-----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, TaUWFrZKY3lTc8nOC8JuO8nHDDZTANXralDXTrtVEeuk+14MVFDrSeXyZGzC1wQ0 qZw1YK8YCepHI+6ijbAGjQ== 0000836375-96-000021.txt : 19961106 0000836375-96-000021.hdr.sgml : 19961106 ACCESSION NUMBER: 0000836375-96-000021 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961101 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN MUNICIPAL TRUST CENTRAL INDEX KEY: 0000836375 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05579 FILM NUMBER: 96653302 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146942020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVENUE CITY: PURCHASE STATE: NY ZIP: 10577 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: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04154 FILM NUMBER: 96653303 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 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-30D 1 EVERGREEN TAX-FREE FUNDS EVERGREEN TAX-FREE FUNDS (Photo with building with columns) (Evening sunset photo) (City view at dusk) (Photo inset of lake with high mountains and skyline) 1996 ANNUAL REPORT (Evergreen tree logo) EVERGREEN TAX-FREE FUNDS TABLE OF CONTENTS (photo with building with columns) A Review of the Past Year and Prospects for the Future.................... 1 HIGH GRADE A Report From Your Portfolio Manager...................................... 3 TAX FREE FUND Results to Date........................................................... 4 Statement of Investments.................................................. 5 Statement of Assets and Liabilities....................................... 10 Statement of Operations................................................... 11 Statement of Changes in Net Assets........................................ 12 Financial Highlights...................................................... 13
(Photo of evening sunset) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 15 MUNICIPAL FUND Results to Date........................................................... 16 Statement of Investments.................................................. 17 Statement of Assets and Liabilities....................................... 20 Statement of Operations................................................... 21 Statement of Changes in Net Assets........................................ 22 Financial Highlights...................................................... 23
(City view at dusk) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 25 MUNICIPAL Results to Date........................................................... 26 FUND-CALIFORNIA Statement of Investments.................................................. 27 Statement of Assets and Liabilities....................................... 29 Statement of Operations................................................... 30 Statement of Changes in Net Assets........................................ 31 Financial Highlights...................................................... 32
Combined Notes to Financial Statements.................................... 33 Independent Auditors' Report -- KPMG Peat Marwick LLP..................... 39 Report of Independent Accountants -- Price Waterhouse LLP................. 40
Trustees and Officers...................................... Inside Back Cover
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright 1995, Evergreen Asset Management Corp. EVERGREEN TAX-FREE FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE BY STEPHEN A. LIEBER The continued expansion of the United States (Photo of Stephen A. Lieber) economy and the persistence of inflation at 3% or less, has evidently sent mixed signals to the investment markets. The equity market this year has gone from new high to new high. The willingness of American savers to put money into the hands of equity mutual funds to buy stocks in the United States and abroad is unprecedented. Even foreign investors, who have long been skeptical of the rising prices of U.S. equities and the recent relatively higher valuations than in many other industrial countries, have begun to move heavily into U.S. equities. Only the bond market has suffered negative trends this year. But, it showed no further losses when measured from the end of the second calendar quarter to the end of the third. In contrast, it yielded modest gains early in the third quarter. Evidence of slowed final demand in many sectors of the economy has begun to reduce the fears of many investors over inflationary pressures. While confidence increases that both producer and consumer price indexes will remain in a narrow range, around 3%, apprehensions of possibly renewed inflation are now focused on the trend of hourly wages. Hourly wages have moved up slightly in the last two months. The apparent consensus among business economists currently is to expect a 2% growth rate for the U.S. economy in the second half of 1996, with a similar level to continue into 1997. These views are, in part, based on historical trends, in which the late cycle characteristics of the U.S. economy typically show economic deceleration. Such a deceleration is not widely feared, in view of the fact that real income growth is likely to be sustained by a 2% to 2 1/2% employment growth, plus a 3% to 3 1/2% earnings growth, before a 3% inflation. The appearance of such decelerating trends and their continuation would likely bring bond yields down, as the inflation premium would be removed from bond market expectations. Many who dissent from the consensus view that the economy will slow, argue that the European economies and Japan's economy are likely to revive in 1997, which will create more export demand for U.S. products and, therefore, increase our growth rate. More pessimistic observers of the American economy believe that the American consumer has overspent, as evidenced by the rising rate of credit card delinquencies, and by the "wealth effect" of a stock market achieving record highs. For the bond market, we expect that fairly stable, rather than rising, inflation, and a somewhat declining overall business rate of growth, together with a narrow range currency market, should enable a gradual decline in interest rates. Tax-exempt fixed income investment in 1996 has had comparatively better returns than taxable bond investment. Much of this difference is due to the fact that the flat tax, or sharply 1 EVERGREEN TAX-FREE FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE -- (CONTINUED) reduced income tax, advocacies of presidential candidates earlier in the year, were eliminated as concerns for tax-exempt investors. Therefore, tax-exempt bonds have risen to a normal level of relationship to taxable bonds. Further improving valuations has been the lack of major concerns over credit quality issues. Orange County California's default has fallen into memory and its credit is in the process of restoration. Other credit problems regarding certain public power facilities and the rental of municipal buildings have also been overcome. Correspondingly, the supply of new tax-exempt issues declined, especially as interest rate increases cut down the number of new issues replacing refunded bonds. The credit quality overall has been enhanced by further record gains for the use of bond insurance, while the insurers themselves have had their credit quality improved by record accumulations of earnings. In summary, the tax-exempt securities market toward the end of 1996 appears to be in a healthy condition. 2 EVERGREEN HIGH GRADE TAX FREE FUND (Photo of building with columns) A REPORT FROM YOUR PORTFOLIO MANAGER JAMES T. COLBY, III In our semiannual report in February, we pointed out the possibility of a sea change for certain indicators signaling stronger economic growth. Since that time, the market has indeed been shaped by several strong reports pointing to a very healthy economic landscape in which expectations are improving for housing, retail sales and employment. Unemployment, in fact, reached a seven-year low at 5.1% and the reports of wage gains portend, at least, healthier consumer demand if not a higher inflation rate. (Photo of James T. Colby, III) The market reaction to these developments took a predictable course, as long-term government bond yields rose from 6.36% in March to 7.15% in August, bringing a drop in price of ten points. This move was reflective of both the confusion and the concern among traders and investors over the reemergence of inflation. They feared that the Federal Reserve might raise short-term rates. Reduced employment growth and steady Consumer Price Index reports released in early fall evidently allowed the Fed to stay the course. But, a cautious policy prevails in the investment markets. Short-term rate increases are still expected by many Wall Street participants, although fewer than during the summer. As we predicted in February, the municipal marketplace, due to its excellent technical position, outperformed treasuries by a fair margin, not suffering as severe upturns or downturns which characterized the treasury market during this period. Still, yields for long-term municipals rose from 5.50% to 5.90%, a price drop of about six points. Our decision to remain in a neutral position relative to our maturities and duration of six months ago, reflected our concern for the dichotomy of opinions which existed concerning the growth of wages and employment. As is evident from the market's reaction, there was nothing to gain from assuming additional market risk. Until a clearer pattern emerges relative to future economic gains, we shall continue to maintain this neutral stance versus our benchmarks. Going forward, and from the perspective of how we felt about the market one year ago, the municipal marketplace should remain in a good technical position for the balance of this calendar year. Whereas last year, when we felt that municipals were significantly undervalued and we increased our durations, tax-exempt bonds currently are fully valued relative to Treasury Bonds and may cheapen if insurance and casualty companies who represent the demand side of the market commit less cash in coming months. We will continue our effort to base this Fund's portfolio on high quality investments with excellent after-tax returns. At fiscal year-end on August 31, 1996, 91% of the Fund's net assets were invested in bonds rated triple A by either Moody's or S&P. The Fund's weighted average maturity was 14.3 years and its duration 8.6 years. The table below illustrates the Fund's yields as of August 31. (For additional performance information, please see page 4.)
