Agreement Advisory Services. The management and advisory services to be provided by Virtus under the Interim Advisory Agreement are identical to those currently provided by Virtus under the Previous Advisory Agreement. Under the Previous Advisory Agreement and Interim Advisory Agreement, Virtus is responsible for managing the Fund and overseeing the investment of its assets, subject at all times to the supervision of the Board of Trustees. Virtus selects, monitors and evaluates the Fund's sub- adviser. Virtus periodically reviews the sub-adviser's performance record and will make a change, if necessary, subject to approval of the Board of Trustees and shareholders. FAS currently acts as administrator of Tax-Free. FAS will continue during the term of the Interim Advisory Agreement as Tax-Free's administrator for the same compensation as currently received; except that on February 9, 1998, FAS' obligations to provide transfer agency services for Tax-Free's shareholders will terminate and such services will be provided for the same fees by Evergreen Service Company. See "Summary - Administrators." Fees and Expenses. The investment advisory fees and expense limitations for Tax-Free under the Previous Advisory Agreement and the Interim Advisory Agreement are identical. See "Summary - Investment Advisers and Sub-Adviser." Expense Reimbursement. Virtus may, if it deems appropriate, assume expenses of the Fund or a class to the extent that the Fund's or classes' expenses exceed such lower expense limitation as Virtus may, by notice to the Fund, voluntarily declare to be effective. The Interim Advisory Agreement contains an identical provision. Payment of Expenses and Transaction Charges. Under the Previous Advisory Agreement, Blanchard Funds was required to pay or cause to be paid on behalf of the Fund, all of the Fund's expenses and the Fund's allocable share of Blanchard Funds' expenses. The Interim Advisory Agreement contains an identical provision. Limitation of Liability. The Previous Advisory Agreement provided that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties under the Agreement on the part of Virtus, Virtus was not liable to Blanchard Funds or to the Fund or to any shareholder for any act or omission in the course of or connected in any way with rendering services or for any losses that may be sustained in the purchase, holding or sale of any security. The Interim Advisory Agreement contains an identical provision. Termination; Assignment. The Interim Advisory Agreement provides that it may be terminated without penalty by vote of a majority of the outstanding voting securities of Tax-Free (as defined in the 1940 Act) or by a vote of the Trustees of Blanchard Funds on 60 days' written notice to Virtus or by Virtus on 60 days' written notice to Blanchard Funds. Also, the Interim Advisory Agreement will automatically terminate in the event of its assignment (as defined in the 1940 Act). The Previous Advisory Agreement contained identical provisions as to termination and assignment. Information about Tax-Free's Investment Adviser Virtus, a registered investment adviser, manages, in addition to the Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three fixed income trust funds. The name and address of each executive officer and director of Virtus are set forth in Appendix A to this Prospectus/Proxy Statement. For the fiscal year ended September 30, 1997 and the period from May 1, 1996 to September 30, 1996, Virtus received from Tax- Free management fees of $169,751 and $71,788, respectively, of which $142,067 and $71,788, respectively, were voluntarily waived. For the fiscal year ended April 30, 1996, the Fund's investment management fee paid to Virtus and the prior manager was $162,655, all of which was voluntarily waived. Signet acts as custodian for Tax-Free and received $16,080 for the fiscal year ended September 30, 1997. Signet will continue to act as Tax-Free's custodian during the term of the Interim Advisory Agreement. The Board of Trustees considered the Interim Advisory Agreement as part of its overall approval of the Plan. The Board of Trustees considered, among other things, the factors set forth above in "Reasons for the Reorganization." The Board of Trustees also considered the fact that there were no material differences between the terms of the Interim Advisory Agreement and the terms of the Previous Advisory Agreement. THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE SHAREHOLDERS OF TAX-FREE APPROVE THE INTERIM ADVISORY AGREEMENT. INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT Introduction In view of the Merger discussed above, and the factors discussed below, the Board of Trustees of Blanchard Funds recommends that shareholders of Tax-Free approve the Interim Sub- Advisory Agreement. Such Agreement became effective on November 28, 1997. Pursuant to an order from the SEC, all fees payable under the Interim Sub-Advisory Agreement will be placed in escrow and paid to U.S. Trust if shareholders approve the contract within 120 days of its effective date. The Interim Sub-Advisory Agreement will remain in effect until the earlier of the Closing Date for the Reorganization or two years from its effective date. The terms of the Interim Sub-Advisory Agreement are essentially the same as the Previous Sub-Advisory Agreement (as defined below). The only difference between the Previous Sub-Advisory Agreement and the Interim Sub-Advisory Agreement, if approved by shareholders, is the length of time the Agreement is in effect. A description of the Interim Sub-Advisory Agreement pursuant to which U.S. Trust continues as the investment sub-adviser to Tax- Free, as well as the services to be provided by U.S. Trust pursuant thereto, is set forth below under "Sub-Advisory Services." The description of the Interim Sub-Advisory Agreement in this Prospectus/Proxy Statement is qualified in its entirety by reference to the Interim Sub-Advisory Agreement, attached hereto as Exhibit C. U.S. Trust, 114 West 47th Street, New York, New York 10036, has served as investment adviser to Tax-Free pursuant to a Sub- Advisory Agreement, dated July 12, 1995. U.S. Trust, a New York State chartered bank and trust company established in 1853, manages in excess of $58 billion in assets. U.S. Trust is a financial services company that specializes in asset management, private banking, fiduciary and securities services. Kenneth J. McAlley, an executive vice president of U.S. Trust, has been actively engaged in municipal obligation portfolio management with U.S. Trust for over 10 years and has been responsible for the Fund's day-to-day investment decisions since the Fund commenced operations in July 1993. See "Summary - Investment Advisers and Sub-Adviser." As used herein, the Sub-Advisory Agreement for Tax-Free is referred to as the "Previous Sub- Advisory Agreement." At a meeting of the Board of Trustees of Blanchard Funds held on September 16, 1997, the Trustees, including a majority of the Independent Trustees, approved the Interim Sub-Advisory Agreement for Tax-Free. The Trustees have authorized Blanchard Funds, on behalf of Tax-Free, to enter into the Interim Sub-Advisory Agreement with Virtus and U.S. Trust. Such Agreement became effective on November 28, 1997. If the Interim Sub-Advisory Agreement for Tax-Free is not approved by shareholders, the Trustees will consider appropriate actions to be taken with respect to Tax- Free's investment sub-advisory arrangements at that time. The Previous Sub-Advisory Agreement was last approved by the Trustees, including a majority of the Independent Trustees, on May 11, 1997. Comparison of the Interim Sub-Advisory Agreement and the Previous Sub-Advisory Agreement Sub-Advisory Services. The management and advisory services to be provided by U.S. Trust under the Interim Sub-Advisory Agreement are identical to those currently provided by U.S. Trust under the Previous Sub-Advisory Agreement. Under the Previous Sub-Advisory Agreement, U.S. Trust supervised the investment and reinvestment of the cash, securities or other properties comprising the Fund's portfolio, subject at all times to the direction of Virtus and the policies and control of Blanchard Funds' Board of Trustees. Fees and Expenses. The investment sub-advisory fees under the Previous Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical. As compensation for its sub-advisory services under the Previous Sub-Advisory Agreement U.S. Trust was paid by Virtus a monthly fee at the annual rate of .20% of the Fund's average daily net assets. The fee paid to U.S. Trust by Virtus for the fiscal year ended September 30, 1997 was $45,267. The fee paid to U.S. Trust by Virtus for the period from May 1, 1996 through September 30, 1996 was $19,145. The fee paid to U.S. Trust and the prior sub- adviser by the prior manager and by Virtus for the fiscal year ended April 30, 1996 was $42,605. The name and address of the principal executive officers and directors of U.S. Trust are set forth in Appendix B to this Prospectus/Proxy Statement. Limitation of Liability. The Previous Sub-Advisory Agreement provided that in the absence of willful misfeasance, bad faith or gross negligence on the part of U.S. Trust or reckless disregard by U.S. Trust of its duties under the Agreement, U.S. Trust shall not be liable to Virtus, Blanchard Funds or to any shareholder of Blanchard Funds for any act or omission in the course of, or connected with, rendering services thereunder or for any losses that may sustained in the purchase, holding or sale of any security. The Interim Sub-Advisory Agreement contains an identical provision. Termination; Assignment. The Interim Sub-Advisory Agreement provides that it may be terminated without penalty by vote of a majority of the outstanding voting securities of Tax-Free (as defined in the 1940 Act) or by a vote of a majority of Blanchard Funds' entire Board of Trustees on 60 days' written notice to U.S. Trust or by Virtus or U.S. Trust on 60 days' written notice to the other party to the Agreement. Also, the Interim Sub- Advisory Agreement will automatically terminate in the event of its assignment (as defined in the 1940 Act). The Previous Sub- Advisory Agreement contained identical provisions as to termination and assignment. The Board of Trustees considered the Interim Sub-Advisory Agreement as part of its overall approval of the Plan. The Board of Trustees considered, among other things, the factors set forth above in "Reasons for the Reorganization." The Board of Trustees also considered the fact that there were no material differences between the terms of the Interim Sub-Advisory Agreement and the terms of the Previous Sub-Advisory Agreement. THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE SHAREHOLDERS OF TAX-FREE APPROVE THE INTERIM SUB-ADVISORY AGREEMENT. ADDITIONAL INFORMATION Evergreen Tax Free. Information concerning the operation and management of Evergreen Tax Free is incorporated herein by reference from the Prospectus dated September 3, 1997, as supplemented, a copy of which is enclosed, and Statement of Additional Information dated September 3, 1997. A copy of such Statement of Additional Information is available upon request and without charge by writing to Evergreen Tax Free at the address listed on the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898. Tax-Free. Information about Tax-Free is included in its current Prospectus dated August 31, 1997 and in the Statement of Additional Information of the same date that have been filed with the SEC, all of which are incorporated herein by reference. Copies of the Prospectus and Statement of Additional Information are available upon request and without charge by writing to Tax- Free at the address listed on the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-829- 3863. Evergreen Tax Free and Tax-Free are each subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith file reports and other information, including proxy material and charter documents, with the SEC. These items can be inspected and copies obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048. VOTING INFORMATION CONCERNING THE MEETING This Prospectus/Proxy Statement is furnished in connection with a solicitation of proxies by the Trustees of Blanchard Funds to be used at the Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and at any adjournments thereof. This Prospectus/Proxy Statement, along with a Notice of the meeting and a proxy card, is first being mailed to shareholders of Tax-Free on or about January 5, 1998. Only shareholders of record as of the close of business on the Record Date will be entitled to notice of, and to vote at, the Meeting or any adjournment thereof. The holders of a majority of the outstanding shares entitled to vote, at the close of business on the Record Date, present in person or represented by proxy, will constitute a quorum for the Meeting. If the enclosed form of proxy is properly executed and returned in time to be voted at the Meeting, the proxies named therein will vote the shares represented by the proxy in accordance with the instructions marked thereon. Unmarked proxies will be voted FOR the proposed Reorganization, FOR the Interim Advisory Agreement, FOR the Interim Sub-Advisory Agreement and FOR any other matters deemed appropriate. Proxies that reflect abstentions and "broker non- votes" (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote or (ii) the broker or nominee does not have discretionary voting power on a particular matter) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but will not be counted as shares voted and will have no effect on the vote regarding the Plan. However, such "broker non-votes" will have the effect of being counted as votes against the Interim Advisory Agreement and the Interim Sub-Advisory Agreement which must be approved by a percentage of the shares present at the Meeting or a majority of the outstanding votes securities. A proxy may be revoked at any time on or before the Meeting by written notice to the Secretary of Blanchard Funds, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. Unless revoked, all valid proxies will be voted in accordance with the specifications thereon or, in the absence of such specifications, FOR approval of the Plan and the Reorganization contemplated thereby, FOR approval of the Interim Advisory Agreement and FOR approval of the Interim Sub-Advisory Agreement. Approval of the Plan will require the affirmative vote of a majority of the shares voted and entitled to vote at the Meeting at which a quorum of the Fund's shares is present. Approval of the Interim Advisory Agreement and Interim Sub-Advisory Agreement will require the affirmative vote of (i) 67% or more of the outstanding voting securities if holders of more than 50% of the outstanding voting securities are present, in person or by proxy, at the Meeting, or (ii) more than 50% of the outstanding voting securities, whichever is less. Each full share outstanding is entitled to one vote and each fractional share outstanding is entitled to a proportionate share of one vote. Proxy solicitations will be made primarily by mail, but proxy solicitations may also be made by telephone, telegraph or personal solicitations conducted by officers and employees of FUNB or Signet, their affiliates or other representatives of Tax- Free (who will not be paid for their soliciting activities). Shareholders Communications Corporation has been engaged by Tax- Free to assist in soliciting proxies. If you wish to participate in the Meeting, you may submit the proxy card included with this Prospectus/Proxy Statement or attend in person. Any proxy given by you is revocable. In the event that sufficient votes to approve the Reorganization are not received by February 20, 1998, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. In determining whether to adjourn the Meeting, the following factors may be considered: the percentage of votes actually cast, the percentage of negative votes actually cast, the nature of any further solicitation and the information to be provided to shareholders with respect to the reasons for the solicitation. Any such adjournment will require an affirmative vote by the holders of a majority of the shares present in person or by proxy and entitled to vote at the Meeting. The persons named as proxies will vote upon such adjournment after consideration of all circumstances which may bear upon a decision to adjourn the Meeting. A shareholder who objects to the proposed Reorganization will not be entitled under either Massachusetts law or the Declaration of Trust of Blanchard Funds to demand payment for, or an appraisal of, his or her shares. However, shareholders should be aware that the Reorganization as proposed is not expected to result in recognition of gain or loss to shareholders for federal income tax purposes and that, if the Reorganization is consummated, shareholders will be free to redeem the shares of Evergreen Tax Free which they receive in the transaction at their then-current net asset value. Shares of Tax-Free may be redeemed at any time prior to the consummation of the Reorganization. Shareholders of Tax-Free may wish to consult their tax advisers as to any differing consequences of redeeming Fund shares prior to the Reorganization or exchanging such shares in the Reorganization. Tax-Free does not hold annual shareholder meetings. If the Reorganization is not approved, shareholders wishing to submit proposals for consideration for inclusion in a proxy statement for a subsequent shareholder meeting should send their written proposals to the Secretary of Blanchard Funds at the address set forth on the cover of this Prospectus/Proxy Statement such that they will be received by the Fund in a reasonable period of time prior to any such meeting. The votes of the shareholders of Evergreen Tax Free are not being solicited by this Prospectus/Proxy Statement and are not required to carry out the Reorganization. NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES. Please advise Tax-Free whether other persons are beneficial owners of shares for which proxies are being solicited and, if so, the number of copies of this Prospectus/Proxy Statement needed to supply copies to the beneficial owners of the respective shares. FINANCIAL STATEMENTS AND EXPERTS The financial statements of Evergreen Tax Free as of May 31, 1997, and the financial statements and financial highlights for the periods indicated therein, have been incorporated by reference herein and in the Registration Statement in reliance upon the report of Price Waterhouse LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements and financial highlights of Tax- Free incorporated in this Prospectus/Proxy Statement by reference from the Annual Report of Tax-Free for the year ended September 30, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. LEGAL MATTERS Certain legal matters concerning the issuance of shares of Evergreen Tax Free will be passed upon by Sullivan & Worcester LLP, Washington, D.C. OTHER BUSINESS The Trustees of Blanchard Funds do not intend to present any other business at the Meeting. If, however, any other matters are properly brought before the Meeting, the persons named in the accompanying form of proxy will vote thereon in accordance with their judgment. THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT. January 5, 1998 APPENDIX A The names and addresses of the principal executive officers and directors of Virtus Capital Management, Inc. are as follows: OFFICERS: Name Address - ---- ------- Tanya Orr Bird Virtus Capital Management, Inc. 707 East Main Street Suite 1300 Richmond, Virginia 23219 Josie Clemons Rosson Virtus Capital Management, Inc. 707 East Main Street Suite 1300 Richmond, Virginia 