CLASS Y SHARES CLASS A SHARES CLASS B SHARES 30-Day SEC Yield 5.11% 4.62% 4.09% Tax-Equivalent Yield 7.98% 7.22% 6.39%
We look forward to reporting to you the key issues impacting the economy and the tax exempt market when we reach our semiannual reporting period next February. Thank you for choosing Evergreen High Grade Tax-Free Fund as your investment vehicle of choice. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS *BONDS ARE INSURED AS TO PAYMENT OF PRINCIPAL AND INTEREST. THE FUND ITSELF IS NOT INSURED, NOR IS THE VALUE OF ITS SHARES GUARANTEED. **TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. YIELDS FLUCTUATE. DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT-END SALES CHARGE AND CLASS B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE. 3 EVERGREEN HIGH GRADE TAX FREE FUND (Photo of building with columns) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN HIGH GRADE TAX FREE FUND The graphs below compare a $10,000 investment in the Evergreen High Grade Tax Free Fund (Class A, Class B and Class Y Shares) with a similar investment in the Lehman Brothers Insured Bond Index ("Index"). GRAPH OF CLASS A ONE YEAR TOTAL RETURN = 0.2% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 5.9% (Class A Chart appears here. Plot points are below.) 2/21/92* 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96 (Customer to fill in plot point.) GRAPH OF CLASS B ONE YEAR TOTAL RETURN = 0.6% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 4.7% (Class B Chart appears here. Plot points are below.) 1/11/93* 8/31/93 8/31/94 8/31/95 8/31/96 (Customer to fill in plot point.) GRAPH OF CLASS Y ONE YEAR TOTAL RETURN = 5.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 4.5% (Class Y Chart appears here. Plot points are below.) 2/28/94 8/31/94 2/28/95 8/31/95 2/29/96 8/31/96 (Customer to fill in plot point.) - -- EVERGREEN HIGH GRADE TAX FREE FUND _____ LEHMAN BROTHERS INSURED BOND INDEX *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B Shares, assuming full redemption on August 31, 1996; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The investment adviser is currently waiving a portion of the Fund's expenses. Had expenses not been waived, returns would have been lower. The Index is an unmanaged index and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 4 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF INVESTMENTS (Photo of building with columns) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM MUNICIPAL SECURITIES -- 96.7% ALASKA -- 1.0% $ 500 Municipality of Anchorage 1995 GO Sch. & GO Refunding Sch. Bonds, 6.00%, 10/1/14, (FGIC)............... $ 515,050 500 Municipality of Anchorage Sr. Lien Elec. RRB, (Ser. 1993), 6.20%, 12/1/13, (MBIA)............... 519,080 1,034,130 ARIZONA -- 3.5% 2,500 City of Phoenix GO Refunding Bonds, (Ser. 1995A), 6.25%, 7/1/17........................ 2,682,100 1,000 Creighton Elem. Sch. Dist. No. 14 of Maricopa Cnty. Sch. Imp. Bonds (Proj. of 1990), (Ser. C 1991), 6.50%, 7/1/07, (FGIC)................ 1,110,960 3,793,060 CALIFORNIA -- 2.9% 500 City of Big Bear Lake Dept. of Wtr. & Pwr. Wtr. RRB, 6.00%, 4/1/15, (MBIA)................ 514,130 2,000 Redevelopment Agcy. of the City of San Jose Merged Area Redev. Proj. Tax Allocation Bonds, (Ser. 1993), 6.00%, 8/1/15, (MBIA)................ 2,073,520 500 San Mateo Cnty. Joint Pwrs. Financing Auth. Lease RB (Capital Projs. Prog.), (1993 Refunding Ser. A), 6.50%, 7/1/16, (MBIA)................ 545,230 3,132,880 COLORADO -- 1.5% 1,000 Arapahoe Cnty. E-470 Pub. Auth. Capital Imp. Trust Fund Hwy. RB (E-470 Proj.) Sr. Current Interest Bonds, 7.00%, 8/31/26....................... 1,049,730 500 School Dist. No. 1 in the City & Cnty. of Denver GO Refunding Bonds (Ser. 1994A), 6.50%, 6/1/10, (MBIA)................ 552,340 1,602,070 PRINCIPAL AMOUNT (000) VALUE CONNECTICUT -- 2.7% $ 1,500 State of Connecticut Hlth. & Edl. Facs. Auth. RB, Yale-New Haven Hosp. Issue, (Ser. H), 5.70%, 7/1/25, (MBIA)................ $ 1,442,475 1,400 State of Connecticut Spec. Tax Oblig. RB (Trans. Infrastructure), (Ser. 1992B), 6.125%, 9/1/12, (MBIA)............... 1,480,066 2,922,541 FLORIDA -- 1.0% 1,000 Hillsborough Cnty. Indl. Dev. Auth. Ind. Dev. RB (Univ. Cmnty. Hosp.), (Ser. 1994), 6.50%, 8/15/19, (MBIA)............... 1,086,840 GEORGIA -- 6.7% 2,500 City of Atlanta Arpt. Facs. RB, (Ser. 1994B), 6.00%, 1/1/21, (AMBAC) (a)........... 2,465,150 500 City of Atlanta Arpt. Facs. RRB, (Ser. 1994A), 6.50%, 1/1/10, (AMBAC)............... 551,260 1,500 City of Brunswick Wtr. & Swr. Rev. Refunding & Imp. Bonds, (Ser. 1992), 6.10%, 10/1/19, (MBIA)............... 1,566,540 2,400 Municipal Elec. Auth. of Georgia Proj. One Spec. Oblig. Bonds, (Fifth Crossover Ser.), 6.50%, 1/1/17, (MBIA)................ 2,610,936 7,193,886 HAWAII -- 1.0% 1,000 State of Hawaii Arpt. Sys. RB, (Second Ser. 1990), 7.50%, 7/1/20, (FGIC)................ 1,093,190 IDAHO -- .8% 895 Idaho Hsg. Agcy. Single Family Mtge. Bonds, (1994 Ser. C-1 Sr. Bonds & Mezzanine Bonds), 6.30%, 7/1/11........................ 907,342
5 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Photo of building with columns) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM MUNICIPAL SECURITIES -- CONTINUED ILLINOIS -- 10.6% $ 2,150 City of Chicago GO Current Interest Bonds, (Proj. Ser. 1995), 6.125%, 1/1/16, (AMBAC).............. $ 2,176,101 1,250 City of Chicago Wtr. RRB, (Ser. 1993), 6.50%, 11/1/15, (FGIC)............... 1,350,312 2,000 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB (Commonwealth Edison Co. Proj.), (Ser. 1991), 7.25%, 6/1/11, (MBIA)................ 2,220,600 3,000 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB (Commonwealth Edison Co. Proj.), (Ser. 1994D), 6.75%, 3/1/15, (AMBAC)............... 3,287,640 1,750 Illinois Hlth. Facs. Auth. Hlth. Facs. RRB (SSM Hlth. Care), (Ser. 1992AA), 6.50%, 6/1/12, (MBIA)................ 1,907,465 500 Regional Trans. Auth. GO, (Ser. 1991A), 6.70%, 11/1/21, (FGIC)............... 554,165 11,496,283 INDIANA -- 6.8% 2,300 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. RB, (1993 Ser. A), 6.125%, 1/1/19, (MBIA)............... 2,316,905 Indiana Muni. Pwr. Agcy. Pwr. Supply Sys. RRB, (1993 Ser. B), 1,390 6.00%, 1/1/12, (MBIA)................ 1,449,506 1,000 6.00%, 1/1/13, (MBIA)................ 1,039,100 700 Indiana Trans. Fin. Auth. Hwy. RB, (Ser. 1992A), 6.80%, 12/1/16, (MBIA)............... 781,795 1,500 Middle Sch. Bldg. Corp. of Lawrence Township of Marion Cnty. First Mtge. Bonds, 6.875%, 7/5/11, (MBIA)............... 1,702,365 7,289,671 MAINE -- 1.1% 1,000 Maine Turnpike Auth. Turnpike RB, (Ser. 1994), 7.125%, 7/1/08, (MBIA)............... 1,157,500 MASSACHUSETTS -- 5.7% 500 Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RB, (1993 Ser. A), 6.15%, 10/1/15, (AMBAC).............. 504,945 PRINCIPAL AMOUNT (000) VALUE MASSACHUSETTS -- CONTINUED $ 5,100 Massachusetts Wtr. Res. Auth. General RB, Prerefunded @ 102, (1992 Ser. A), 6.75%, 7/15/02....................... $ 5,700,219 6,205,164 MINNESOTA -- .5% 495 Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, (1994 Ser. H), 6.70%, 1/1/18........................ 515,493 NEVADA -- 2.0% 500 Airport Auth. of Washoe Cnty. Arpt. Rev. (Tax-Exempt) Bonds, (Ser. 1996A), 5.70%, 7/1/26, (MBIA)................ 484,630 1,575 Clark Cnty. GO (Ltd. Tax) Trans. Imp. Bonds, (Ser. 1992A), 6.50%, 6/1/17, (AMBAC)............... 1,720,939 2,205,569 NEW JERSEY -- 1.1% 1,000 Atlantic Cnty. Imp. Auth. Convention Center Bonds, (Ser. 1985), 7.40%, 7/1/16, (MBIA)................ 1,188,720 NEW MEXICO -- 1.0% City of Albuquerque Arpt. RB, (Ser. 1995 A), 500 6.35%, 7/1/07, (AMBAC)............... 534,435 500 7.00%, 7/1/16, (AMBAC)............... 503,815 1,038,250 NEW YORK -- 1.4% 1,000 Dormitory Auth. of the St. of New York City Univ. Sys. Consolidated Third General Resolution RB, (1996 Ser. 1), 5.50%, 7/1/24, (MBIA) -- WI.......... 953,750 500 The Port Auth. of New York & New Jersey Consolidated Bonds Fifth Installment, (Ninety-Seventh Ser.), 6.50%, 7/15/19, (FGIC)............... 523,305 1,477,055