23219 DIRECTORS: Name Address - ---- ------- Tanya Orr Bird Virtus Capital Management, Inc. 707 East Main Street Suite 1300 Richmond, Virginia 23219 APPENDIX B The names and addresses of the principal executive officers and directors of United States Trust Company of New York are as follows: OFFICERS AND DIRECTORS: Name Address - ---- ------- EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this 26th day of November, 1997, by and between the Evergreen Municipal Trust, a Delaware business trust, with its principal place of business at 200 Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to the Evergreen High Grade Tax Free Fund series (the "Acquiring Fund"), and Blanchard Funds, a Massachusetts business trust, with its principal place of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect to its Blanchard Flexible Tax-Free Bond Fund series (the "Selling Fund"). This Agreement is intended to be, and is adopted as, a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of (i) the transfer of all of the assets of the Selling Fund in exchange solely for Class A shares of beneficial interest, $.001 par value per share, of the Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of certain identified liabilities of the Selling Fund; and (iii) the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Selling Fund in liquidation of the Selling Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Selling Fund and the Acquiring Fund are each a separate investment series of an open-end, registered investment company of the management type and the Selling Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest; WHEREAS, both Funds are authorized to issue their shares of beneficial interest; WHEREAS, the Trustees of the Trust have determined that the exchange of all of the assets of the Selling Fund for Acquiring Fund Shares and the assumption of certain identified liabilities of the Selling Fund by the Acquiring Fund on the terms and conditions hereinafter set forth are in the best interests of the Acquiring Fund's shareholders; WHEREAS, the Trustees of Blanchard Funds have determined that the Selling Fund should exchange all of its assets and certain identified liabilities for Acquiring Fund Shares and that the interests of the existing shareholders of the Selling Fund will not be diluted as a result of the transactions contemplated herein; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: ARTICLE I TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND LIQUIDATION OF THE SELLING FUND 1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, the Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined by multiplying the shares outstanding of each class of the Selling Fund by the ratio computed by dividing the net asset value per share of each such class of the Selling Fund by the net asset value per share of the corresponding class of Acquiring Fund Shares computed in the manner and as of the time and date set forth in paragraph 2.2; and (ii) to assume certain identified liabilities of the Selling Fund, as set forth in paragraph 1.3. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing Date"). 1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be acquired by the Acquiring Fund shall consist of all property, including, without limitation, all cash, securities, commodities, and interests in futures and dividends or interest receivables, that is owned by the Selling Fund and any deferred or prepaid expenses shown as an asset on the books of the Selling Fund on the Closing Date. The Selling Fund has provided the Acquiring Fund with its most recent audited financial statements, which contain a list of all of Selling Fund's assets as of the date thereof. The Selling Fund hereby represents that as of the date of the execution of this Agreement there have been no changes in its financial position as reflected in said financial statements other than those occurring in the ordinary course of its business in connection with the purchase and sale of securities and the payment of its normal operating expenses. The Acquiring Fund will, within a reasonable time prior to the Closing Date, furnish the Selling Fund with a list of the securities, if any, on the Selling Fund's list referred to in the second sentence of this paragraph that do not conform to the Acquiring Fund's investment objectives, policies, and restrictions. The Selling Fund will, within a reasonable time prior to the Closing Date, furnish the Acquiring Fund with a list of its portfolio securities and other investments. In the event that the Selling Fund holds any investments that the Acquiring Fund may not hold, the Selling Fund, if requested by the Acquiring Fund, will dispose of such securities prior to the Closing Date. In addition, if it is determined that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments, the Selling Fund if requested by the Acquiring Fund will dispose of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. Notwithstanding the foregoing, nothing herein shall require the Selling Fund to dispose of any investments or securities if, in the reasonable judgment of the Selling Fund, such disposition would adversely affect the tax-free nature of the Reorganization or would violate the Selling Fund's fiduciary duty to its shareholders. 1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Fund shall assume only those liabilities, expenses, costs, charges and reserves reflected on a Statement of Assets and Liabilities of the Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in paragraph 2.1), in accordance with generally accepted accounting principles consistently applied from the prior audited period. The Acquiring Fund shall assume only those liabilities of the Selling Fund reflected in such Statement of Assets and Liabilities and shall not assume any other liabilities, whether absolute or contingent, known or unknown, accrued or unaccrued, all of which shall remain the obligation of the Selling Fund. In addition, upon completion of the Reorganization, for purposes of calculating the maximum amount of sales charges (including asset based sales charges) permitted to be imposed by the Acquiring Fund under the National Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately prior to the Reorganization, in each case calculated in accordance with such Rule 2830. 1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will liquidate and distribute pro rata to the Selling Fund's shareholders of record, determined as of the close of business on the Valuation Date (the "Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as set forth in paragraph 1.8 below. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Selling Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Selling Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Selling Fund will simultaneously be canceled on the books of the Selling Fund. The Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with such exchange. 1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in the manner described in the combined Prospectus and Proxy Statement on Form N-14 to be distributed to shareholders of the Selling Fund as described in paragraph 5.7. 1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Selling Fund shares on the books of the Selling Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the Selling Fund is and shall remain the responsibility of the Selling Fund up to and including the Closing Date and such later date on which the Selling Fund is terminated. 1.8 TERMINATION. The Selling Fund shall be terminated promptly following the Closing Date and the making of all distributions pursuant to paragraph 1.4. ARTICLE II VALUATION 2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of the close of business on the New York Stock Exchange on the business day next preceding the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the Trust's Declaration of Trust and the Acquiring Fund's then current prospectuses and statement of additional information or such other valuation procedures as shall be mutually agreed upon by the parties. 2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring Fund Shares shall be the net asset value per share computed as of the close of business on the New York Stock Exchange on the Valuation Date, using the valuation procedures set forth in the Trust's Declaration of Trust and the Acquiring Fund's then current prospectuses and statement of additional information. 2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each class to be issued (including fractional shares, if any) in exchange for the Selling Fund's assets shall be determined by multiplying the shares outstanding of each class of the Selling Fund by the ratio computed by dividing the net asset value per share of the Selling Fund attributable to each of its classes by the net asset value per share of the respective classes of the Acquiring Fund determined in accordance with paragraph 2.2. Holders of shares of the Selling Fund will receive Class A shares of the Acquiring Fund. 2.4 DETERMINATION OF VALUE. All computations of value shall be made by State Street Bank and Trust Company in accordance with its regular practice in pricing the shares and assets of the Acquiring Fund. ARTICLE III CLOSING AND CLOSING DATE 3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or about February 27, 1998 or such other date as the parties may agree to in writing (the "Closing Date"). All acts taking place at the Closing shall be deemed to take place simultaneously immediately prior to the opening of business on the Closing Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA 02116, or at such other time and/or place as the parties may agree. 3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an authorized officer stating that (a) the Selling Fund's portfolio securities, cash, and any other assets shall have been delivered in proper form to the Acquiring Fund on the Closing Date; and (b) all necessary taxes including all applicable federal and state stock transfer stamps, if any, shall have been paid, or provision for payment shall have been made, in conjunction with the delivery of portfolio securities by the Selling Fund. 3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation Date (a) the New York Stock Exchange or another primary trading market for portfolio securities of the Acquiring Fund or the Selling Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Selling Fund is impracticable, the Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as transfer agent for the Selling Fund as of the Closing Date shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Selling Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service Company, its transfer agent as of the Closing Date, to issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of Blanchard Funds or provide evidence satisfactory to the Selling Fund that such Acquiring Fund Shares have been credited to the Selling Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts and other documents as such other party or its counsel may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and warrants to the Acquiring Fund as follows: (a) The Selling Fund is a separate investment series of a Massachusetts business trust duly organized, validly existing, and in good standing under the laws of The Commonwealth of Massachusetts. (b) The Selling Fund is a separate investment series of a Massachusetts business trust that is registered as an investment company classified as a management company of the open-end type, and its registration with the Securities and Exchange Commission (the "Commission") as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect. (c) The current prospectuses and statement of additional information of the Selling Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The Selling Fund is not, and the execution, delivery, and performance of this Agreement (subject to shareholder approval) will not result, in violation of any provision of Blanchard Funds' Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking to which the Selling Fund is a party or by which it is bound. (e) The Selling Fund has no material contracts or other commitments (other than this Agreement) that will be terminated with liability to it prior to the Closing Date, except for liabilities, if any, to be discharged or reflected on the Statement of Assets and Liabilities as provided in paragraph 1.3 hereof. (f) Except as otherwise disclosed in writing to and accepted by the Acquiring Fund, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Selling Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business, or the ability of the Selling Fund to carry out the transactions contemplated by this Agreement. The Selling Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (g) The financial statements of the Selling Fund at September 30, 1997 are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Selling Fund as of such date, and there are no known contingent liabilities of the Selling Fund as of such date not disclosed therein. (h) Since September 30, 1997 there has not been any material adverse change in the Selling Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Selling Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net asset value of the Selling Fund shall not constitute a material adverse change. (i) At the Closing Date, all federal and other tax returns and reports of the Selling Fund required by law to have been filed by such dates shall have been filed, and all federal and other taxes shown due on said returns and reports shall have been paid, or provision shall have been made for the payment thereof. To the best of the Selling Fund's knowledge, no such return is currently under audit, and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Selling Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and has distributed in each such year all net investment income and realized capital gains. (k) All issued and outstanding shares of the Selling Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Selling Fund (except that, under Massachusetts law, Selling Fund Shareholders could under certain circumstances be held personally liable for obligations of the Selling Fund). All of the issued and outstanding shares of the Selling Fund will, at the time of the Closing Date, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.4. The Selling Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of the Selling Fund shares, nor is there outstanding any security convertible into any of the Selling Fund shares. (l) At the Closing Date, the Selling Fund will have good and marketable title to the Selling Fund's assets to be transferred to the Acquiring Fund pursuant to paragraph 1.2 and full right, power, and authority to sell, assign, transfer, and deliver such assets hereunder, and, upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by the Acquiring Fund. (m) The execution, delivery, and performance of this Agreement have been duly authorized by all necessary action on the part of the Selling Fund and, subject to approval by the Selling Fund Shareholders, this Agreement constitutes a valid and binding obligation of the Selling Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights and to general equity principles. (n) The information to be furnished by the Selling Fund for use in no-action letters, applications for orders, registration statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto. (o) The Proxy Statement of the Selling Fund to be included in the Registration Statement (as defined in paragraph 5.7)(other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents and warrants to the Selling Fund as follows: (a) The Acquiring Fund is a separate investment series of a Delaware business trust duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Acquiring Fund is a separate investment series of a Delaware business trust that is registered as an investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect. (c) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in violation of the Trust's Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking to which the Acquiring Fund is a party or by which it is bound. (e) Except as otherwise disclosed in writing to the Selling Fund and accepted by the Selling Fund, no litigation, administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition and the conduct of its business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (f) The financial statements of the Acquiring Fund at May 31, 1997 are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Selling Fund) fairly reflect the financial condition of the Acquiring Fund as of such date, and there are no known contingent liabilities of the Acquiring Fund as of such date not disclosed therein. (g) Since May 31, 1997 there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Selling Fund. For the purposes of this subparagraph (g), a decline in the net asset value of the Acquiring Fund shall not constitute a material adverse change. (h) At the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law then to be filed by such dates shall have been filed, and all federal and other taxes shown due on said returns and reports shall have been paid or provision shall have been made for the payment thereof. To the best of the Acquiring Fund's knowledge, no such return is currently under audit, and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and has distributed in each such year all net investment income and realized capital gains. (j) All issued and outstanding Acquiring Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery, and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights and to general equity principles. (l) The Acquiring Fund Shares to be issued and delivered to the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to the terms of this Agreement will, at the Closing Date, have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable. (m) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for orders, registration statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto. (n) The Prospectus and Proxy Statement (as defined in paragraph 5.7) to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and warranties set forth in Section 4.2.1 shall be deemed to include, to the extent applicable, representations and warranties made by and on behalf of Evergreen High Grade Tax Free Fund (the "Predecessor Fund"), a series of Evergreen Investment Trust, a Massachusetts business trust, as of the date hereof. The Acquiring Fund shall deliver to the Selling Fund a certificate of the Predecessor Fund of even date making the representations set forth in Section 4.2.1 with respect to the Predecessor Fund to the extent applicable to the Predecessor Fund as of the date hereof. ARTICLE V COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND 5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 APPROVAL OF SHAREHOLDERS. Blanchard Funds will call a meeting of the Selling Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Selling Fund shares. 5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the Acquiring Fund and the Selling Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including any actions required to be taken after the Closing Date. 5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within sixty days after the Closing Date, the Selling Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Selling Fund for federal income tax purposes that will be carried over by the Acquiring Fund as a result of Section 381 of the Code, and which will be reviewed by Price Waterhouse LLP and certified by Blanchard Funds' President and Treasurer. 