6 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Photo of building with columns) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM MUNICIPAL SECURITIES -- CONTINUED NORTH DAKOTA -- 2.8% $ 3,000 Mercer Cnty. Poll. Ctrl. RRB (Basin Elec. Pwr. Cooperative-Antelope Valley Unit 1 & Common Facs.), (Second 1995 Ser.), 6.05%, 1/1/19, (AMBAC)............... $ 3,004,260 OHIO -- 4.8% 1,000 Board of Ed. Beavercreek Local Sch. Dist. (Cnty. of Greene) Sch. Imp. Bonds (Unltd. Tax GO), (Ser. 1996), 6.60%, 12/1/15, (FGIC)............... 1,106,760 1,000 Board of Ed. Kings Local Sch. Dist. (City of Warren) Sch. Imp. Bonds (Unltd. Tax GO), (Ser. 1995), 7.50%, 12/1/16, (FGIC)............... 1,215,860 1,500 City of Toledo GO (Ltd. Tax) Hsg. Imp. Bonds (Macy's Proj.), (Ser. 1995A), 6.35%, 12/1/25, (MBIA)............... 1,576,815 500 Ohio Hsg. Fin. Agcy. Residential Mtge. RB (GNMA Mortgage-Backed Securities Prog.) (1995 Ser. A-2), 6.625%, 3/1/26....................... 509,270 750 State of Ohio Wtr. Dev. Auth. Wtr. Dev. RRB, (1992 Clean Wtr. Ser.), 6.00%, 12/1/16, (MBIA)............... 757,200 5,165,905 OKLAHOMA -- 1.4% 1,500 McGee Creek Auth. Wtr. RB, (Ser. 1992), 6.00%, 1/1/23, (MBIA)................ 1,554,570 PENNSYLVANIA -- 2.1% 1,000 Pennsylvania Convention Center Auth. RB, (1989 Ser. A), 6.70%, 9/1/16, (FGIC)................ 1,102,450 1,000 Philadelphia Pennsylvania Gas Wks. RRB, Prerefunded @ 102, (Thirteenth Ser.), 7.70%, 6/15/01....................... 1,145,140 2,247,590 SOUTH CAROLINA -- 4.6% 3,500 South Carolina St. Ports Auth. RB, (Ser. 1991), 6.625%, 7/1/11, (AMBAC).............. 3,690,960 PRINCIPAL AMOUNT (000) VALUE $ 1,500 South Carolina St. Pub. Svc. Auth. RRB, (1993 Ser. C), 5.00%, 1/1/18, (FGIC)................ $ 1,327,275 5,018,235 SOUTH DAKOTA -- 3.5% 3,500 South Dakota Hlth. & Edl. Facs. Auth. RRB (St. Luke's Midland Regional Med. Center Issue), (Ser. 1991), 6.625%, 7/1/11, (MBIA)............... 3,744,930 TENNESSEE -- 4.4% 500 Metropolitan Govt. of Nashville & Davidson Cnty. Wtr. & Swr. RRB, (Ser. 1993), 6.50%, 1/1/10, (FGIC)................ 550,255 1,200 The Hlth. & Edl. Facs. Board of the City of Bristol Hosp. RRB (Bristol Mem. Hosp.), (Ser. 1993), 6.75%, 9/1/07, (FGIC)................ 1,353,288 1,000 The Hlth. & Edl. Facs. Board of the Metropolitan Govt. of Nashville & Davidson Cnty. Revenue Refunding & Imp. Bonds (Meharry Med. College Proj.), 6.00%, 12/1/19, (AMBAC).............. 1,003,640 1,700 The Hlth., Edl. & Hsg. Facs. Board of the Cnty. of Knox Hosp. RRB (Fort Sanders Alliance Obligated Group), (Ser. 1993), 6.25%, 1/1/13, (MBIA)................ 1,811,469 4,718,652 TEXAS -- 3.9% 3,000 City of Austin Arpt. Sys. Prior Lien RB, (Ser. 1995A), 6.125%, 11/15/25, (MBIA)............. 2,981,490 1,000 City of Houston Wtr. Conveyance Sys. Contract COP, (Ser. 1993H), 7.50%, 12/15/14, (AMBAC)............. 1,213,670 4,195,160 UTAH -- 3.4% 2,500 Board of Ed. of Iron Cnty. Sch. Dist. GO Sch. Bldg. Bonds, (Ser. 1994), 6.40%, 1/15/12, (MBIA)............... 2,635,475
7 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Photo of building with columns) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM MUNICIPAL SECURITIES -- CONTINUED UTAH -- CONTINUED $ 1,000 Salt Lake City, Salt Lake Cnty. Arpt. RB, (Ser. 1993A), 6.00%, 12/1/12, (FGIC)............... $ 1,009,780 3,645,255 VIRGINIA -- 1.5% 1,500 Industrial Dev. Auth. of the Cnty. of Hanover Hosp. RB (Mem. Regional Med. Center Proj. at Hanover Med. Park), (Ser. 1995), 6.375%, 8/15/18, (MBIA).............. 1,602,405 WASHINGTON -- 4.2% 2,500 City of Tacoma Elec. Sys. RRB, (Ser. 1994), 6.25%, 1/1/15, (FGIC)................ 2,572,725 500 City of Tacoma Elec. Sys. RRB, (Ser. 1992), 6.25%, 1/1/11, (AMBAC)............... 519,285 1,500 The City of Seattle Muni. Light & Pwr. RB, (1995 Ser. A), 5.70%, 9/1/19, (MBIA)................ 1,459,560 4,551,570 WISCONSIN -- 6.7% 4,500 City of Superior Ltd. Oblig. RRB (Midwest Energy Res. Co. Proj.), (Ser. E-1991), 6.90%, 8/1/21, (FGIC)................ 5,128,335 2,000 Wisconsin Hlth. & Edl. Facs. Auth. RB (Wausau Hosps., Inc. Proj.), (Ser. 1991B), 6.625%, 8/15/11, (AMBAC)............. 2,133,160 7,261,495 WYOMING -- .9% 1,000 Sweetwater Cnty. Poll. Ctrl. RRB (Idaho Pwr. Co. Proj.), (Ser. 1996A), 6.05%, 7/15/26, (AMBAC).............. 986,320 PUERTO RICO -- 1.2% 250 Commonwealth of Puerto Rico GO Pub. Imp. Refunding Bonds, (Ser. 1995), 5.65%, 7/1/15, (MBIA)................ 249,118 500 Puerto Rico Elec. Pwr. Auth. Pwr. RRB, (Ser. Y), 6.50%, 7/1/06, (MBIA)................ 554,800 PRINCIPAL AMOUNT (000) VALUE PUERTO RICO -- CONTINUED $ 500 Puerto Rico Hsg. Bank & Fin. Agcy. Affordable Hsg. Mtge. Subsidy Prog. Single Family Mtge. RB, Ptf. I, 6.10%, 10/1/15, (Collaterialized by GNMA, FNMA & FHLMC Certificates)..... $ 499,965 1,303,883 TOTAL LONG-TERM MUNICIPAL SECURITIES (COST $101,119,851).................. 104,339,874 SHORT-TERM INVESTMENTS -- 3.2% FLORIDA -- .2% 200 Dade Cnty. Hlth. Facs. Auth. Hosp. RB (Maimi Children's Hosp. Proj.), (Ser. 1990), 3.90% -- VRDN (LOC: Barnett Bank of South Florida, N.A.)................. 200,000 MINNESOTA -- .6% 700 Beltrami Cnty. Envtl. Ctrl. RRB (Northwood Panelboard Co. Proj.), (Ser. 1991), 3.80% -- VRDN (LOC: Union Bank of Switzerland)......................... 700,000 NEW YORK -- .3% 300 The City of New York GO, (Fiscal 1995 Ser. B Sub-Ser. B-7), 3.80% -- VRDN (AMBAC)................ 300,000 NORTH CAROLINA -- 1.2% 400 Raleigh Durham Arpt. Auth. RRB (American Airlines Proj.), (Ser. 95A), 3.55% -- VRDN (LOC: Royal Bank of Canada).............................. 400,000 900 Raleigh Durham Arpt. Auth. RRB (American Airlines Proj.), (Ser. 95B1), 3.55% -- VRDN (LOC: Royal Bank of Canada).............................. 900,000 1,300,000 TEXAS -- .5% 600 Lone Star Arpt. Imp. Auth., Inc. Multiple Mode Demand RB (American Airlines, Inc. Proj.), (Issue A of 1984 Ser. A-2), 3.70% -- VRDN (LOC: Royal Bank of Canada).............................. 600,000
8 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Photo of building with columns) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE SHORT-TERM INVESTMENTS -- CONTINUED WYOMING -- .4% $ 400 Lincoln Cnty. Poll. Ctrl. RB (Exxon Corp.), (Ser. 1984B), 3.80% -- VRDN........................ $ 400,000 TOTAL SHORT-TERM INVESTMENTS (COST $3,500,000).................... 3,500,000 MUTUAL FUNDS -- 1.0% SHARES 1,057,000 Lehman Tax Free Money Market Fund (at net asset value) (COST $1,057,000)................... 1,057,000 TOTAL INVESTMENTS -- (COST $105,676,851).......... 100.9% 108,896,874 OTHER ASSETS AND LIABILITIES -- NET........... (.9) (995,007) NET ASSETS................... 100.0% $107,901,867
Summary of Abbreviations: COP -- Certificates of Participation FHLMC -- Federal Home Loan Mortgage Corp. FNMA -- Federal National Mortgage Association GNMA -- Government National Mortgage Association GO -- General Obligation Bonds RB -- Revenue Bonds RRB -- Revenue Refunding Bonds VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days 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 August 31, 1996. WI -- When Issued At August 31, 1996, the percentage breakdown of total investments which are insured by municipal bond insurance companies are as follows: AMBAC -- Insured by American Municipal Bond Assurance Corp................................................. 23% FGIC -- Insured by Financial Guaranty Insurance Corp................................................. 19% MBIA -- Insured by Municipal Bond Investors Assurance Corp................................................. 43% % of Total Investments Insured....................... 85% (a) -- Security of which $1,000,000 was segregated as collateral for the when issued security. See accompanying notes to financial statements. 9 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF ASSETS AND LIABILITIES (Photo of building with columns) AUGUST 31, 1996
ASSETS: Investments at value (identified cost $105,676,851)........................................................... $108,896,874 Interest receivable........................................................................................... 1,342,552 Receivable for Fund shares sold............................................................................... 100,254 Prepaid expenses.............................................................................................. 36,049 Total assets............................................................................................ 110,375,729 LIABILITIES: Payable for investments purchased............................................................................. 2,022,708 Payable for Fund shares repurchased........................................................................... 170,795 Dividends payable............................................................................................. 152,153 Accrued expenses.............................................................................................. 72,193 Accrued advisory fee.......................................................................................... 28,076 Distribution fee payable...................................................................................... 25,665 Due to custodian bank......................................................................................... 2,272 Total liabilities....................................................................................... 2,473,862 NET ASSETS....................................................................................................... $107,901,867 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $106,446,200 Undistributed net investment income........................................................................... 115,656 Accumulated net realized loss on investment transactions...................................................... (1,880,012) Net unrealized appreciation of investments.................................................................... 3,220,023 Net assets.............................................................................................. $107,901,867 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($50,569,134 4,715,330 shares of beneficial interest outstanding).............................. $ 10.72 Sales charge -- 4.75% of offering price....................................................................... .53 Maximum offering price..................................................................................... $ 11.25 Class B Shares ($32,220,447 3,004,556 shares of beneficial interest outstanding).............................. $ 10.72 Class Y Shares ($25,112,286 2,341,584 shares of beneficial interest outstanding).............................. $ 10.72
See accompanying notes to financial statements. 10 EVERGREEN HIGH GRADE TAX FREE FUND STATEMENT OF OPERATIONS (Photo of building with columns) YEAR ENDED AUGUST 31, 1996
INVESTMENT INCOME: Interest........................................................................................ $ 6,526,273 EXPENSES: Advisory fee.................................................................................... $ 575,456 Administrative personnel and services fees...................................................... 59,073 Distribution fee -- Class A Shares.............................................................. 138,927 Distribution fee -- Class B Shares.............................................................. 258,074 Shareholder services fees -- Class B Shares..................................................... 86,025 Custodian fee................................................................................... 100,816 Transfer agent fee.............................................................................. 76,905 Reports and notices to shareholders............................................................. 51,214 Registration and filing fees.................................................................... 49,627 Professional fees............................................................................... 25,849 Insurance....................................................................................... 6,034 Trustees' fees and expenses..................................................................... 3,640 Miscellaneous................................................................................... 18,763 1,450,403 Less: Advisory fee waiver....................................................................... (228,548) Net expenses.............................................................................. 1,221,855 Net investment income.............................................................................. 5,304,418 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investment transactions.................................................... 1,622,360 Net decrease in unrealized appreciation on investments.......................................... (1,135,792) Net gain on investments............................................................................ 486,568 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 5,790,986
See accompanying notes to financial statements. 11 EVERGREEN HIGH GRADE TAX FREE FUND (Photo of building with columns) STATEMENT OF CHANGES IN NET ASSETS
EIGHT MONTHS YEAR ENDED ENDED AUGUST 31, 1996 AUGUST 31, 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................................................................... $ 5,304,418 $ 3,187,579 Net realized gain on investment transactions............................................ 1,622,360 437,882 Net change in unrealized appreciation (depreciation) of investments..................... (1,135,792) 7,804,353 Net increase resulting from operations............................................... 5,790,986 11,429,814 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares.......................................................................... (2,655,984) (1,935,789) Class B Shares.......................................................................... (1,385,989) (936,437) Class Y Shares.......................................................................... (1,262,445) (315,353) Total distributions to shareholders.................................................. (5,304,418) (3,187,579) FUND SHARE TRANSACTIONS: Proceeds from shares sold............................................................... 16,695,647 3,098,389 Proceeds from shares issued in acquisition of Evergreen National Tax Free Fund.......... -- 28,779,194 Proceeds from reinvestment of distributions............................................. 3,093,850 1,826,205 Payment for shares redeemed............................................................. (30,410,409) (18,339,492) Net increase (decrease) resulting from Fund share transactions....................... (10,620,912) 15,364,296 Net increase (decrease) in net assets................................................ (10,134,344) 23,606,531 NET ASSETS: Beginning of period..................................................................... 118,036,211 94,429,680 End of period (includes undistributed net investment income of $115,656 and $22,568, respectively)......................................................................... $ 107,901,867 $ 118,036,211
See accompanying notes to financial statements. 12 EVERGREEN HIGH GRADE TAX FREE FUND FINANCIAL HIGHLIGHTS (Photo of building with columns) CLASS A SHARES
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, AUGUST 31, 1996 AUGUST 31, 1995# 1994 1993 PER SHARE DATA: Net asset value, beginning of period.................... $10.69 $9.79 $11.16 $10.42 Income (loss) from investment operations: Net investment income................................. .52 .34 .52 .54 Net realized and unrealized gain (loss) on investments......................................... .03 .90 (1.37) .81 Total from investment operations.................... .55 1.24 (.85) 1.35 Less distributions to shareholders from: Net investment income................................. (.52) (.34) (.52) (.54) Net realized gain on investments...................... -- -- -- (.07) Total distributions................................. (.52) (.34) (.52) (.61) Net asset value, end of period.......................... $10.72 $10.69 $9.79 $11.16 TOTAL RETURN+........................................... 5.2% 12.8% (7.7%) 13.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............... $50,569 $58,751 $57,676 $101,352 Ratios to average net assets: Expenses **........................................... .89% 1.06%++ 1.01% .85% Net investment income **.............................. 4.78% 4.93%++ 5.04% 4.99% Portfolio turnover rate................................. 65% 27% 53% 14% FEBRUARY 21, 1992* THROUGH DECEMBER 31, 1992 PER SHARE DATA: Net asset value, beginning of period.................... $10.00 Income (loss) from investment operations: Net investment income................................. .51 Net realized and unrealized gain (loss) on investments......................................... .42 Total from investment operations.................... .93 Less distributions to shareholders from: Net investment income................................. (.51) Net realized gain on investments...................... -- Total distributions................................. (.51) Net asset value, end of period.......................... $10.42 TOTAL RETURN+........................................... 9.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............... $90,738 Ratios to average net assets: Expenses **........................................... .49%++ Net investment income **.............................. 5.79%++ Portfolio turnover rate................................. 7%
# The Fund changed its fiscal year end from December 31 to August 31. * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge is not reflected. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were reimbursed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, AUGUST 31, 1996 AUGUST 31, 1995# 1994 1993 Expenses.......................................... 1.09% 1.09% 1.02% 1.07% Net investment income............................. 4.58% 4.90% 5.03% 4.77% FEBRUARY 21, 1992* THROUGH DECEMBER 31, 1992 Expenses.......................................... 1.11% Net investment income............................. 5.17%
See accompanying notes to financial statements. 13 EVERGREEN HIGH GRADE TAX FREE FUND FINANCIAL HIGHLIGHTS (Photo of building with columns) CLASS B AND Y SHARES
CLASS B SHARES CLASS Y SHARES EIGHT JANUARY 11, EIGHT YEAR MONTHS YEAR 1993* YEAR MONTHS ENDED ENDED ENDED THROUGH ENDED ENDED AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31, 1996 1995# 1994 1993 1996 1995# PER SHARE DATA: Net asset value, beginning of period............. $10.69 $9.79 $11.16 $10.42 $10.69 $9.79 Income (loss) from investment operations: Net investment income.......................... .44 .29 .46 .47 .55 .36 Net realized and unrealized gain (loss) on investments.................................. .03 .90 (1.37) .81 .03 .90 Total from investment operations............. .47 1.19 (.91) 1.28 .58 1.26 Less distributions to shareholders from: Net investment income.......................... (.44) (.29) (.46) (.47) (.55) (.36) Net realized gain on investments............... -- -- -- (.07) -- -- Total distributions.......................... (.44) (.29) (.46) (.54) (.55) (.36) Net asset value, end of period................... $10.72 $10.69 $9.79 $11.16 $10.72 $10.69 TOTAL RETURN+.................................... 4.4% 12.3% (8.2%) 12.4% 5.4% 13.0% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........ $32,221 $34,206 $32,435 $41,030 $25,112 $25,079 Ratios to average net assets: Expenses **.................................... 1.64% 1.81%++ 1.58% 1.35%++ .64% .81%++ Net investment income **....................... 4.03% 4.18%++ 4.47% 4.44%++ 5.03% 5.18%++ Portfolio turnover rate.......................... 65% 27% 53% 14% 65% 27% FEBRUARY 28, 1994* THROUGH DECEMBER 31, 1994 PER SHARE DATA: Net asset value, beginning of period............. $10.93 Income (loss) from investment operations: Net investment income.......................... .46 Net realized and unrealized gain (loss) on investments.................................. (1.14) Total from investment operations............. (.68) Less distributions to shareholders from: Net investment income.......................... (.46) Net realized gain on investments............... -- Total distributions.......................... (.46) Net asset value, end of period................... $9.79 TOTAL RETURN+.................................... (6.3%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........ $4,318 Ratios to average net assets: Expenses **.................................... .76%++ Net investment income **....................... 5.46%++ Portfolio turnover rate.......................... 53%