5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus, which will include the proxy statement, referred to in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included in a Registration Statement on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in connection with the meeting of the Selling Fund Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquiring Fund and the Selling Fund shall cause Price Waterhouse LLP to issue a letter addressed to the Acquiring Fund and the Selling Fund, in form and substance satisfactory to the Funds, setting forth the federal income tax implications relating to capital loss carryforwards (if any) of the Selling Fund and the related impact, if any, of the proposed transfer of all of the assets of the Selling Fund to the Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the shareholders of the Selling Fund. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND The obligations of the Selling Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: 6.1 All representations, covenants, and warranties of the Acquiring Fund contained in this Agreement shall be true and correct as of the date hereof and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, and the Acquiring Fund shall have delivered to the Selling Fund a certificate executed in its name by the Trust's President or Vice President and its Treasurer or Assistant Treasurer, in form and substance reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to such effect and as to such other matters as the Selling Fund shall reasonably request. 6.2 The Selling Fund shall have received on the Closing Date an opinion from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the Closing Date, in a form reasonably satisfactory to the Selling Fund, covering the following points: (a) The Acquiring Fund is a separate investment series of a Delaware business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power to own all of its properties and assets and to carry on its business as presently conducted. (b) The Acquiring Fund is a separate investment series of a Delaware business trust registered as an investment company under the 1940 Act, and, to such counsel's knowledge, such registration with the Commission as an investment company under the 1940 Act is in full force and effect. (c) This Agreement has been duly authorized, executed, and delivered by the Acquiring Fund, and, assuming due authorization, execution and delivery of this Agreement by the Selling Fund, is a valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and to general equity principles. (d) Assuming that a consideration therefor not less than the net asset value thereof has been paid, the Acquiring Fund Shares to be issued and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as provided by this Agreement are duly authorized and upon such delivery will be legally issued and outstanding and fully paid and non-assessable. No shareholder of the Acquiring Fund has any preemptive rights in respect thereof. (e) The Registration Statement, to such counsel's knowledge, has been declared effective by the Commission and no stop order under the 1933 Act pertaining thereto has been issued, and to the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the State of Delaware is required for consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state securities laws. (f) The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation of the Trust's Declaration of Trust or By-Laws or any provision of any material agreement, indenture, instrument, contract, lease or other undertaking (in each case known to such counsel) to which the Acquiring Fund is a party or by which it or any of its properties may be bound or to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty, under any agreement, judgment, or decree to which the Acquiring Fund is a party or by which it is bound. (g) Only insofar as they relate to the Acquiring Fund, the descriptions in the Prospectus and Proxy Statement of statutes, legal and governmental proceedings and material contracts, if any, are accurate and fairly present the information required to be shown. (h) Such counsel does not know of any legal or governmental proceedings, only insofar as they relate to the Acquiring Fund, existing on or before the effective date of the Registration Statement or the Closing Date required to be described in the Registration Statement or to be filed as exhibits to the Registration Statement which are not described or filed as required. (i) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Acquiring Fund or any of its properties or assets and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business, other than as previously disclosed in the Registration Statement. Such counsel shall also state that they have participated in conferences with officers and other representatives of the Acquiring Fund at which the contents of the Prospectus and Proxy Statement and related matters were discussed and, although they are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Prospectus and Proxy Statement (except to the extent indicated in paragraph (g) of their above opinion), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of the Trust's officers and other representatives of the Acquiring Fund), no facts have come to their attention that lead them to believe that the Prospectus and Proxy Statement as of its date, as of the date of the Selling Fund Shareholders' meeting, and as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein regarding the Acquiring Fund or necessary, in the light of the circumstances under which they were made, to make the statements therein regarding the Acquiring Fund not misleading. Such opinion may state that such counsel does not express any opinion or belief as to the financial statements or any financial or statistical data, or as to the information relating to the Selling Fund, contained in the Prospectus and Proxy Statement or the Registration Statement, and that such opinion is solely for the benefit of Blanchard Funds and the Selling Fund. Such opinion shall contain such other assumptions and limitations as shall be in the opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed therein. In this paragraph 6.2, references to Prospectus and Proxy Statement include and relate to only the text of such Prospectus and Proxy Statement and not to any exhibits or attachments thereto or to any documents incorporated by reference therein. 6.3 The merger between First Union Corporation and Signet Banking Corporation shall be completed prior to the Closing Date. 6.4 The acquisition of the assets of the Predecessor Fund by the Acquiring Fund shall have been completed prior to the Closing Date. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Selling Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations, covenants, and warranties of the Selling Fund contained in this Agreement shall be true and correct as of the date hereof and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, and the Selling Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by Blanchard Funds' President or Vice President and the Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to such effect and as to such other matters as the Acquiring Fund shall reasonably request. 7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement of the Selling Fund's assets and liabilities, together with a list of the Selling Fund's portfolio securities showing the tax costs of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer of Blanchard Funds. 7.3.1 The Acquiring Fund shall have received on the Closing Date an opinion of Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund, in a form satisfactory to the Acquiring Fund covering the following points: (a) The Selling Fund is a separate investment series of a Massachusetts business trust duly organized, validly existing and in good standing under the laws of The Commonwealth of Massachusetts and has the power to own all of its properties and assets and to carry on its business as presently conducted. (b) The Selling Fund is a separate investment series of a Massachusetts business trust registered as an investment company under the 1940 Act, and, to such counsel's knowledge, such registration with the Commission as an investment company under the 1940 Act is in full force and effect. (c) This Agreement has been duly authorized, executed and delivered by the Selling Fund, and, assuming due authorization, execution, and delivery of this Agreement by the Acquiring Fund, is a valid and binding obligation of the Selling Fund enforceable against the Selling Fund in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general equity principles. (d) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or The Commonwealth of Massachusetts is required for consummation by the Selling Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state securities laws. (e) The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation of Blanchard Funds' Declaration of Trust or By-laws, or any provision of any material agreement, indenture, instrument, contract, lease or other undertaking (in each case known to such counsel) to which the Selling Fund is a party or by which it or any of its properties may be bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty, under any agreement, judgment, or decree to which the Selling Fund is a party or by which it is bound. (f) The descriptions in the Prospectus and Proxy Statement of this Agreement, as set forth under the caption "Reasons for the Reorganization - Agreement and Plan of Reorganization," the Interim Advisory Agreement and the Previous Advisory Agreement, as set forth under the caption "Information Regarding the Interim Advisory Agreement," the Interim Sub- Advisory Agreement and the Previous Sub-Advisory Agreement, as set forth under the caption "Information Regarding the Interim Sub-Advisory Agreement" and the description of voting requirements applicable to approval of the Interim Advisory Agreement and Interim Sub-Advisory Agreement, as set forth under the caption "Voting Information Concerning the Meeting," insofar as the latter constitutes a summary of applicable voting requirements under the Investment Company Act of 1940, as amended, are, in each case, accurate and fairly present the information required to be shown by the applicable requirements of Form N-14. (g) Such counsel does not know of any legal or governmental proceedings, insofar as they relate to the Selling Fund existing on or before the date of mailing of the Prospectus and Proxy Statement and the Closing Date, required to be described in the Prospectus and Proxy Statement or to be filed as an exhibit to the Registration Statement which are not described or filed as required. (h) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Selling Fund or any of its respective properties or assets and the Selling Fund is neither a party to nor subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business other than as previously disclosed in the Prospectus and Proxy Statement. 7.3.2 The Acquiring Fund shall have received on the closing Date an opinion of C. Grant Anderson, Esq., Assistant Secretary of the Blanchard Funds, in form satisfactory to the Acquiring Fund as follows: Assuming that a consideration therefor of not less than the net asset value thereof has been paid, and assuming that such shares were issued in accordance with the terms of the Selling Fund's registration statement, or any amendment thereto, in effect at the time of such issuance, all issued and outstanding shares of the Selling Fund are legally issued and fully paid and non-assessable (except that, under Massachusetts law, Selling Fund Shareholders could under certain circumstances be held personally liable for obligations of the Selling Fund). Mr. Anderson shall also state that he has reviewed and is familiar with the contents of the Prospectus and Proxy Statement and, although he is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Prospectus and Proxy Statement on the basis of the foregoing, no facts have come to his attention that lead him to believe that the Prospectus and Proxy Statement as of its date, as of the date of the Selling Fund Shareholders' meeting, and as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein regarding the Selling Fund or necessary, in the light of the circumstances under which they were made, to make the statements therein regarding the Selling Fund not misleading. Such opinion may state that he does not express any opinion or belief as to the financial statements or any financial or statistical data, or as to the information relating to the Acquiring Fund, contained in the Prospectus and Proxy Statement or Registration Statement. The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that such opinions are solely for the benefit of the Acquiring Fund. Such opinions shall contain such other assumptions and limitations as shall be in the opinion of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable, appropriate to render the opinions expressed therein, and shall indicate, with respect to matters of Massachusetts law, that as Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson are not admitted to the bar of Massachusetts, such opinions are based either upon the review of published statutes, cases and rules and regulations of the Commonwealth of Massachusetts or upon an opinion of Massachusetts counsel. In this paragraph 7.3, references to Prospectus and Proxy Statement include and relate to only the text of such Prospectus and Proxy Statement and not to any exhibits or attachments thereto or to any documents incorporated by reference therein. 7.4 The merger between First Union Corporation and Signet Banking Corporation shall be completed prior to the Closing Date. ARTICLE VIII FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE SELLING FUND If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Selling Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement: 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Selling Fund in accordance with the provisions of Blanchard Funds' Declaration of Trust and By-Laws and certified copies of the resolutions evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund may waive the conditions set forth in this paragraph 8.1. 8.2 On the Closing Date, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act and no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All required consents of other parties and all other consents, orders, and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky securities authorities, including any necessary "no-action" positions of and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order, or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Selling Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Selling Fund shall have declared a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to the Selling Fund Shareholders all of the Selling Fund's net investment company taxable income for all taxable periods ending on or prior to the Closing Date (computed without regard to any deduction for dividends paid) and all of its net capital gains realized in all taxable periods ending on or prior to the Closing Date (after reduction for any capital loss carryforward). 8.6 The parties shall have received a favorable opinion of Sullivan & Worcester LLP, addressed to the Acquiring Fund and the Selling Fund substantially to the effect that for federal income tax purposes: (a) The transfer of all of the Selling Fund assets in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated liabilities of the Selling Fund followed by the distribution of the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of the Selling Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Selling Fund solely in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated liabilities of the Selling Fund. (c) No gain or loss will be recognized by the Selling Fund upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated liabilities of the Selling Fund or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to Selling Fund Shareholders in exchange for their shares of the Selling Fund. (d) No gain or loss will be recognized by the Selling Fund Shareholders upon the exchange of their Selling Fund shares for the Acquiring Fund Shares in liquidation of the Selling Fund. (e) The aggregate tax basis for the Acquiring Fund Shares received by each Selling Fund Shareholder pursuant to the Reorganization will be the same as the aggregate tax basis of the Selling Fund shares held by such shareholder immediately prior to the Reorganization, and the holding period of the Acquiring Fund Shares to be received by each Selling Fund Shareholder will include the period during which the Selling Fund shares exchanged therefor were held by such shareholder (provided the Selling Fund shares were held as capital assets on the date of the Reorganization). (f) The tax basis of the Selling Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Selling Fund immediately prior to the Reorganization, and the holding period of the assets of the Selling Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Selling Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund may waive the conditions set forth in this paragraph 8.6. 8.7 The Acquiring Fund shall have received from Price Waterhouse LLP a letter addressed to the Acquiring Fund, in form and substance satisfactory to the Acquiring Fund, to the effect that: (a) they are independent certified public accountants with respect to the Selling Fund within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (b) on the basis of limited procedures agreed upon by the Acquiring Fund and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited pro forma financial statements included in the Registration Statement and Prospectus and Proxy Statement, and inquiries of appropriate officials of the Blanchard Funds responsible for financial and accounting matters, nothing came to their attention that caused them to believe that such unaudited pro forma financial statements do not comply as to form in all material respects with the applicable accounting requirement of the 1933 Act and the published rules and regulations thereunder; (c) on the basis of limited procedures agreed upon by the Acquiring Fund and described in such letter (but not an examination in accordance with generally accepted auditing standards), the Capitalization Table appearing in the Registration Statement and Prospectus and Proxy Statement has been obtained from and is consistent with the accounting records of the Selling Fund; (d) on the basis of limited procedures agreed upon by the Acquiring Fund and described in such letter (but not an examination in accordance with generally accepted auditing standards), the pro forma financial statements that are included in the Registration Statement and Prospectus and Proxy Statement were prepared based on the valuation of the Selling Fund's assets in accordance with the Trust's Declaration of Trust and the Acquiring Fund's then current prospectus and statement of additional information pursuant to procedures customarily utilized by the Acquiring Fund in valuing its own assets; (e) on the basis of limited procedures agreed upon by the Acquiring Fund and described in such letter (but not an examination in accordance with generally accepted auditing standards), the data utilized in the calculations of the projected expense ratios appearing in the Registration Statement and Prospectus and Proxy Statement agree with underlying accounting records of the Selling Fund or with written estimates by Selling Fund's management and were found to be mathematically correct. In addition, the Acquiring Fund shall have received from Price Waterhouse LLP a letter addressed to the Acquiring Fund dated on the Closing Date, in form and substance satisfactory to the Acquiring Fund, to the effect, that on the basis of limited procedures agreed upon by the Acquiring Fund (but not an examination in accordance with generally accepted auditing standards), the calculation of net asset value per share of the Selling Fund as of the Valuation Date was determined in accordance with generally accepted accounting practices and the portfolio valuation practices of the Acquiring Fund. 8.8 The Selling Fund shall have received from Price Waterhouse LLP a letter addressed to the Selling Fund, in form and substance satisfactory to the Selling Fund, to the effect that: (a) they are independent certified public accountants with respect to the Acquiring Fund within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (b) on the basis of limited procedures agreed upon by the Selling Fund and described in such letter (but not an examination in accordance with generally accepted auditing standards), the Capitalization Table appearing in the Registration Statement and Prospectus and Proxy Statement has been obtained from and is consistent with the accounting records of the Acquiring Fund; and (c) on the basis of limited procedures agreed upon by the Selling Fund (but not an examination in accordance with generally accepted auditing standards), the data utilized in the calculations of the projected expense ratio appearing in the Registration Statement and Prospectus and Proxy Statement agree with written estimates by each Fund's management and were found to be mathematically correct. ARTICLE IX EXPENSES 9.1 Except as otherwise provided for herein, all expenses of the transactions contemplated by this Agreement incurred by the Selling Fund and the Acquiring Fund will be borne by First Union National Bank. Such expenses include, without limitation, (a) expenses incurred in connection with the entering into and the carrying out of the provisions of this Agreement; (b) expenses associated with the preparation and filing of the Registration Statement under the 1933 Act covering the Acquiring Fund Shares to be issued pursuant to the provisions of this Agreement; (c) registration or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection herewith in each state in which the Selling Fund Shareholders are resident as of the date of the mailing of the Prospectus and Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting fees; (g) legal fees; and (h) solicitation costs of the transaction. Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and state registration fees. ARTICLE X ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The Acquiring Fund and the Selling Fund agree that neither party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties, and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder. ARTICLE XI TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or the Selling Fund may at its option terminate this Agreement at or prior to the Closing Date because: (a) of a breach by the other of any representation, warranty, or agreement contained herein to be performed at or prior to the Closing Date, if not cured within 30 days; or (b) a condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met. 11.2 In the event of any such termination, in the absence of willful default, there shall be no liability for damages on the part of either the Acquiring Fund, the Selling Fund, the Trust, Blanchard Funds, the respective Trustees or officers, to the other party or its Trustees or officers. ARTICLE XII AMENDMENTS This Agreement may be amended, modified, or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Selling Fund and the Acquiring Fund; provided, however, that following the meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of the Acquiring Fund Shares to be issued to the Selling Fund Shareholders under this Agreement to the detriment of such shareholders without their further approval. ARTICLE XIII HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY 13.1 The Article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 13.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof; provided, however, that the due authorization, execution and delivery of this Agreement, in the case of the Selling Fund, shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to the conflicts of laws provisions thereof. 13.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but, except as provided in this paragraph, no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 13.5 It is expressly agreed that the obligations of the Selling Fund and the Acquiring Fund hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents, or employees of Blanchard Funds or the Evergreen Municipal Trust personally, but shall bind only the trust property of the Selling Fund and the Acquiring Fund, as provided in the Declarations of Trust of Blanchard Funds and the Trust. The execution and delivery of this Agreement have been authorized by the Trustees of Blanchard Funds on behalf of the Selling Fund and the Trust on behalf of the Acquiring Fund and signed by authorized officers of Blanchard Funds and the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officers shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Selling Fund and the Acquiring Fund as provided in the Declarations of Trust of Blanchard Funds and the Trust. IN WITNESS WHEREOF, the parties have duly executed and sealed this Agreement, all as of the date first written above. EVERGREEN MUNICIPAL TRUST ON BEHALF OF EVERGREEN HIGH GRADE TAX FREE FUND By: Name: Title: BLANCHARD FUNDS ON BEHALF OF BLANCHARD FLEXIBLE TAX-FREE BOND FUND By: Name: Title: EXHIBIT B BLANCHARD FUNDS INTERIM MANAGEMENT CONTRACT This Contract is made this 28th day of November, 1997 between Virtus Capital Management, Inc., a Maryland corporation having its principal place of business in Richmond, Virginia (the "Manager"), and Blanchard Funds, a Massachusetts business trust having its principal place of business in Pittsburgh, Pennsylvania (the "Trust"). WHEREAS the Trust is an open-end management investment company as that term is defined in the Investment Company Act of 1940, as amended, and is registered as such with the Securities and Exchange Commission; and WHEREAS Manager is engaged in the business of rendering investment advisory and management services. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The Trust hereby appoints Manager as manager for each of the portfolios ("Funds") of the Trust which executes an exhibit to this Contract, and Manager accepts the appointments. Subject to the direction of the Trustees of the Trust, Manager shall provide or procure on behalf of each of the Funds all management and administrative services. In carrying out its obligations under this paragraph, the Manager shall; (i) provide or arrange for investment research and supervision of the investments of the Funds; (ii) select and evaluate the performance of each Fund's Portfolio Sub-Adviser; (iii) select and evaluate the performance of the Administrator; and (iv) conduct or arrange for a continuous program of appropriate sale or other disposition and reinvestment of each Fund's assets. 2. Manager, in its supervision of the investments of each of the Funds, will be guided by each of the Fund's investment objective and policies and the provisions and restrictions contained in the Declaration of Trust and By-Laws of the Trust and as set forth in the Registration Statements and exhibits as may be on file with the Securities and Exchange Commission. 3. Each Fund shall pay or cause to be paid all of its own expenses and its allocable share of Trust expenses, including, without limitation, the expenses of organizing the Trust and continuing its existence; fees and expenses of Trustees and officers of the Trust; fees for management services and administrative personnel and services; expenses incurred in the distribution of its shares ("Shares"), including expenses of administrative support services; fees and expenses of preparing and printing its Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940, as amended, and any amendments thereto; expenses of registering and qualifying the Trust, the Funds, and Shares of the Funds under federal and state laws and regulations; expenses of preparing, printing, and distributing prospectuses (and any amendments thereto) to shareholders; interest expense, taxes, fees, and commissions of every kind; expenses of issue (including cost of Share certificates), purchase, repurchase, and redemption of Shares, including expenses attributable to a program of periodic issue; charges and expenses of custodians, transfer agents, dividend disbursing agents, shareholder servicing agents, and registrars; printing and mailing costs, auditing, accounting, and legal expenses; reports to shareholders and governmental officers and commissions; expenses of meetings of Trustees and shareholders and proxy solicitations therefor; insurance expenses; association membership dues and such nonrecurring items as may arise, including all losses and liabilities incurred in administering the Trust and the Funds. Each Fund will also pay its allocable share of such extraordinary expenses as may arise including expenses incurred in connection with litigation, proceedings, and claims and the legal obligations of the Trust to indemnify its officers and Trustees and agents with respect thereto. 4. Each of the Funds shall pay to Manager, for all services rendered to each Fund by Manager hereunder, the fees set forth in the exhibits attached hereto. 5. If, for any fiscal year, the total of all ordinary business expenses of the Fund, including all investment advisory fees but excluding distribution fees, taxes, interest and extraordinary expenses and certain other excludable expenses, would exceed the most restrictive expense limits imposed by any statute or regulatory authority of any jurisdiction in which Shares of the Fund are offered for sale Manager shall reduce its management fee in order to reduce such excess expenses, but will not be required to reimburse the Fund for any ordinary business expenses which exceed the amount of its management fee for such fiscal year. The amount of any such reduction is to be borne by the Manager and shall be deducted from the monthly management fee otherwise payable to the Manager during such fiscal year. For the purposes of this paragraph, the term "fiscal year" shall exclude the portion of the current fiscal year which shall have elapsed prior to the date hereof and shall include the portion of the then current fiscal year which shall have elapsed at the date of termination of this Agreement. 6. The net asset value of each Fund's Shares as used herein will be calculated to the nearest 1/10th of one cent. 7. The Manager may from time to time and for such periods as it deems appropriate reduce its compensation (and, if appropriate, assume expenses of one or more of the Funds) to the extent that any Fund's expenses exceed such lower expense limitation as the Manger may, by notice to the Fund, voluntarily declare to be effective. 8. This Contract shall begin for each Fund as of the date of execution of the applicable exhibit and shall continue in effect with respect to each Fund presently set forth on an exhibit (and any subsequent Funds added pursuant to an exhibit during the initial term of this Contract) until the earlier of the Closing Date defined in the Agreement and Plan of Reorganization dated as of November 26, 1997 with respect to each Fund or for two years from the date of this Contract set forth above and thereafter for successive periods of one year, subject to the provisions for termination and all of the other terms and conditions hereof if: (a) such continuation shall be specifically approved at least annually by the vote of a majority of the Trustees of the Trust, including a majority of the Trustees who are not parties to this Contract or interested persons of any such party cast in person at a meeting called for that purpose; and (b) Manager shall not have notified a Fund in writing at least sixty (60) days prior to the anniversary date of this Contract in any year thereafter that it does not desire such continuation with respect to that Fund. If a Fund is added after the first approval by the Trustees as described above, this Contract will be effective as to that Fund upon execution of the applicable exhibit and will continue in effect until the next annual approval of the Contract by the Trustees and thereafter for successive periods of one year, subject to approval as described above. 9. Notwithstanding any provision in this Contract, it may be terminated at any time with respect to any Fund, without the payment of any penalty, by the Trustees of the Trust or by a vote of the shareholders of that Fund on sixty (60) days' written notice to Manager. 10. This Contract may not be assigned by Manager and shall automatically terminate in the event of any assignment. Manager may employ or contract with such other person, persons, corporation, or corporations at its own cost and expense as it shall determine in order to assist it in carrying out this Contract. 11. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of the obligations or duties under this Contract on the part of Manager, Manager shall not be liable to the Trust or to any of the Funds or to any shareholder for any act or omission in the course of or connected in any way with rendering services or for any losses that may be sustained in the purchase, holding, or sale of any security. 12. This Contract may be amended at any time by agreement of the parties provided that the amendment shall be approved both by the vote of a majority of the Trustees of the Trust, including a majority of the Trustees who are not parties to this Contract or interested persons of any such party to this Contract (other than as Trustees of the Trust) cast in person at a meeting called for that purpose, and where required by Section 15(a)(2) of the Act, on behalf of a Fund by a majority of the outstanding voting securities of such Fund as defined in Section 2(a)(42) of the Act. 13. The Manager acknowledges that all sales literature for investment companies (such as the Trust) are subject to strict regulatory oversight. The Manager agrees to submit any proposed sales literature for the Trust (or any Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to the Trust's distributor for review and filing with the appropriate regulatory authorities prior to the public release of any such sales literature, provided, however, that nothing herein shall be construed so as to create any obligation or duty on the part of the Manager to produce sales literature for the Trust (or any Fund). The Trust agrees to cause its distributor to promptly review all such sales literature to ensure compliance with relevant requirements, to promptly advise Manager of any deficiencies contained in such sales literature, to promptly file complying sales literature with the relevant authorities, and to cause such sales literature to be distributed to prospective investors in the Trust. 14. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, or any of the officers, employees, agents or shareholders of the Trust individually but are binding only upon the assets and property of the Trust. Notice is also hereby given that the obligations pursuant to this instrument of a particular Fund and of the Trust with respect to that particular Fund shall be limited solely to the assets of that particular Fund. 15. This Contract shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 16. This Contract will become binding on the parties hereto upon their execution of the attached exhibits to this Contract. EXHIBIT A to the Management Contract Blanchard Global Growth Fund Blanchard Flexible Income Fund Blanchard Short-Term Bond Fund Blanchard Flexible Tax-Free Bond Fund Blanchard Growth & Income Fund For all services rendered by Manager hereunder, the above-named Funds of the Trust shall pay to Manager and Manager agrees to accept as full compensation for all services rendered hereunder, an annual management fee equal to the following percentage ("the applicable percentage") of the average daily net assets of each Fund Name of Fund Percentage of Net Assets Blanchard Global Growth Fund 1% of the first $150 million of average daily net assets, .875% of the Fund's average daily net assets in excess of $150 million but not exceeding $300 million and .75% of the Fund's average daily net assets in excess of $300 million. Blanchard Flexible Income Fund .75% Blanchard Growth & Income Fund 1.10% of the Fund's average daily net assets, .40% of which, which would otherwise be received by Manager and paid to the Chase Manhattan Bank, N.A. ("Chase") for portfolio advisory services, shall be paid to Chase directly by the Fund under a separate investment advisory agreement between Chase and the Fund. Blanchard Short-Term Bond Fund .75% Blanchard Flexible Tax-Free .75% Bond Fund The portion of the fee based upon the average daily net assets of the Fund shall be accrued daily at the rate of 1/365th of the applicable percentage applied to the daily net assets of the Fund. The advisory fee so accrued shall be paid to Manager daily except for the Blanchard Growth & Income Fund which shall be paid to Manager monthly. Witness the execution hereof this 28th day of November, 1997. Attest: Virtus Capital Management, Inc. ________________________ By: ___________________________ Secretary Executive Vice President Attest: Blanchard Funds ________________________ By: ____________________________ Assistant Secretary Vice President EXHIBIT B to the Management Contract BLANCHARD GROWTH & INCOME FUND The Trust shall pay to Manager, on behalf of the Fund, monthly compensation at the annual rate of 1.10% of the Fund's average daily net assets, .40% of which, which would otherwise be received by Manager and paid to The Chase Manhattan Bank, N.A.("Chase") for portfolio advisory services, shall be paid to Chase directly by the Growth & Income Portfolio, under a separate investment advisory agreement between Chase and the Growth & Income Portfolio. The portion of the fee based upon the average daily net assets of the Funds shall be accrued daily at the rate of 1/365th of the applicable percentage applied to the daily net assets of each Fund. Witness the due execution hereof this 28th day of November, 1997. Attest: Virtus Capital Management, Inc. _____________________________ By:___________________________ Assistant Secretary Senior Vice President Attest: Blanchard Funds _____________________________ By:___________________________ Assistant Secretary Vice President EXHIBIT C to the Management Contract Blanchard Asset Allocation Fund For all services rendered by manager hereunder, the above-named Fund of the Trust shall pay to Manager and Manager agrees to accept as full compensation for all services rendered hereunder, an annual management fee equal to 1% of the average daily net assets of the Fund. The portion of the fee based upon the average net assets of the Fund shall be accrued daily at the rate of 1/365th of 1% applied to the daily net assets of the Fund. The management fee so accrued shall be paid to Manager monthly. Witness the due execution hereof this November 28, 1997. Attest: Virtus Capital Management, Inc. ________________________ By: ____________________________ Secretary Senior Vice President Attest: Blanchard Fund ________________________ By: ____________________________ Assistant Secretary Vice President EXHIBIT C INTERIM SUB-ADVISORY AGREEMENT THIS AGREEMENT is made this 28th day of November, 1997 by and between VIRTUS CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust company (the "Sub-Adviser" or "U.S. Trust") with respect to the following recital of fact: R E C I T A L WHEREAS, Blanchard Funds (the "Trust") is registered as an open-end, non-diversified, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations promulgated thereunder; and WHEREAS, the Sub-Adviser is a New York State chartered bank and trust company and engages in the business of acting as an investment adviser; and WHEREAS, the Trust is authorized to issue shares of beneficial interest in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Trust offers shares in one series called the Blanchard Flexible Tax-Free Bond Fund (such series, being referred to as the "Fund"); and WHEREAS, the Trust and the Manager have entered into an agreement of even date herewith to provide for management services for the Fund on the terms and conditions set forth therein (the "Interim Management Agreement"); and WHEREAS, U.S. Trust proposes to render investment advisory services to the Manager in connection with the Manager's responsibilities to the Fund's portfolio on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Investment Management. U.S. Trust shall act as a Sub- Adviser for the Fund and shall, in such capacity, supervise the investment and reinvestment of the cash, securities or other properties comprising the Fund's portfolio, subject at all times to the direction of the Manager and the policies and control of the Trust's Board of Trustees. U.S. Trust shall give the Fund the benefit of its best judgment, efforts and facilities in rendering its services as Sub-Adviser. 