# The Fund changed its fiscal year end from December 31 to August 31. * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were reimbursed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS B SHARES CLASS Y SHARES EIGHT JANUARY 11, EIGHT YEAR MONTHS YEAR 1993* YEAR MONTHS ENDED ENDED ENDED THROUGH ENDED ENDED AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31, 1996 1995# 1994 1993 1996 1995# Expenses................................... 1.84% 1.84% 1.59% 1.57% .84% .84% Net investment income...................... 3.83% 4.15% 4.46% 4.22% 4.83% 5.15% FEBRUARY 28, 1994* THROUGH DECEMBER 31, 1994 Expenses................................... .77% Net investment income...................... 5.45%
See accompanying notes to financial statements. 14 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND (Evening sunset photo) A REPORT FROM YOUR PORTFOLIO MANAGER STEVEN C. SHACHAT The markets both elated and frustrated investors during the last six months of the Fund's fiscal year. At the start of 1996, (Photo of bond prices drifted lower in reaction to mixed economic signals, Steven C. despite the fact that the U.S. economy seemed to be following a Shachat) slow growth pattern; one generally beneficial for bonds. Beginning in March, statistics indicating strong job growth and consumers' continued willingness to spend to their debt limits and beyond, propelled the bond market to a state of heightened alert for a resurgence of inflation and a new round of interest rate increases by the Federal Reserve. Throughout the last half of the Fund's fiscal year, however, inflation remained restrained and the Fed chose not to raise or lower interest rates. As a consequence of this uncertainty over the economy's direction, yields for both municipal and treasury bonds rose, and prices declined. Long-term government bond yields have gyrated wildly in response to the shifting tone of incoming statistics but, in the end, they've remained in a fairly narrow 6 3/4% to 7 1/4% range. Municipals, aided by a declining supply of tax-free bonds and steady demand from retail buyers, outperformed treasuries. During the first half of our fiscal year, we had emphasized both ends of the Fund's limited maturity range. The shortest maturities were emphasized for lower share price volatility and longer maturities for higher yields and capital appreciation potential. We pursued this strategy because we believed that tax-free bonds with maturities in the five- to ten-year range offered the most attractive after-tax yields and total return potential of any bonds in which the Fund is permitted to invest. As market perceptions turned more tentative, emphasis was shifted to those issues bearing lesser qualities of principal volatility. At times, higher levels of cash reserves were established in order to further buffer the portfolio from the consequences of a rising interest rate environment. Throughout the second half of the Fund's fiscal year, investment decisions tended to focus on those issues bearing higher degrees of creditworthiness and strong characteristics of protection from redemption prior to maturity. These more defensive measures caused the Fund's total return to lag over this period. Overall, we continue to purchase premium bonds as they can offer us better liquidity, more upside potential, and less volatility than similar securities, such as discount bonds. In addition, diversification remains an important strategy for the Fund, allowing us to spread risk over a number of sectors and geographic areas. Lastly, the Fund's overall credit quality remains high, with over 75% of the bonds in its portfolio rated AAA and AA at fiscal year-end. The economy is at a crossroads where growth is concerned. Going forward, we anticipate continued market volatility until the future of economic growth is made more clear. We shall continue to search for attractive value by weighing the maturity characteristics, credit quality, and income potential of each bond we consider for purchase. At its fiscal year-end on August 31, 1996, Evergreen Short-Intermediate Municipal Fund's total net assets were $70 million. The table below illustrates the Fund's yields as of August 31. (For additional performance information, please see page 16.)
CLASS Y SHARES CLASS A SHARES CLASS B SHARES 30-Day SEC Yield 3.81% 3.58% 2.80% Tax-Equivalent Yield* 5.95% 5.59% 4.38%
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. YIELDS FLUCTUATE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT-END SALES CHARGE AND CLASS B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE. 15 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND (Evening sunset photo) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND The graphs below compare a $10,000 investment in the Evergreen Short-Intermediate Municipal Fund (Class A, Class B and Class Y Shares) with a similar investment in the Lehman Brothers 3 Year Municipal Bond Index ("Index"). CLASS A ONE YEAR TOTAL RETURN = 0.01% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 2.9% (Class A chart appears here. Plot points are below.) 1/3/95* 2/28/95 8/31/95 2/29/96 8/31/96 (Customer to fill in plot points) CLASS B ONE YEAR TOTAL RETURN = 2.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 1.7% (Class B chart appears here. Plot points are below.) 1/3/95* 2/28/95 8/31/95 2/29/96 8/31/96 (Customer to fill in plot points) CLASS Y ONE YEAR TOTAL RETURN = 3.3% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 4.9% (Class Y chart appears here. Plot points are below.) 11/18/91* 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96 (Customer to fill in plot points) - - - Evergreen Short-Intermediate Municipal Fund - - Lehman Brothers 3 Year Municipal Bond Index *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 3.25% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B Shares, assuming full redemption on August 31, 1996; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The Index is an unmanaged index and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 16 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF INVESTMENTS (Evening sunset photo) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM INVESTMENTS -- 98.2% ALABAMA -- 1.8% $ 1,235 City of Mobile GO RFB, (Ser. 1996), 5.50%, 2/15/00........................ $ 1,271,334 ALASKA -- 4.4% 1,045 Municipality of Anchorage GO Sch. RFB, (Ser. 1993A), 5.00%, 2/1/98 (MBIA).................. 1,055,649 1,950 North Slope Borough GO RFB, (Ser. 1988G), 7.50%, 6/30/97........................ 2,005,711 3,061,360 ARIZONA -- 1.7% 1,100 Pima Cnty. GO RFB, (Ser. 1992), 6.55%, 7/1/01......................... 1,188,418 CALIFORNIA -- 7.2% 5,000 Los Angeles Unified Sch. Dist. Tax GO RB, (Ser. B), 4.50%, 9/30/97........................ 5,025,050 COLORADO -- 2.7% 1,000 Arapahoe Cnty. GO RB, Cherry Creek Sch. Dist. No.5, (Ser. 1995A), 5.25%, 12/15/02....................... 1,027,390 865 Colorado Stud. Oblig. Board Auth. Stud. Loan RB, (Ser. 1985B), 6.125%, 12/1/98....................... 882,637 1,910,027 CONNECTICUT -- 3.0% 2,000 Conn St. Spec. Assessment Unemployment RFB, (Ser. A), 5.50%, 11/15/00....................... 2,069,560 DISTRICT OF COLUMBIA -- 2.2% 1,500 Dist. of Columbia GO RFB, (Ser. 1989B), 6.625%, 6/1/98........................ 1,552,755 GEORGIA -- 1.5% 1,000 Muni. Elec. Auth. of Georgia Pwr. RB, (Ser. 1986L), 7.50%, 1/1/98......................... 1,030,140 PRINCIPAL AMOUNT (000) VALUE HAWAII -- 3.7% $ 2,500 St. of Hawaii GO, (Ser. 1995CJ), 5.70%, 1/1/03......................... $ 2,613,150 ILLINOIS -- 2.7% 1,000 Central Lake Cnty. Joint Action Wtr. Agcy. RB, Prerefunded @ 102, (Ser. 1990A), 7.00%, 5/1/00 (AMBAC)................. 1,094,890 300 Illinois Hlth. Facs. Auth. RB, Edward Hosp. Assoc. Proj., (Ser. 1992), 6.00%, 2/15/97........................ 302,064 500 Illinois Stud. Assist. Commission Stud. Loan RB, (Ser. 1992M), 5.45%, 3/1/97......................... 503,685 1,900,639 MAINE -- 1.3% 915 Maine Edl. Loan Marketing Corp. Stud. Loan RB, (Ser. 1988A), 5.20%, 5/1/97......................... 922,476 MARYLAND -- 2.6% 635 Maryland Energy Financing Administration Solid Waste Disp. RB, Wheelabrator Wtr. Technologies Baltimore L.L.C. Projs., (Ser. 1996), 4.80%, 12/1/98........................ 636,295 1,140 Montgomery Cnty. GO Bonds Consolidated Pub. Imp. RB, (Ser. 1992A), 5.30%, 7/1/01......................... 1,177,164 1,813,459 MASSACHUSETTS -- 6.6% 1,500 City of Boston GO, (Ser. 1995A), 5.25%, 10/1/02........................ 1,538,370 1,000 Massachusetts Wtr. Poll. Abatement Trust RB, MWRA Loan Prog., (Ser. 1995A), 6.00%, 8/1/02......................... 1,059,040 New England Ed. Loan Marketing Corp. Stud. Loan RB, (Ser. 1993B), 1,000 4.75%, 7/1/98......................... 1,003,430 1,000 5.40%, 6/1/00......................... 1,014,820 4,615,660