2. Investment Analysis and Implementation. In carrying out its obligation under paragraph 1 hereof, the Sub-Adviser shall: a. use the same skill and care in providing such service as it uses in providing services to fiduciary accounts for which it has investment responsibilities; b. obtain and evaluate pertinent information about significant developments and economics, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or the Fund's portfolio and whether concerning the individual issuers whose securities are included in the Fund's portfolio or the activities in which the issuers engage, or with respect to securities which the Sub-Adviser considers desirable for inclusion in the Fund's portfolio; c. determine which issuers and securities shall be represented in the Fund's portfolio and regularly report thereon to the Trust's Board of Trustees; d. formulate and implement continuing programs for the purchases and sales of the securities of such issuers and regularly report thereon to the Trust's Board of Trustees; e. be authorized to give instructions to the custodian and/or sub-custodian of the Fund appointed by the Trust's Board of Trustees, as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund, in relation to the matters contemplated by this Agreement; and f. take, on behalf of the Fund, all actions which appear to the Trust and the Manager necessary to carry into effect such purchase and sale programs and supervisory functions as aforesaid, including the placing of orders for the purchase and sale of securities for the Fund and the prompt reporting to the Manager of such purchases and sales. 3. Broker-Dealer Relationships. The Sub-Adviser is responsible for decisions to buy and sell securities for the Fund's portfolio, broker-dealer selection, and negotiation of brokerage commission rates. The Sub-Adviser's primary consideration in effecting a security transaction will be execution at the most favorable price. In selecting a broker-dealer to execute each particular transaction, the Sub-Adviser will take the following into consideration: the best net price available, the reliability, integrity and financial condition of the broker-dealer; the size of and difficulty in executing the order; and the value of the expected contribution of the broker-dealer to the investment performance of the Fund on a continuing basis. Accordingly, the price to the Fund in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine, the Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Fund to pay a broker or dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Sub-Adviser's overall responsibilities with respect to the Fund and to its other clients as to which it exercises investment discretion. Subject to such policies as the Board of Trustees may determine, the Sub-Adviser will purchase and sell foreign currency contracts and other securities for the Fund. The Sub-Adviser is further authorized to allocate the orders placed by it on behalf of the Fund to any affiliated broker-dealer of the Fund or to such brokers and dealers who also provide research or statistical material, or other services to the Fund, the Manager or the Sub-Adviser. Such allocation shall be in such amounts and proportions as the Sub-Adviser shall determine and the Sub-Adviser will report on said allocations regularly to the Board of Trustees of the Trust indicating the brokers to whom such allocations have been made and the basis therefor. 4. Control by Board of Trustees. Any investment program undertaken by the Sub-Adviser pursuant to this Agreement, as well as any other activities undertaken by the Sub-Adviser on behalf of the Fund pursuant thereto, shall at all times be subject to any directives of the Board of Trustees of the Trust. The Manager shall provide the Sub-Adviser with written notice of all such directives, so long as this Agreement remains in effect. 5. Compliance with Applicable Requirements. In carrying out its obligations under this Agreement, the Sub-Adviser shall at all times conform to: a. all applicable provisions of the 1940 Act; b. the provisions of the Registration Statement of the Trust under the Securities Act of 1933 and the 1940 Act; and c. any other applicable provisions of state and federal law. 6. Expenses. The Sub-Adviser shall maintain, at its expense and without cost to the Manager or the Fund, a trading function in order to carry out its obligations under subparagraph (f) of paragraph 2 hereof to place orders for the purchase and sale of portfolio securities for the Fund. 7. Delegation of Responsibilities. Upon request of the Manager and with the approval of the Trust's Board of Trustees, the Sub-Adviser may perform services on behalf of the Fund which are not required by this Agreement. Such services will be performed on behalf of the Fund and the Sub-Adviser's cost in rendering such services may be billed monthly to the Manager, subject to examination by the Manager's independent accountants. Payment or assumption by the Sub-Adviser of any Fund expense that the Sub-Adviser is not required to pay or assume under this Agreement shall not relieve the Manager or the Sub-Adviser of any of their obligations to the Fund or obligate the Sub-Adviser to pay or assume any similar Fund expense on any subsequent occasions. 8. Compensation. For the services to be rendered and the facilities furnished hereunder, the Manager shall pay the Sub- Adviser a monthly fee at the annual rate of .20% of the Fund's average daily net assets. Compensation under this Agreement shall be calculated and accrued daily and the amounts of the daily accruals shall be paid monthly. The compensation paid to the Sub-Adviser will not be reduced by the amount of brokerage commissions received by the Sub-Adviser or its affiliated broker-dealer pursuant to Section 17(e)(2) of the 1940 Act. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of the Sub- Adviser's compensation for the preceding month shall be made as promptly as possible after the end of each month. 9. Term. This Agreement shall become effective at the close of business on the date hereof and shall remain in force and effect until the earlier of the Closing Date defined in the Agreement and Plan of Reorganization dated November 26, 1997 with respect to the Fund or for an initial term of two years, and shall remain in effect thereafter if approved in the manner set forth in Section 10 hereof. 10. Renewal. Following the expiration of its initial two year term, this Agreement shall continue in force and effect from year to year, provided that such continuance is specifically approved at least annually: a. (i) by the Trust's Board of Trustees or (ii) by the vote of a majority of the Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act), and b. by the affirmative vote of a majority of the Trustees who are not parties to this agreement or interested persons of a party to this Agreement (other than as a Trustee of the Trust), by votes cast in person at a meeting specifically called for such purpose. 11. Termination. This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Trust's Board of Trustees or by vote of a majority of the Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act), or by the Manager or the Sub-Adviser, on sixty (60) days' written notice to the other party. This Agreement shall automatically terminate: (a) in the event of its assignment, the term "assignment" having the meaning defined in Section 2(a)(4) of the 1940 Act, or (b) in the event that the Interim Management Agreement between the Fund and the Manager shall terminate. 12. Liability of the Sub-Adviser. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or its officers, directors or employees, or reckless disregard by the Sub-Adviser of its duties under this Agreement, the Sub-Adviser shall not be liable to the Manager, the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 13. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Manager for this purpose shall be 707 East Main Street, Suite 1300, Richmond, Virginia 23219, that of the Trust for this purpose shall be Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and the address of the Sub-Adviser for this purpose shall be 114 West 47th Street, New York, New York 10036. 14. Questions of Interpretation. Any questions of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such courts, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Act. In addition, where the effect of a requirement of the 1940 Act reflected in a provision of this Agreement is revised by rule, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their respective officers on the day and year first above written. Attest: UNITED STATES TRUST COMPANY OF NEW YORK By Title: Title: Attest: VIRTUS CAPITAL MANAGEMENT, INC. By Title: Title: Senior Vice President (logo) EVERGREEN HIGH GRADE TAX FREE FUND FUND-AT-A-GLANCE As of May 31, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y One year with sales charge 1.90% 1.19% 7.25% One year w/o sales charge 6.99% 6.19% 7.25% One year dividends per share 50.2(cents) 42.1(cents) 52.0(cents) 30-day SEC Yield (as of 5/31/97) 4.19% 3.63% 4.66% AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS Y Three years 5.11% 5.16% 7.10% Five years 5.75% N/A N/A Since Inception* 6.00% 5.13% 5.11% CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y Nine months w/o sales charge 5.13% 4.55% 5.32% Three years 16.13% 16.30% 22.83% Five years 32.24% N/A N/A Since Inception* 36.01% 24.55% 17.64%
* CLASS A BEGAN 2/21/92; CLASS B BEGAN 1/11/93; CLASS Y BEGAN 2/28/94 ** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.
PORTFOLIO CHARACTERISTICS MAY 31, 1997 Total Net Assets (all classes) $102.1 million Average Credit Quality AAA Average Maturity 12.3 years Average Duration 8.2 years
PORTFOLIO COMPOSITION MAY 31, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (Pie chart appears here with the following plot points.) Hospital 14.8% Ports 9.4% Industrial Development (pollution control) 8.5% Electric 8.0% General Obligation (schools) 8.8% Water/Sewer 6.5% Airport 6.2% Industrial Development 5.3% Housing 4.9% Pre-refunded 4.6% General Obligation (municipalities) 3.8% General Obligation 3.8% Toll Roads 3.3% Other 12.1% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen High Grade Tax Free Fund seeks income exempt from federal income taxes while conserving capital. Income may be subject to local taxes and the Federal Alternative Minimum Tax for certain investors. STRATEGY The Fund seeks its objective by investing in insured municipal securities and municipal securities rated high grade by independent bond rating services. The portfolio management team will, in seeking the Fund's objectives, buy and sell securities to effect changes in portfolio maturities and to change allocations among different sectors. Insured bonds are bonds insured as to timely payment of principal and interest. The Fund itself is not insured, nor is the value of its shares guaranteed. Insured bonds must be insured by a municipal bond insurance company which is rated AAA by Standard & Poors Ratings Group (S&P) and/or Aaa by Moody's Investors Service, Inc., (Moody's). Bonds that are considered high grade are rated A or better by S&P or Moody's or, if unrated, are considered of comparable quality as determined by the Fund's investment advisor. PORTFOLIO MANAGEMENT TEAM (Photo of James T. Colby, III, the Senior Portfolio Manager, is a Vice James T. Colby, President and Senior Portfolio Manager of Evergreen Asset III) Management. He also is Senior Portfolio Manager for Evergreen U.S. Government Securities Fund and is co-manager of the Evergreen Tax Strategic Foundation Fund. Prior to joining Evergreen in 1992, Mr. Colby was Vice President and Senior Portfolio Manager for $5 billion in tax-exempt holdings at American Express. Mr. Colby also has served in portfolio management capacities at Marinvest, a subsidiary of Marine Midland Bank. He is a graduate of Brown University, and holds an MBA from Hofstra University. In 1996, Mr. Colby was Chairman of the Municipal Bond Buyers Conference. 2 EVERGREEN HIGH GRADE TAX FREE FUND (logo) MANAGEMENT REPORT July 1997 Dear Fellow Shareholders: We are pleased to report on Evergreen High Grade Tax Free Fund for the fiscal period that ended on May 31, 1997. You may recall that you recently received a semiannual report for the six-month period that ended on February 28, 1997. We have changed your Fund's fiscal year so it now will end each May 31. This is part of an effort by Evergreen Keystone Funds to streamline, and increase the efficiency of, fund administration. Funds with similar investment objectives, in this case national tax free funds, are placed on the same fiscal year cycle. Information about these funds will be presented in common annual and semi-annual reports. The next report you will receive will be a semiannual report for the period ending November 30, 1997. You should expect to receive it in January 1998. PERFORMANCE We believe your Fund performed well as a high quality municipal bond fund during a period marked by short-term interest rate volatility. The charts and tables on page 2 provide a comprehensive view of the performance for the fiscal period, as well as since each class of shares began. STRATEGY Evergreen High Grade Tax Free Fund is managed with a long-term view, with the goal of providing federally tax-free income from insured and high quality municipal bonds while protecting principal. We do not structure the portfolio in anticipation of short-term movements in interest rates, but try to employ strategies that build value over time based on longer-term trends in the municipal bond market. The nine-month period that ended on May 31 was a generally favorable period for municipal bond investing. During this period, we kept the maturities of bonds in the portfolio relatively consistent, with average maturities remaining in the 12-to-16 year range, and average duration in the 7-to-9-year range. This policy proved successful during a time when long-term interest rates, despite some short-term volatility, remained in a consistent trading range of 6 1/2% to 7%. Your Fund is required to invest at least 65% of net assets in high grade municipal bonds. In fact, the Fund held 87% of net assets in insured municipal bonds, with 95% of net assets AAA-rated at the end of the period. The bonds are insured for the timely payment of principal and interest. The value of insured bonds can fluctuate. The Fund itself is not insured. The Fund does not search for opportunities among bonds that are below investment grade. Evergreen High Grade Tax Free Fund invests in different sectors of the market based upon evolving trends. For example, two sectors-- the hospital/health care and the electric utility sectors-- have experienced changes which affected portfolio strategy recently. In the hospital sector, the process of consolidation has left behind the weaker institutions which we have pointedly avoided. We hold only the dominant regional facilities or those aligned with strong national systems, which we believe have the strongest potential to survive the new era of competition. Accordingly, we have increased the Fund's allocation to 14.8% of the net assets. Conversely, the impact of deregulation and competition upon municipal utilities is less clear and we have decreased the Fund's allocation to this sector to 7.9%, though we will closely monitor important legislation pending in states on the east and west coasts which may soon set new strategic parameters for this sector. For comparison, three years ago this Fund's relative weightings of these two sectors would have been reversed. OUTLOOK Looking ahead, we continue to see a favorable investment environment for municipal bonds. We anticipate long-term interest rates, as represented by the benchmark 30-year U.S. Treasury Bond, to trade in the 6-to-7% range, with relatively firm economic growth and stable inflation. Within this environment, we will continue our strategy of seeking to provide as reasonable a yield as is possible, without assuming significant market risks by extending maturities. At the same time, we will continue to monitor changes in the municipal bond industry and put in place further strategies that have the potential to benefit from evolving trends. Thank you for your support of the Evergreen High Grade Tax Free Fund. Sincerely, /s/ James T. Colby, III JAMES T. COLBY, III VICE PRESIDENT SENIOR PORTFOLIO MANAGER Evergreen Asset Management Corp. STATEMENT OF ADDITIONAL INFORMATION Acquisition of the Assets of BLANCHARD FLEXIBLE TAX-FREE BOND FUND a Series of BLANCHARD FUNDS Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (800) 829-3863 By and In Exchange For Shares of EVERGREEN HIGH GRADE TAX FREE FUND a Series of EVERGREEN MUNICIPAL TRUST 200 Berkeley Street Boston, Massachusetts 02116 (800) 343-2898 This Statement of Additional Information, relating specifically to the proposed transfer of the assets and liabilities of Blanchard Flexible Tax-Free Fund ("Tax-Free"), a series of Blanchard Funds, to Evergreen High Grade Tax Free Fund ("Evergreen Tax Free"), in exchange for Class A shares of beneficial interest, $.001 par value per share, of Evergreen Tax Free, consists of this cover page and the following described documents, each of which is attached hereto and incorporated by reference herein: (1) The Statement of Additional Information of Evergreen Tax Free dated September 3, 1997; (To be filed by amendment) (2) The Statement of Additional Information of Tax-Free dated August 31, 1997; (To be filed by amendment) (3) Annual Report of Tax-Free for the year ended September 30, 1997; (To be filed by amendment) (4) Annual Report of Evergreen Tax Free for the period ended May 31, 1997; (To be filed by amendment) and (5) Pro-Forma Combining Financial Statements (unaudited) dated May 31, 1997. This Statement of Additional Information, which is not a prospectus, supplements, and should be read in conjunction with, the Prospectus/Proxy Statement of Evergreen Tax Free and Tax- Free dated January 5, 1998. A copy of the Prospectus/Proxy Statement may be obtained without charge by calling or writing to Evergreen Tax Free or Tax-Free at the telephone numbers or addresses set forth above. The date of this Statement of Additional Information is January 5, 1998.