17 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Evening sunset photo) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM INVESTMENTS -- CONTINUED MICHIGAN -- 2.2% $1,500 Detroit Sewage Disp. Sys. RB, (Ser. 1993A), 4.85%, 7/1/01......................... $ 1,509,540 MINNESOTA -- 2.9% 2,030 City of Minneapolis & Hsg. & Redev. Auth. of the City of St. Paul, Single Family Mtge. RRB, (Ser. 1996A), 5.125%, 6/1/99........................ 2,023,687 MISSOURI -- 2.1% North Kansas City Sch. Dist. GO, Direct Deposit Prog., (Ser. 1996), 710 6.70%, 3/1/00......................... 757,542 665 7.00%, 3/1/99......................... 704,421 1,461,963 NEVADA -- 1.5% 1,000 Las Vegas Valley Wtr. Dist. GO (Limited Tax) Wtr. RRB, Prerefunded @102, (Ser. 1987), 7.25%, 11/1/97........................ 1,053,360 NEW JERSEY -- 4.6% 2,000 New Jersey St. GO, (Ser. 1991), 5.90%, 8/1/02......................... 2,124,160 1,040 New Jersey St. Trans. Trust Fund Auth. Trans. Sys. Bonds, (Series 1995B), 6.00%, 6/15/01 (MBIA)................. 1,100,518 3,224,678 NEW YORK -- 1.4% 1,000 New York St. Dorm. Auth., Vasser College RB, (Ser. 1995), 4.375%, 7/1/02........................ 987,030 OHIO -- 1.4% 1,000 The Stud. Loan Funding Corp. (Cincinnati) Stud. Loan RB, (Ser. 1993A), 5.50%, 12/1/01........................ 1,016,300 OKLAHOMA -- 1.1% 750 Oklahoma Stud. Loan Auth. RRB, (Ser. 1992A), 5.35%, 9/1/96......................... 750,030 PRINCIPAL AMOUNT (000) VALUE OREGON -- 3.1% $1,125 Josephine Cnty., Sch. Dist. #007 GO, 5.00%, 6/1/99 (FGIC).................. $ 1,140,784 1,050 Multnomah Cnty., Sch. Dist. #1J GO, (Ser. 1995), 4.50%, 6/1/01......................... 1,045,936 2,186,720 PENNSYLVANIA -- 3.6% 1,950 Sayre Hlth. Care Facs. Auth. RB, Guthrie Healthcare Sys., (Ser. 1991A), 6.40%, 3/1/99 (AMBAC)................. 2,037,243 500 St. of Pennsylvania GO, (Ser. 1971), 6.00%, 12/15/98....................... 504,635 2,541,878 TEXAS -- 7.9% 1,000 Brazos Higher Ed. Auth., Inc., Stud. Loan RRB, (Ser. 1992A), 5.30%, 12/1/97........................ 1,013,220 500 City of Dallas GO, 5.90%, 2/15/01........................ 524,975 1,000 City of Houston Pub. Imp. RFB, (Ser. 1992C), 5.70%, 3/1/01......................... 1,041,390 1,300 Dallas Cnty. Imp. (Ltd. Tax) RB, (Ser. 1992A), 6.00%, 8/15/01........................ 1,379,846 1,000 Northside Independent Sch. Dist. (Unlimited Tax) GO, (Ser. 1986), 7.00%, 2/1/98......................... 1,037,360 505 San Antonio Independent Sch. Dist. Pub. Facs. Corp. RB, (Ser. 1996), 5.00%, 10/15/00 (AMBAC)............... 512,105 5,508,896 UTAH -- 4.3% 2,500 Intermountain Pwr. Agcy., Pwr. Supply RFB, (Ser. C), 6.00%, 7/1/00 (MBIA).................. 2,621,625 355 Utah Hsg. Fin. Agcy. Single Family Mtge. RRB, (Ser. 1993A), 5.20%, 1/1/01......................... 357,439 2,979,064
18 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (Evening sunset photo) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM INVESTMENTS -- CONTINUED VIRGINIA -- 8.8% $ 1,205 Chesapeake Pub. Sch. Auth. Spec. Oblig. Sch. Financing Bonds , (Ser. 1995), 5.40%, 6/1/05......................... $ 1,232,727 1,200 Chesapeake Wtr. & Swr., (Ser. 1995A), 7.00%, 12/1/01........................ 1,328,796 1,000 Virginia Beach GO Pub. Imp. & RFB, (Ser. 1994), 5.70%, 11/1/07........................ 1,031,850 1,000 Virginia Beach GO RFB, (Ser. 1992), 5.90%, 2/1/04......................... 1,057,330 1,500 Virginia Hsg. Dev. Auth. Commonwealth Mtge. Bonds, (Ser. 1992B, Subseries B-1), 6.00%, 1/1/98......................... 1,520,190 6,170,893 WASHINGTON -- 7.3% 2,000 St. of Washington GO, (Ser. 93A), 5.50%, 10/1/03........................ 2,072,240 2,950 St. of Washington GO RB, Motor Vehicle Fuel Tax, (Ser. R-92D), 5.60%, 9/1/01......................... 3,068,472 5,140,712 WISCONSIN -- 4.6% 1,000 Milwaukee GO Corporate Purpose Bonds, Pub. Imps., (Ser. BZ), 6.30%, 6/15/01........................ 1,067,850 PRINCIPAL AMOUNT (000) VALUE WISCONSIN -- CONTINUED $ 1,000 Milwaukee Metropolitan Sewage Dist. GO, (Ser. 1989A), 7.00%, 9/1/01......................... $ 1,099,150 1,000 Wisconsin St. GO RFB, (Ser. 1992), 6.00%, 5/1/02......................... 1,061,410 3,228,410 TOTAL LONG-TERM INVESTMENTS (COST $68,458,535).................... 68,757,189 SHORT-TERM INVESTMENTS -- .7% WASHINGTON -- .7% 500 Pierce Cnty. Econ. Dev. Corp. Indl. Pooled Bond Prog., (Ser. 1990), 3.80%, 9/4/96 (COST $500,000)....................... 500,000 TOTAL INVESTMENTS -- (COST $68,958,535)........ 98.9% 69,257,189 OTHER ASSETS AND LIABILITIES -- NET........ 1.1% 770,289 NET ASSETS................... 100.0% $70,027,478
Summary of Abbreviations: AMBAC -- Insured by American Municipal Bond Assurance Corp. FGIC -- Financial Guaranty Insurance Corp. GO -- General Obligations MBIA -- Municipal Bond Investors Assurance Corp. MWRA -- Municipal Water Revenue Authority RB -- Revenue Bonds RFB -- Refunding Bonds RRB -- Refunding Revenue Bonds See accompanying notes to financial statements. 19 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF ASSETS AND LIABILITIES (Evening sunset photo) AUGUST 31, 1996
ASSETS: Investments at value (identified cost $68,958,535)............................................................. $69,257,189 Interest receivable............................................................................................ 953,675 Receivable for Fund shares sold................................................................................ 32,673 Prepaid expenses............................................................................................... 26,429 Total assets............................................................................................. 70,269,966 LIABILITIES: Dividend payable............................................................................................... 100,512 Accrued expenses............................................................................................... 45,561 Payable for Fund shares repurchased............................................................................ 32,513 Due to custodian bank.......................................................................................... 28,255 Accrued advisory fee........................................................................................... 23,126 Distribution fee payable....................................................................................... 12,521 Total liabilities........................................................................................ 242,488 NET ASSETS........................................................................................................ $70,027,478 NET ASSETS CONSISTS OF: Paid-in capital................................................................................................ $70,429,530 Accumulated net realized loss on investment transactions....................................................... (700,706) Net unrealized appreciation of investments..................................................................... 298,654 Net assets............................................................................................... $70,027,478 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($27,721,798 2,750,830 shares of beneficial interest outstanding)............................... $10.08 Sales charge -- 3.25% of offering price........................................................................ .34 Maximum offering price................................................................................... $ 10.42 Class B Shares ($7,413,156 735,765 shares of beneficial interest outstanding).................................. $ 10.08 Class Y Shares ($34,892,524 3,464,011 shares of beneficial interest outstanding)............................... $ 10.07
See accompanying notes to financial statements. 20 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF OPERATIONS (Evening sunset photo) YEAR ENDED AUGUST 31, 1996
INVESTMENT INCOME: Interest.......................................................................................... $2,837,285 EXPENSES: Advisory fee...................................................................................... $ 287,149 Distribution fee -- Class A Shares................................................................ 13,347 Distribution fee -- Class B Shares................................................................ 52,375 Shareholder services fees -- Class B Shares....................................................... 17,458 Registration and filing fees...................................................................... 67,347 Custodian fee..................................................................................... 55,841 Transfer agent fee................................................................................ 55,501 Professional fees................................................................................. 27,986 Reports and notices to shareholders............................................................... 15,262 Insurance......................................................................................... 12,480 Amortization of organization expenses............................................................. 8,846 Trustees' fees and expenses....................................................................... 8,457 Miscellaneous..................................................................................... 2,788 624,837 Less: Fee waivers and expense reimbursements...................................................... (140,581) Net expenses............................................................................. 484,256 Net investment income................................................................................ 2,353,029 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments.................................................................. 161,202 Net change in unrealized appreciation of investment transactions.................................. (564,810) Net loss on investments.............................................................................. (403,608) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $1,949,421