Evergreen High Grade Tax Free Fund PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) SCHEDULE OF INVESTMENTS (000's omitted) May 31, 1997 Evergreen High Grade Tax Free Bond Fund ------------------ Maturity Market Long-Term Investments - 96.5% Coupon Date Principal Value ---------------------------------------------------- Alaska - 0.8% Valdez AK, Marine Terminal Revenue, Pipline Inc. Project, Series B 5.50% 10/1/28 Arizona - 1.7% Maricopa Cnty. AZ, Creighton Elem. Sch. Dist. No. 14 Series C 1991 (FGIC) 6.50% 7/1/07 1,000 1,125 Salt River Project AZ, Agricultural Improvement, Series C 5.00% 1/1/13 California - 3.7% California State Department Water Resources Central Valley Project 5.38% 12/1/27 East Bay California Municipal Utility Water Systems 5.00% 6/1/26 Redevelopment Agcy. of the City of San Jose, Tax Allocation Bonds, Series 1993 (MBIA) 6.00% 8/1/15 2,000 2,145 San Mateo Cnty. Joint Powers Fin. Auth. Lease RB, 1993 Refunding Series A, (MBIA) 6.50% 7/1/16 500 561 Colorado - 3.0% Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Hwy RB (E-470 Proj.) (MBIA) 6.15% 8/31/26 1,000 1,054 Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Sr. Current Interest Bonds 7.00% 8/31/26 2,000 2,145 City & Cnty. of Denver GO Refunding Bonds, #1 School District, Series 1994 A, (MBIA) 6.50% 6/1/10 500 560 Florida - 1.7% Orange Cnty. FL, Hlth. Facs. Auth. Hosp. RB, Orlando Regional Healthcare Sys., Series 1996C, (MBIA) 6.25% 10/1/16 1,000 1,090 St. Petersburg FL, Excise Tax Refunding 5.15% 10/1/13 Georgia - 4.3% Atlanta GA, Metropolitan Rapid Transit Auth. Series A, (MBIA) 5.50% 7/1/17 1,000 999 City of Atlanta Airport Facs. RRB, Series 1994 A, (AMBAC) 6.50% 1/1/10 500 558 Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover Series, Project 1, (AMBAC) 6.40% 1/1/13 1,000 1,102 Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover Series, Project 1, (MBIA) 6.50% 1/1/17 2,400 2,695 Hawaii - 3.0% Hawaii Arpt. Sys. RB, Second Series 1990, (FGIC) 7.50% 7/1/20 1,000 1,089 Hawaii State, GO Series CM, (FGIC) 6.00% 12/1/10 2,500 2,680 Idaho - 0.7% Idaho Hsg. Agcy. Single Family Mortgage Bonds, 1994 Series C-1 Senior Bonds & Mezzanine Bonds 6.30% 7/1/11 845 870 Illinois - 16.1% City of Chicago GO, Current Interest Bonds, (Project Series 1995), (AMBAC) 6.13% 1/1/16 2,150 2,229 City of Chicago Water RRB, Series 1993, (FGIC) 6.50% 11/1/15 4,725 5,308 Cook Cnty. GO, Series B 5.38% 11/15/18 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project Series 1991, (MBIA) 7.25% 6/1/11 2,000 2,182 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project Series 1994D, (AMBAC) 6.75% 3/1/15 3,000 3,293 Illinois Hlth. Facs. Auth. Hlth. Facs. RRB SSM Hlth. Care, Series 1992 AA, (MBIA) 6.50% 6/1/12 1,750 1,954 Illinois State Sales Tax Revenue 5.50% 6/15/20 Metropolitan Pier + Expo Auth. IL, McCormick Place Expn Project Series A (AMBAC) 5.25% 6/15/27 Metropolitan Pier + Expo Auth. IL, McCormick Place Expn Project,Series B, (MBIA) 0.00% 6/15/13 5,625 2,259 Indiana - 2.9% Indiana Muni. Pwr. Agcy., Pwr. Supply Sys. RRB, 1993 Series B, (MBIA) 6.00% 1/1/13 1,000 1,064 Indiana Trans. Fin. Auth. Hwy. RB, Series 1992A, (MBIA) 6.80% 12/1/16 700 808 Marion Cnty. IN, Middle School First Mortgage Bonds, (MBIA) 6.88% 7/5/11 1,500 1,729 Louisiana - 1.1% Orleans Parish LA, School Board RB, (MBIA) 9.05% 2/1/10 1,000 1,339 Massachusetts - 2.0% Massachusetts GO, Series A, (AMBAC) 6.50% 11/1/14 1,000 1,120 Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RB, 1993 Series A, (AMBAC) 6.15% 10/1/15 500 508 Massachusetts State Water Resources Authority, Series B 5.00% 12/1/25 Maryland - 2.0% Maryland State & Local Facs. GO, First Series 5.00% 3/1/10 2,500 2,456 Maine - 0.9% Maine Turnpike Authority RB, Series 1994, (MBIA) 7.13% 7/1/08 1,000 1,171 Michigan - 1.5% Michigan State Hospital Finance Authority Revenue, Henry Ford Health, Series A 5.25% 11/15/25 Michigan State Trunk Line, Series A 5.50% 10/1/21 Minnesota - 0.4% Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, 1994 Series H 6.70% 1/1/18 490 514 Nevada- 0.8% Clark County, School District Building and Renovation Series B 5.25% 6/15/17 New Jersey - 0.8% New Jersey State Transportation Trust Fund Authority, Transportation Systems, Series B 5.25% 6/15/16 New Mexico - 0.8% City of Albuquerque, Arpt. RB, Series 1995 A, (AMBAC) 6.35% 7/1/07 500 540 City of Albuquerque, Arpt. RB, Series 1995 B, (AMBAC) 7.00% 7/1/16 500 501 Blanchard Flexible Pro Forma Tax Free Bond Fund Combined ------------------ --------- Market Market Long-Term Investments - 96.5 Principal Value Principal Value ----------------------------------------------- Alaska - 0.8% Valdez AZ, Marine Terminal Revenue, Pipline Inc. Project, Series B 1,000 944 1,000 944 ------------- Arizona - 1.7% Maricopa Cnty. AZ, Creighton Elem. Sch. Dist. No. 14 Series C 1991 (FGIC) 1,000 1,125 Salt River Project AZ, Agricultural Improvement, Series C 1,000 961 1,000 961 ------------- 2,086 ------------- California - 3.7% California State Department Water Resources Central Valley Project 1,000 964 1,000 964 East Bay California Municipal Utility Water Systems 1,000 912 1,000 912 Redevelopment Agcy. of the City of San Jose, Tax Allocation Bonds, Series 1993 (MBIA) 2,000 2,145 San Mateo Cnty. Joint Powers Fin. Auth. Lease RB, 1993 Refunding Series A, (MBIA) 500 561 ------------- 4,582 ------------- Colorado - 3.0% Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Hwy RB (E-470 Proj.) (MBIA) 1,000 1,054 Arapahoe Cnty., Pub. Hwy. Auth. Cap. Imp. Trust Fund Sr. Current Interest Bonds 2,000 2,145 City & Cnty. of Denver GO Refunding Bonds, #1 School District, Series 1994 A, (MBIA) 500 560 ------------- 3,759 ------------- Florida - 1.7% Orange Cnty. FL, Hlth. Facs. Auth. Hosp. RB, Orlando Regional Healthcare Sys., Series 1996C, (MBIA) 1,000 1,090 St. Petersburg FL, Excise Tax Refunding 1,000 970 1,000 970 ------------- 2,060 ------------- Georgia - 4.3% Atlanta GA, Metropolitan Rapid Transit Auth. Series A, (MBIA) 1,000 999 City of Atlanta Airport Facs. RRB, Series 1994 A, (AMBAC) 500 558 Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover Series, Project 1, (AMBAC) 1,000 1,102 Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover Series, Project 1, (MBIA) 2,400 2,695 ------------- 5,354 ------------- Hawaii - 3.0% Hawaii Arpt. Sys. RB, Second Series 1990, (FGIC) 1,000 1,089 Hawaii State, GO Series CM, (FGIC) 2,500 2,680 ------------- 3,769 ------------- Idaho - 0.7% Idaho Hsg. Agcy. Single Family Mortgage Bonds, 1994 Series C-1 Senior Bonds & Mezzanine Bonds 845 870 ------------- Illinois - 16.1% City of Chicago GO, Current Interest Bonds, (Project Series 1995), (AMBAC) 2,150 2,229 City of Chicago Water RRB, Series 1993, (FGIC) 4,725 5,308 Cook Cnty. GO, Series B 1,000 961 1,000 961 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project Series 1991, (MBIA) 2,000 2,182 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB, Commonwealth Edison Co. Project Series 1994D, (AMBAC) 3,000 3,293 Illinois Hlth. Facs. Auth. Hlth. Facs. RRB SSM Hlth. Care, Series 1992 AA, (MBIA) 1,750 1,954 Illinois State Sales Tax Revenue 1,000 963 1,000 963 Metropolitan Pier + Expo IL, McCormick Place Expn Project Series A 1,000 938 1,000 938 Metropolitan Pier + Expo IL, McCormick Place Expn Project,Series B, (MBIA) 5,625 2,259 ------------- 20,087 ------------- Indiana - 2.9% Indiana Muni. Pwr. Agcy., Pwr. Supply Sys. RRB, 1993 Series B, (MBIA) 1,000 1,064 Indiana Trans. Fin. Auth. Hwy. RB, Series 1992A, (MBIA) 700 808 Marion Cnty. IN, Middle School First Mortgage Bonds, (MBIA) 1,500 1,729 ------------- 3,601 ------------- Louisiana - 1.1% Orleans Parish LA, School Board RB, (MBIA) 1,000 1,339 ------------- Massachusetts - 2.0% Massachusetts GO, Series A, (AMBAC) 1,000 1,120 Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RB, 1993 Series A, (AMBAC) 500 508 Massachusetts State Water Resources Authority, Series B 1,000 905 1,000 905 ------------- 2,533 ------------- Maryland - 2.0% Maryland State & Local Facs. GO, First Series 2,500 2,456 ------------- Maine - 0.9% Maine Turnpike Authority RB, Series 1994, (MBIA) 1,000 1,171 ------------- Michigan - 1.5% Michigan State Hospital Finance Authority Revenue, Henry Ford Health, Series A 1,000 938 1,000 938 Michigan State Trunk Line, Series A 1,000 965 1,000 965 ------------- 1,903 ------------- Minnesota - 0.4% Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, 1994 Series H 490 514 ------------- Nevada- 0.8% Clark County, School District Building and Renovation Series B 1,000 957 1,000 957 ------------- New Jersey - 0.8% New Jersey State Transportation Trust Fund Authority, Transportation Systems, Series B 1,000 966 1,000 966 ------------- New Mexico - 0.8% City of Albuquerque, Arpt. RB, Series 1995 A, (AMBAC) 500 540 City of Albuquerque, Arpt. RB, Series 1995 B, (AMBAC) 500 501 ------------- 1,041 -------------
New York - 12.9% Albany Cnty. Airport Auth. RB, (FSA) 5.25% 12/15/10 1,000 981 New York City Mun. Water Fin. Auth., Series B 5.50% 6/15/27 New York State Dormitory Authority Revenues, Montefiore Medical Center 5.25% 2/1/15 New York State Medical Care Facilities, Hospital Insured Mortgage, Series A 5.38% 2/15/25 New York State Hsg. Fin. Agcy. RB, Insured Multifamily Mortgage, Series 1994 B, (AMBAC) 6.35% 8/15/23 1,500 1,539 New York State Local Government Assistance Corporation RB, Series B (Prerefuned @ $102) 7.38% 4/1/01 2,590 2,895 New York State Local Government Assistance Corporation 5.50% 4/1/21 Port Auth. of NY & NJ, Consolidated 97th Series, (FGIC) 6.50% 7/15/19 500 530 Port Auth. of NY & NJ, Consolidated 104th Series 5.20% 7/15/21 Port Auth. of NY & NJ, Special Obligation, JFK International Airport Terminal 6, (MBIA) 6.25% 12/1/10 5,000 5,454 North Dakota - 2.5% Mercer Cnty. ND, Poll. Ctrl. RRB, Basin Elec. Pwr. Cooperative-Antelope Valley Unit 1 & Common Facs., Second 1995 Series (AMBAC) 6.05% 1/1/19 3,000 3,108 Ohio - 2.7% City of Toledo Hsg. Imp. Bonds, Macy's Proj., Series 1995A, (MBIA) 6.35% 12/1/25 1,500 1,581 Kings Cnty. OH Board of Education Sch. Imp. Bonds, Unltd. Tax GO, Series 1995, (FGIC) 7.50% 12/1/16 1,000 1,254 Ohio Hsg. Fin. Agcy. Residential Mtge. RB 1995 Series A-2, 6.63% 3/1/26 475 490 South Carolina - 2.8% South Carolina Port Auth. RB, Series 1991, (AMBAC) 6.63% 7/1/11 3,250 3,468 South Dakota - 3.5% South Dakota Hlth. & Edl. Facs. Auth. RRB, St. Lukes Midland Regional Medical Center, Series 1991, (MBIA) 6.63% 7/1/11 4,000 4,304 Tennessee - 2.6% City of Bristol, Hlth & Edl. Facs. Hosp. RRB (Bristol Mem. Hosp.) Series 1993, (FGIC) 6.75% 9/1/07 1,200 1,367 Cnty. of Knox TN, Hlth., Edl. & Hsg. Hosp. RRB, Fort Sanders Alliance Obligated Group, Series 1993, (MBIA) 6.25% 1/1/13 1,700 1,843 Texas - 4.3% City of Austin TX, Airport Sys. Prior Lien RB, Series 1995 A, (MBIA) 6.13% 11/15/25 1,500 1,533 City of Houston Water Conveyance Sys. Contract COP, Series 1993H, (AMBAC) 7.50% 12/15/14 1,000 1,221 Harris Cnty. TX, Toll Road RB, (Prefunded @ $53.836), (AMBAC) 0.00% 8/15/09 6,000 1,700 San Antonio TX, Electric & Gas Revenue, Series A 5.00% 2/1/14 Utah - 3.7% Intermountain Power Agency Utah Power Supply Revenue 5.50% 7/1/20 Iron Cnty. UT, Board of Ed. Sch. Bldg. Bonds, Series 1994, (MBIA) 6.40% 1/15/12 2,500 2,675 Salt Lake City, Salt Lake Cnty. Arpt, RB Series 1993A, (FGIC) 6.00% 12/1/12 1,000 1,031 Virginia - 1.8% Hanover VA, IDA Hosp. RB, Mem. Regional Med. Center Proj. Series 1995, (MBIA) 6.38% 8/15/18 2,000 2,196 Washington - 2.9% Port of Seattle WA Revenue, Series A 5.50% 10/1/22 Tacoma WA, Electric Sys. RRB, Series 1994, (FGIC) 6.25% 1/1/15 2,500 2,620 West Virginia - 0.4% West Virginia Hsg. Dev. Fund Hsg. Fin. Series A 6.05% 5/1/27 500 502 Wisconsin - 6.7% Superior WI, RRB, Midwest Energy Res. Co. Project, Series E-1991, (FGIC) 6.90% 8/1/21 4,500 5,276 Wisconsin Hlth. & Edl. Facs. Auth. RB, Wausau Hosps., Inc. Project Series 1991B, (AMBAC) 6.63% 8/15/11 2,000 2,143 Wisconsin State Transportation Revenue, Series B 5.50% 7/1/22 Puetro Rico - 1.7% Commonwealth of Puerto Rico, Elec. Pwr. Auth. RB Series B, (MBIA) 6.25% 7/1/10 1,000 1,101 Commonwealth of Puerto Rico, Elec. Pwr. Auth. RRB Series Y, (MBIA) 6.50% 7/1/06 500 558 Commonwealth of Puerto Rico, Hsg. Bank & Fin. Agcy. RB, (Collateralized by GNMA, FNMA & FHLMC Certificates) 6.10% 10/1/15 500 506 -------------- Total Long Term Investments - (cost $115,526) 99,524 -------------- Short Term Investments - 0.7% Phenix Cnty. AL, RB, Mead Coated Board, Project B, VRDN 4.15% 10/1/25 100 100 Kansas City Kansas Industrial Revenue, PQ Corportation Project, VRDN 4.10% 8/15/01 800 800 -------------- Total Short Term Investments - (cost $900) 900 -------------- Mutual Fund Shares - 0.7% Shares ------ Federated Tax Free Obligations Fund 167 167 Dreyfus Tax Exempt Cash Management -------------- Total Mutual Fund Shares - (cost $902) 167 -------------- Total Investments - (cost $117,328) 98.0% 100,591 Other Assets and Liabilities (net) 2.0 1,538 ---------- -------------- Total Net Assets 100.0% $102,129 ========== ==============
New York - 12.9% Albany Cnty. Airport Auth. RB, (FSA) 1,000 981 New York City Mun. Water Fin. Auth., Series B 1,000 971 1,000 971 New York State Dormitory Authority Revenues, Montefiore Medical Center 1,000 963 1,000 963 New York State Medical Care Facilities, Hospital Insured Mortgage, Series A 1,000 956 1,000 956 New York State Hsg. Fin. Agcy. RB, Insured Multifamily Mortgage, Series 1994 B, (AMBAC) 1,500 1,539 New York State Local Government Assistance Corporation RB, Series B (Prerefuned @ $102) 2,590 2,895 New York State Local Government Assistance Corporation 1,000 965 1,000 965 Port Auth. of NY & NJ, Consolidated 97th Series, (FGIC) 500 530 Port Auth. of NY & NJ, Consolidated 104th Series 1,000 950 1,000 950 Port Auth. of NY & NJ, Special Obligation, JFK International Airport Terminal 6, (MBIA) 5,000 5,454 ------------ 16,204 ------------ North Dakota - 2.5% Mercer Cnty. ND, Poll. Ctrl. RRB, Basin Elec. Pwr. Cooperative-Antelope Valley Unit 1 & Common Facs., Second 1995 Ser, (AMBAC) 3,000 3,108 ------------ Ohio - 2.7% City of Toledo Hsg. Imp. Bonds, Macy's Proj., Series 1995A, (MBIA) 1,500 1,581 Kings Cnty. OH Board of Education Sch. Imp. Bonds, Unltd. Tax GO, Series 1995, (FGIC) 1,000 1,254 Ohio Hsg. Fin. Agcy. Residential Mtge. RB 1995 Series A-2, 475 490 ------------ 3,325 ------------ South Carolina - 2.8% South Carolina Port Auth. RB, Series 1991, (AMBAC) 3,250 3,468 ------------ South Dakota - 3.5% South Dakota Hlth. & Edl. Facs. Auth. RRB, St. Lukes Midland Regional Medical Center, Series 1991, (MBIA) 4,000 4,304 ------------ Tennessee - 2.6% City of Bristol, Hlth & Edl. Facs. Hosp. RRB (Bristol Mem. Hosp.) Series 1993, (FGIC) 1,200 1,367 Cnty. of Knox TN, Hlth., Edl. & Hsg. Hosp. RRB, Fort Sanders Alliance Obligated Group, Series 1993, (MBIA) 1,700 1,843 ------------ 3,210 ------------ Texas - 4.3% City of Austin TX, Airport Sys. Prior Lien RB, Series 1995 A, (MBIA) 1,500 1,533 City of Houston Water Conveyance Sys. Contract COP, Series 1993H, (AMBAC 1,000 1,221 Harris Cnty. TX, Toll Road RB, (Prefunded @ $53.836), (AMBAC) 6,000 1,700 San Antonio TX, Electric & Gas Revenue, Series A 1,000 944 1,000 944 ------------ 5,398 ------------ Utah - 3.7% Intermountain Power Agency Utah Power Supply Revenue 1,000 953 1,000 953 Iron Cnty. UT, Board of Ed. Sch. Bldg. Bonds, Series 1994, (MBIA) 2,500 2,675 Salt Lake City, Salt Lake Cnty. Arpt, RB Series 1993A, (FGIC) 1,000 1,031 ------------ 4,659 ------------ Virginia - 1.8% Hanover VA, IDA Hosp. RB, Mem. Regional Med. Center Proj. Series 1995, (MBIA) 2,000 2,196 ------------ Washington - 2.9% Port of Seattle WA Revenue, Series A 1,000 975 1,000 975 Tacoma WA, Electric Sys. RRB, Series 1994, (FGIC) 2,500 2,620 ------------ 3,595 ------------ West Virginia - 0.4% West Virginia Hsg. Dev. Fund Hsg. Fin. Series A 500 502 ------------ Wisconsin - 6.7% Superior WI, RRB, Midwest Energy Res. Co. Project, Series E-1991, (FGIC) 4,500 5,276 Wisconsin Hlth. & Edl. Facs. Auth. RB, Wausau Hosps., Inc. Project Series 1991B, (AMBAC) 2,000 2,143 Wisconsin State Transportation Revenue, Series B 1,000 973 1,000 973 ------------ 8,392 ------------ Puetro Rico - 1.7% Commonwealth of Puerto Rico, Elec. Pwr. Auth. RB Series B, (MBIA) 1,000 1,101 Commonwealth of Puerto Rico, Elec. Pwr. Auth. RRB Series Y, (MBIA) 500 558 Commonwealth of Puerto Rico, Hsg. Bank & Fin. Agcy. RB, (Collateralized by GNMA, FNMA & FHLMC Certificates) 500 506 ------------ 2,165 ------------ ------------ Total Long Term Investments - (cost $115,526) 20,994 120,518 ------------ ------------ Short Term Investments - 0.7% Phenix Cnty. AL, RB, Mead Coated Board, Project B, VRDN 100 100 Kansas City Kansas Industrial Revenue, PQ Corportation Project, VRDN 800 800 ------------ Total Short Term Investments - (cost $900) 900 ------------ Mutual Fund Shares - 0.7% Shares Shares ------ ----------- Federated Tax Free Obligations Fund 167 167 Dreyfus Tax Exempt Cash Management 735 735 735 735 ------------ ------------ Total Mutual Fund Shares - (cost $902) 735 902 ------------ ------------ Total Investments - (cost $117,328) 21,729 122,320 Other Assets and Liabilities (net) 260 1,798 ------------ ------------ Total Net Assets $21,989 $124,118 ============ ============
Summary of Abbreviations AMBAC - American Municipal Bond Assurance Corp. COP - Certificate of Participation FGIC - Financial Guaranty Insurance Corp. FHLMC- Federal Home Mortgage Corp. FNMA - Federal National Mortgage Association FSA - Financial Security Assurance Corp. GNMA - Government National Mortgage Association GO - General Obligation Bonds IDA - Industrial Development Authority MBIA - Municipal Bond Investors Assurance Corp. RB - Revenue Bond RRB - Revenue Refunding Bond VRDN - Variable Rate Demand Notes are payable on demand at par on no more than seven calendar day's notice given by the Fund to the issuer or other parties not affiliated with the issuer. Interest rates are determined and reset by the issuer daily or weekly depending on the terms of the security. The interest rates presented for these securities are those in effect at May 31, 1997. See Notes to Pro Forma Combining Financial Statements. Evergreen High Grade Tax Free Fund Pro Forma Combining Financial Statements (unaudited) Statement of Assets and Liabilities (000's) May 31, 1997
Evergreen Blanchard High Grade Tax Flexible Tax-Free Pro Forma Free Fund Bond Fund Adjustments Combined ------------------------------------------------------ -------------- Assets Investments at value (cost $117,327) $100,591 $21,729 $122,320 Cash 0 3 3 Interest receivable 1,898 370 2,268 Receivable for Fund shares sold 107 30 137 Prepaid expenses and other assets 27 24 51 ---------------------------------------------------------------------- Total Assets 102,623 22,156 124,779 Liabilities Dividends payable 141 109 250 Payable for Fund shares redeemed 228 14 242 Due to related parties 19 18 37 Distribution fee payable 53 0 53 Due to custodian 18 0 18 Accrued expenses and other liabilities 34 26 60 ---------------------------------------------------------------------- Total Liabilities 493 167 660 Net Assets $102,130 $21,989 $124,119 ====================================================================== Net assets are comprised of: Paid-in capital $99,067 $21,732 $120,799 Undistributed net investment income (accumulated distributions in excess of investment income) 125 (21) 104 Accumulated net realized loss on investments (1,265) (512) (1,777) Net unrealized appreciation on investments 4,203 790 4,993 ---------------------------------------------------------------------- Net Assets $102,130 $21,989 $124,119 ====================================================================== Class A Shares Net Assets $45,815 $21,989 $67,804 Shares of Beneficial Interest Outstanding 4,207 4,075 (2,054) 6,228 Net Asset Value $10.89 $5.40 $10.89 Maximum Offering Price (4.75%) $11.43 $11.43 Class B Shares Net Assets $31,874 $31,874 Shares of Beneficial Interest Outstanding 2,927 2,927 Net Asset Value $10.89 $10.89 Class Y Shares Net Assets $24,441 $24,441 Shares of Beneficial Interest Outstanding 2,245 2,245 Net Asset Value $10.89 $10.89
See Notes to Pro Forma Combining Financial Statements. Evergreen High Grade Tax Free Fund Pro Forma Combining Financial Statements (unaudited) Statement of Operations (000's) Year ended May 31, 1997
Evergreen Blanchard High Grade Tax Flexible Tax-Free Pro Forma Free Fund Bond Fund Adjustments Combined ------------------------------------------------------- ----------- Investment Income Interest income $6,010 $1,250 $7,260 Expenses Advisory fee 533 168 (57)a 644 Distribution fee 445 56 501 Administrative services fees 47 43 (33)b 57 Transfer agent fee 79 36 (16)c 99 Custodian fee 86 68 (50)b 104 Reports and notices to shareholders 46 25 (16)c 55 Registration and filing fees 67 14 (14)c 67 Professional fees 28 28 (28)c 28 Trustees' fees and expenses 5 3 (2)b 6 Other 26 24 (18)b 32 --------------------------------------------------------------------- Total Expenses 1,362 465 (234) 1,593 Less: Fee waivers and/or reimbursements (116) (240) 236 (120) --------------------------------------------------------------------- Net expenses 1,246 225 2 1,473 --------------------------------------------------------------------- Net investment income 4,764 1,025 (2) 5,787 Net realized and unrealized gain on investments: Net realized gain on investments 1,145 198 1,343 Net change in unrealized appreciation (depreciation) on investments 438 700 1,138 --------------------------------------------------------------------- Net realized and unrealized gain on investments 1,583 898 2,481 Net increase in net assets resulting from operations $6,347 $1,923 (2) $8,268 =====================================================================
a Reflects a decrease based on the surviving fund's fee schedule. b Reflects an increase (decrease) based on the combined assets of the funds. c Reflects expected cost saving from combining the two funds. See Notes to Pro Forma Combining Financial Statements. Evergreen High Grade Tax Free Fund Notes to Pro Forma Combining Financial Statements (Unaudited) May 31, 1997 1. Basis of Combination - The Pro Forma Combining Statement of Assets and Liabilities, including the Pro Forma Schedule of Investments, and the related Pro Forma Combining Statement of Operations ("Pro Forma Statements") reflect the accounts of Evergreen High Grade Tax Free Fund ("Evergreen") and Blanchard Flexible Tax-Free Bond Fund ("Blanchard") at May 31, 1997 and for the year then ended. The Pro Forma Statements give effect to the proposed Agreement and Plan of Reorganization (the "Reorganization") to be submitted to shareholders of Blanchard. The Reorganization provides for the acquisition of all assets and liabilities of Blanchard by Evergreen, in exchange for Class A shares of Evergreen. Thereafter, there will be a distribution of Class A shares of Evergreen to shareholders of Blanchard in liquidation and subsequent termination thereof. As a result of the Reorganization, the shareholders of Blanchard will become the owners of that number of full and fractional Class A shares of Evergreen having an aggregate net asset value equal to the aggregate net asset value of their shares of Blanchard as of the close of business immediately prior to the date that Blanchard assets are exchanged for Class A shares of Evergreen. The Pro Forma Statements reflect the expenses of each Fund in carrying out its obligations under the Reorganization as though the merger occurred at the beginning of the period presented. The information contained herein is based on the experience of each Fund for the year ended May 31, 1997 and is designed to permit shareholders of the combining mutual funds to evaluate the financial effect of the proposed Reorganization. The expenses of Blanchard in connection with the Reorganization (including the cost of any proxy soliciting agents) will be borne by First Union National Bank of North Carolina. The Pro Forma Statements should be read in conjunction with the historical financial statements of each Fund incorporated by reference in the Statement of Additional Information. 