See accompanying notes to financial statements. 21 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND STATEMENT OF CHANGES IN NET ASSETS (Evening sunset photo)
YEAR ENDED YEAR ENDED AUGUST 31, 1996 AUGUST 31, 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................................................. $ 2,353,029 $ 2,318,884 Net realized gain (loss) on investment transactions.................................... 161,202 (713,222) Net change in unrealized appreciation of investments................................... (564,810) 529,821 Net increase resulting from operations.............................................. 1,949,421 2,135,483 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares......................................................................... (541,615) (178,721) Class B Shares......................................................................... (229,080) (96,022) Class Y Shares......................................................................... (1,582,334) (2,044,141) Total distributions to shareholders................................................. (2,353,029) (2,318,884) FUND SHARE TRANSACTIONS: Proceeds from shares sold.............................................................. 37,737,994 25,128,726 Proceeds from reinvestment of distributions............................................ 1,651,747 1,923,116 Payment for shares redeemed............................................................ (22,410,625) (26,833,640) Net increase resulting from Fund share transactions................................. 16,979,116 218,202 Net increase in net assets.......................................................... 16,575,508 34,801 NET ASSETS: Beginning of year...................................................................... 53,451,970 53,417,169 End of year............................................................................ $ 70,027,478 $ 53,451,970
See accompanying notes to financial statements. 22 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND FINANCIAL HIGHLIGHTS (Evening sunset photo) CLASS A AND B SHARES
CLASS A SHARES CLASS B JANUARY 5, SHARES YEAR 1995* YEAR ENDED THROUGH ENDED AUGUST 31, AUGUST 31, AUGUST 31, 1996 1995 1996 PER SHARE DATA: Net asset value, beginning of period............................................... $10.17 $9.97 $10.17 Income from investment operations: Net investment income............................................................ .43 .30 .34 Net realized and unrealized gain (loss) on investments........................... (.09) .20 (.09) Total from investment operations............................................... .34 .50 .25 Less distributions to shareholders from net investment income...................... (.43) (.30) (.34) Net asset value, end of period................................................... $10.08 $10.17 $10.08 TOTAL RETURN+...................................................................... 3.4% 5.1% 2.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted).......................................... $27,722 $6,820 $7,413 Ratios to average net assets: Expenses**....................................................................... .80% .70%++ 1.67% Net investment income**.......................................................... 4.05% 4.32%++ 3.28% Portfolio turnover rate............................................................ 29% 80% 29% JANUARY 5, 1995* THROUGH AUGUST 31, 1995 PER SHARE DATA: Net asset value, beginning of period............................................... $9.97 Income from investment operations: Net investment income............................................................ .24 Net realized and unrealized gain (loss) on investments........................... .20 Total from investment operations............................................... .44 Less distributions to shareholders from net investment income...................... (.24) Net asset value, end of period................................................... $10.17 TOTAL RETURN+...................................................................... 4.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted).......................................... $6,050 Ratios to average net assets: Expenses**....................................................................... 1.58%++ Net investment income**.......................................................... 3.50%++ Portfolio turnover rate............................................................ 80%
* Commencement of class operations. + Total return is calculated for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were reimbursed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS A SHARES CLASS B JANUARY 5, SHARES YEAR 1995* YEAR ENDED THROUGH ENDED AUGUST 31, AUGUST 31, AUGUST 31, 1996 1995 1996 Expenses........................................................................... 1.11% 1.14% 2.07% Net investment income.............................................................. 3.74% 3.88% 2.88% JANUARY 5, 1995* THROUGH AUGUST 31, 1995 Expenses........................................................................... 2.26% Net investment income.............................................................. 2.82%
See accompanying notes to financial statements. 23 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND FINANCIAL HIGHLIGHTS -- (CONTINUED) (Evening sunset photo) CLASS Y SHARES
YEAR ENDED AUGUST 31, 1996 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of period............................................. $10.17 $10.21 $10.58 $10.33 Income from investment operations: Net investment income.......................................................... .43 .46 .47 .49 Net realized and unrealized gain (loss) on investments......................... (.10) (.04) (.32) .25 Total from investment operations............................................. .33 .42 .15 .74 Less distributions to shareholders: From net investment income..................................................... (.43) (.46) (.47) (.49) From net realized gains on investments......................................... -- -- (.03) -- In excess of net realized gain on investment................................... -- -- (.02) -- Total distributions.......................................................... (.43) (.46) (.52) (.49) Net asset value, end of period................................................. $10.07 $10.17 $10.21 $10.58 TOTAL RETURN+.................................................................... 3.3% 4.2% 1.4% 7.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................................ $34,893 $40,581 $53,417 $66,607 Ratios to average net assets: Expenses**..................................................................... .70% .74% .58% .40% Net investment income**........................................................ 4.27% 4.52% 4.54% 4.73% Portfolio turnover rate.......................................................... 29% 80% 32% 37% 1992|| PER SHARE DATA: Net asset value, beginning of period............................................. $10.00 Income from investment operations: Net investment income.......................................................... .51 Net realized and unrealized gain (loss) on investments......................... .33 Total from investment operations............................................. .84 Less distributions to shareholders: From net investment income..................................................... (.51) From net realized gains on investments......................................... -- In excess of net realized gain on investment................................... -- Total distributions.......................................................... (.51) Net asset value, end of period................................................. $10.33 TOTAL RETURN+.................................................................... 8.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................................ $54,470 Ratios to average net assets: Expenses**..................................................................... .17% Net investment income**........................................................ 4.85% Portfolio turnover rate.......................................................... 57%