2. Shares of Beneficial Interest - The Pro Forma net asset values per share assume the issuance of Class A shares of Evergreen which would have been issued at May 31, 1997 in connection with the proposed Reorganization. Shareholders of Blanchard would receive Class A shares of Evergreen based on a conversion ratio determined on May 31, 1997. The conversion ratio is calculated by dividing the net asset value of Blanchard by the net asset value per share of the Class A shares of Evergreen. 3. Pro Forma Operations - The Pro Forma Combining Statement of Operations assumes similar rates of gross investment income for the investments of each Fund. Accordingly, the combined gross investment income is equal to the sum of the Funds' gross investment income. Pro Forma operating expenses include the actual expenses of the Funds adjusted to reflect the expected expenses of the combined entity. The investment advisory and distribution fees have been charged to the combined Fund based on the fee schedule in effect for Evergreen at the combined level of average net assets for the year ended May 31 , 1997. EVERGREEN INVESTMENT TRUST PART C OTHER INFORMATION Item 15. Indemnification. The response to this item is incorporated by reference to "Liability and Indemnification of Trustees" under the caption "Comparative Information on Shareholders' Rights" in Part A of this Registration Statement. Item 16. Exhibits: 1. Declaration of Trust. Incorporated by reference to Pre- Effective Amendment No. 1 to Evergreen Municipal Trust's Registration Statement on Form N-1A filed on October 8, 1997 - Registration No. 333-36033 ("Form N-1A Registration Statement"). 2. Bylaws. Incorporated by reference to Pre-Effective Amendment No. 1 to the Form N-1A Registration Statement. 3. Not applicable. 4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in Part A of this Registration Statement. 5. Declaration of Trust of Evergreen Municipal Trust Articles II., III.(6)(c), IV.(3), IV.(8), V., VI., VII. and VIII. and By-Laws Articles II., III and VIII. 6(a). Form of Investment Advisory Agreement between the Capital Management Group of First Union National Bank and Evergreen Municipal Trust. Incorporated by reference to Pre- Effective Amendment No. 2 to the Form N-1A Registration Statement. 6(b). Form of Interim Management Contract. Exhibit B to Prospectus contained in Part A of this Registration Statement. 6(c). Form of Interim Sub-Advisory Agreement. Exhibit C to Prospectus contained in Part A of this Registration Statement. 7(a). Principal Underwriting Agreement between Evergreen Distributor, Inc. and Evergreen Municipal Trust. Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-1A Registration Statement. 7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used by Evergreen Distributor, Inc. Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-1A Registration Statement. 8. Deferred Compensation Plan. Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-1A Registration Statement. 9. Custody Agreement between State Street Bank and Trust Company and Evergreen Municipal Trust. Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-1A Registration Statement. 10(a). Rule 12b-1 Distribution Plan. Incorporated by reference to Pre-Effective Amendment No. 2 to the Form N-1A Registration Statement. 10(b). Multiple Class Plan. Incorporated by reference to Pre- Effective Amendment No. 2 to the Form N-1A Registration Statement. 11. Opinion and consent of Sullivan & Worcester LLP. To be filed by amendment. 12. Tax opinion and consent of Sullivan & Worcester LLP. To be filed by amendment. 13. Not applicable. 14(a). Consent of Price Waterhouse LLP. Filed herewith. 14(b). Consent of Deloitte & Touche LLP. To be filed by amendment. 15. Not applicable. 16. Powers of Attorney. Filed herewith. 17(a). Form of Proxy Card. Filed herewith. 17(b). Registrant's Rule 24f-2 Declaration. Incorporated by reference to Registrant's Form N-1A Registration Statement filed on November 13, 1984 - Registration No. 2-94560. Item 17. Undertakings. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus that is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel or copy of an Internal Revenue Service ruling supporting the tax consequences of the proposed Reorganization within a reasonable time after receipt of such opinion or ruling. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the City of New York and State of New York, on the 2nd day of December, 1997. EVERGREEN INVESTMENT TRUST By: /s/ John J. Pileggi ---------------------- Name: John J. Pileggi Title: President As required by the Securities Act of 1933, the following persons have signed this Registration Statement in the capacities indicated on the 2nd day of December, 1997. Signatures Title - ---------- ----- /s/John J. Pileggi President and - ------------------ Treasurer John J. Pileggi /s/Laurence B. Ashkin* Trustee - --------------------- Laurence B. Ashkin /s/Charles A. Austin III* Trustee - ------------------------- Charles A. Austin III /s/K. Dun Gifford* Trustee - ----------------- K. Dun Gifford /s/James S. Howell* Trustee - ------------------ James S. Howell /s/Leroy Keith, Jr.* Trustee - ------------------- Leroy Keith, Jr. /s/Gerald M. McDonnell* Trustee - ---------------------- Gerald M. McDonnell /s/Thomas L. McVerry* Trustee - -------------------- Thomas L. McVerry /s/William Walt Pettit* Trustee - --------------------- William Walt Pettit /s/David M. Richardson* Trustee - ---------------------- David M. Richardson /s/Russell A. Salton III* Trustee - ------------------------- Russell A. Salton III /s/Michael S. Scofield* Trustee - ---------------------- Michael S. Scofield /s/Richard J. Shima* Trustee - ------------------- Richard J. Shima * By: /s/Martin J. Wolin ------------------ Martin J. Wolin Attorney-in-Fact Martin J. Wolin, by signing his name hereto, does hereby sign this document on behalf of each of the above-named individuals pursuant to powers of attorney duly executed by such persons and included as Exhibit 16 to this Registration Statement. INDEX TO EXHIBITS N-14 EXHIBIT NO. 14(a) Consent of Price Waterhouse LLP 16 Powers of Attorney 17(a) Form of Proxy - -------------------- EX-99.B14 2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference into the Prospectus/Proxy Statement (the "Prospectus/Proxy") constituting part of this Registration Statement on Form N-14 (the "Registration Statement") of Evergreen Investment Trust of our report dated July 8, 1997, related to the financial statements and financial highlights appearing in the May 31, 1997 Annual Report to Shareholders of Evergreen High Grade Tax Free Fund which is also incorporated by reference into the Registration Statement. We also consent to the reference to our firm under the heading "Financial Statements and Experts" in the Prospectus/Proxy and to the reference to our Firm under the headings "Financial Highlights" in the prospectus and "Independent Auditors" and "Financial Statements", in the Statement of Additional Information, both dated September 3, 1997, for Evergreen High Grade Tax Free Fund, which are also incorporated by reference into the Prospectus/Proxy. Price Waterhouse LLP 1177 Avenue of the Americas New York, NY 10036 December 4, 1997 EX-99.B16 3 POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Laurence B. Ashkin Director/Trustee - --------------------- Laurence B. Ashkin POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Charles A. Austin, III Director/Trustee - ------------------------- Charles A. Austin, III POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/K. Dun Gifford Director/Trustee - ----------------- K. Dun Gifford POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/James S. Howell Director/Trustee - ------------------ James S. Howell POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Leroy Keith, Jr. Director/Trustee - ------------------- Leroy Keith, Jr. POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Gerald M. McDonnell Director/Trustee - ---------------------- Gerald M. McDonnell POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Thomas L. McVerry Director/Trustee - -------------------- Thomas L. McVerry POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/William Walt Pettit Director/Trustee - ---------------------- William Walt Pettit POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/David M. Richardson Director/Trustee - ---------------------- David M. Richardson POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Russell A. Salton, III MD Director/Trustee - ---------------------------- Russell A. Salton, III MD POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Michael S. Scofield Director/Trustee - ---------------------- Michael S. Scofield POWER OF ATTORNEY I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J. Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J. Pileggi, each of them singly, my true and lawful attorneys, with full power to them and each of them to sign for me and in my name in the capacity indicated below any and all registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time all investment companies of which I am now or hereafter a Director or Trustee and for which Keystone Investment Management Company, Evergreen Asset Management Corp. or First Union National Bank of North Carolina serves as Adviser or Manager and registering from time to time the shares of such companies, and generally to do all such things in my name and on my behalf to enable such investment companies to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by my said attorneys to any and all registration statements and amendments thereto. In Witness Whereof, I have executed this Power of Attorney as of June 18, 1997. Signature Title - --------- ----- /s/Richard J. Shima Director/Trustee - ------------------- Richard J. Shima EX-99.B17 4 EVERY SHAREHOLDER'S VOTE IS IMPORTANT! THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL. PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY! Please detach at perforation before mailing. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BLANCHARD FLEXIBLE TAX-FREE BOND FUND PROXY FOR THE MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 20, 1998 The undersigned, revoking all Proxies heretofore given, hereby appoints , and or any of them as Proxies of the undersigned, with full power of substitution, to vote on behalf of the undersigned all shares of Blanchard Flexible Tax-Free Bond Fund ("Tax-Free") that the undersigned is entitled to vote at the special meeting of shareholders of Tax-Free to be held at 2:00 p.m. on Friday, February 20, 1998 at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and at any adjournments thereof, as fully as the undersigned would be entitled to vote if personally present. NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If joint owners, EITHER may sign this Proxy. When signing as attorney, executor, administrator, trustee, guardian, or custodian for a minor, please give your full title. When signing on behalf of a corporation or as a partner for a partnership, please give the full corporate or partnership name and your title, if any. Date , 199 ---------------------------------------- ---------------------------------------- Signature(s) and Title(s), if applicable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF BLANCHARD FUNDS. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE BOARD OF TRUSTEES OF BLANCHARD FUNDS RECOMMENDS A VOTE FOR THE PROPOSALS. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X 1. To approve an Agreement and Plan of Reorganization whereby Evergreen High Grade Tax Free Fund, a series of Evergreen Municipal Trust, will (i) acquire all of the assets of Tax-Free in exchange for shares of Evergreen High Grade Tax Free Fund; and (ii) assume certain identified liabilities of Tax-Free, as substantially described in the accompanying Prospectus/Proxy Statement. - ---- FOR ---- AGAINST ---- ABSTAIN 2. To approve the proposed Interim Management Contract with Virtus Capital Management, Inc. - ---- FOR ---- AGAINST ---- ABSTAIN 3. To approve the proposed Interim Sub-Advisory Agreement between Virtus Capital Management, Inc. and United States Trust Company of New York. - ---- FOR ---- AGAINST ---- ABSTAIN 4. To consider and vote upon such other matters as may properly come before said meeting or any adjournments thereof. -----END PRIVACY-ENHANCED MESSAGE-----