|| On November 18, 1991, the Fund was changed to a diversified municipal bond fund with a fluctuating net asset value per share from a non-diversified money market fund with a stable net asset value per share. The shares outstanding at August 31, 1991 and the related per share data are restated to reflect both for a 1 for 2 reverse share split on October 30, 1991 and a 1 for 5 reverse share split on August 19, 1992. Total return calculated after November 18, 1991 reflects the fluctuation in net asset value per share. + Total return is calculated for the periods indicated and is not annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were reimbursed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS Y SHARES YEAR ENDED AUGUST 31, 1996 1995 1994 1993 Expenses......................................................................... .90% .86% .83% .81% Net investment income............................................................ 4.07% 4.40% 4.29% 4.32% 1992 Expenses......................................................................... .86% Net investment income............................................................ 4.16%
See accompanying notes to financial statements. 24 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- (City view at dusk) CALIFORNIA A REPORT FROM YOUR PORTFOLIO MANAGER STEVEN C. SHACHAT The markets both elated and frustrated investors during the last six months of the Fund's fiscal year. At the start of 1996, (Photo of bond prices drifted lower in reaction to mixed economic signals Steven C. despite the fact that the U.S. economy seemed to be following a Shachat slow growth pattern; one generally beneficial for bonds. appears here) Beginning in March, statistics indicating strong job growth and consumers' continued willingness to spend to their debt limits and beyond propelled the bond market to a state of heightened alert for a resurgence of inflation and a new round of interest rate increases by the Federal Reserve. Throughout the second half of the Fund's year, however, inflation remained restrained and the Fed chose not to raise or lower interest rates. As a consequence of this uncertainty over the economy's direction, yields of both municipal and treasury bonds rose during this period, and prices declined. Long-term government bond yields have gyrated wildly in response to the shifting tone of incoming statistics but, in the end, they've remained in a fairly narrow 6 3/4% to 7 1/4% range. Municipals, aided by a declining supply of tax-free bonds and steady demand from retail buyers, outperformed treasuries. While California's municipal bonds were unable to avoid this rapid adjustment, they were supported by the formidable technical dynamics they have enjoyed for much of the past year. In addition, as the state's economy emerged from its protracted period of retrenchment, market participants sensed a much more positive fundamental backdrop for California municipal bonds. As such, the rise in yields of California tax exempt securities was much more muted than that of their taxable counterparts. During the first half of the Fund's fiscal year, we had emphasized both ends of the Fund's limited maturity range. The shortest maturities were emphasized for lower share price volatility and longer maturities for higher yields and capital appreciation potential. We pursued this strategy because we believed that tax-free bonds with maturities in the five- to ten-year range offered the most attractive after-tax yields and total return potential of any bonds in which the Fund is permitted to invest. As market perceptions turned more tentative, emphasis was shifted to those issues bearing lesser qualities of principal volatility. At times, higher levels of cash reserves were established in order to further buffer the portfolio from the consequences of a rising interest rate environment. Throughout the period, investment decisions tended to focus on those issues bearing higher degrees of creditworthiness and strong characteristics of protection from redemption prior to maturity. These more defensive measures caused the Fund's total return to lag over the fiscal period. Overall, we continue to purchase premium bonds as they can offer us better liquidity, more upside potential and less volatility than similar securities, such as discount bonds. In addition, diversification remains an important strategy for the Fund, allowing us to spread risk over a number of sectors and geographic areas. Lastly, the Fund's overall credit quality remains high, with over 80% of the bonds in its portfolio rated AAA and AA at fiscal year-end. The economy is at a crossroads where growth is concerned. Going forward, we anticipate continued market volatility until the future of economic growth is made more clear. We shall continue to search for attractive value by weighing the maturity characteristics, credit quality, and income potential of each bond we consider for purchase. At its fiscal year-end on August 31, 1996, Evergreen Short-Intermediate Municipal Fund -- California's total net assets were $18.9 million. The Fund's 30-day SEC and tax-equivalent yields (Class Y, no-load shares) on August 31, were 3.71% and 6.51%, respectively*. (For additional performance information, please see page 26.) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET AND 11% CALIFORNIA STATE TAX BRACKET. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. YIELDS FLUCTUATE. SOME OF THE FUND'S INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS. DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AS OF AUGUST 31, 1996, THE FUND'S CLASS A SHARES AND CLASS B SHARES HAD NOT YET COMMENCED OPERATIONS. 25 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA (City view at dusk) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA The graph below compares a $10,000 investment in the Evergreen Short-Intermediate Municipal Fund -- California (Class Y Shares) with a similar investment in the Lehman Brothers 3 Year Municipal Bond Index and the Lehman Brothers 5 Year Municipal Bond Index ("Indexes"). CLASS Y ONE YEAR TOTAL RETURN = 3.2% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 4.2% (Class Y chart appears here. Plot points are below.) 10/16/92* 8/31/93 8/31/94 8/31/95 8/31/96 (Customer to fill in plot points.) - -----(black solid rule) LEHMAN BROTHERS 3 YEARS CALIFORNIA MUNICIPAL BOND INDEX - - LEHMAN BROTHERS 5 YEARS CALIFORNIA MUNICIPAL BOND INDEX - -----(green solid rule) EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA *Commencement of operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graph and the accompanying table, it has been assumed that (a) all recurring fees (including investment advisory fees) were deducted; and (b) all dividends and distributions were reinvested. The Indices are unmanaged indices and include the reinvestment of income, but do not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 26 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA STATEMENT OF INVESTMENTS (City view at dusk) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE LONG-TERM INVESTMENTS -- 93.1% $ 1,000 Burbank-Glendale-Pasadena Arpt. Auth. Arpt. RRB, (Ser. 1992), 5.00%, 6/1/98 (AMBAC)................. $ 1,014,150 500 California Statewide Cmntys. Dev. Auth. COP (Sutter Obligated Group), 5.00%, 8/15/98 (AMBAC)................ 507,340 California Hsg. Fin. Agcy. Multi-Unit Rental Hsg. RB, (1992 Ser. A), 325 5.00%, 2/1/97......................... 325,995 320 5.25%, 2/1/98......................... 322,310 320 Chino Unified Sch. Dist. GO, (Election 1975 Ser. 3), 5.25%, 2/1/97......................... 321,933 785 City & Cnty. of San Francisco General Purpose Swr. RB, Prerefunded @ 101.50, (Ser. 1988B), 7.60%, 10/1/97 (AMBAC)................ 827,272 1,090 City of Los Angeles Judgement Oblig. Bonds, (Ser. 1992-A), 5.00%, 8/1/00......................... 1,107,385 775 City of Santa Ana; California Env. Fin. Corp. COP (Santa Ana Recycling Proj.), (1996 Ser. A), 5.25%, 5/1/00 (AMBAC)................. 790,469 650 City of Santa Rosa Wastewater RRB, (1992 Ser. B), 5.10%, 9/1/98 (FGIC).................. 661,622 565 City of Santa Rosa Wastewater Svc. Facs. Dist. 1992 Refunding Imp. Bonds, 5.10%, 7/2/98 (AMBAC)................. 574,277 1,000 City of Torrance 1995 Refunding COP, 5.00%, 4/1/05 (AMBAC)................. 991,700 1,100 City of Vallejo RB (Wtr. Imp. Proj.), (1992 Ser. B), 6.00%, 11/1/98 (FGIC)................. 1,141,734 685 County of San Bernardino COP (West Valley Detention Center Proj.), Prerefunded @ 102, 7.70%, 11/1/98........................ 747,431 PRINCIPAL AMOUNT (000) VALUE $ 1,000 County of Stanislaus Refunding COP (Capital Imp. Prog.), (Ser. A of 1996), 4.50%, 5/1/02 (MBIA).................. $ 990,580 900 East Bay Muni. Util. Dist. Wtr. Sys. Subordinated RRB, (Ser. 1996), 6.00%, 6/1/01 (FGIC).................. 953,559 1,000 Los Angeles Cnty. Metropolitan Trans. Auth. Proposition C Sales Tax RB Second Sr. Bonds, (Ser. 1995-A), 5.90%, 7/1/05 (AMBAC)................. 1,068,290 450 Pico Rivera Pub. Financing Auth. 1992 RRB (Wtr. Enterprise Proj.), (Ser. A), 5.70%, 12/1/98 (FGIC)................. 464,432 Rim of the World Unified Sch. Dist. 1992 COP (Measure V Capital Projs.), 500 5.10%, 9/1/97 (AMBAC)................. 505,615 500 5.25%, 9/1/98 (AMBAC)................. 510,370 1,000 Sacramento Muni. Util. Dist. Elec. RRB, (1993 Ser. D), 5.25%, 11/15/04 (MBIA)................ 1,024,020 575 San Diego Unified Sch. Dist. Pub. Sch. Bldg. Corp. COP (1989-1991 Capital Projs.), (Ser. 1991 B), 5.90%, 7/1/97......................... 584,062 880 San Diego Cnty. Regional Trans. Commission Second Sr. Sales Tax RB (Ltd. Tax Bonds), (1992 Ser. A), 4.40%, 4/1/01 (FGIC).................. 872,265 900 State of California Various Purpose GO, 7.00%, 8/1/02 (FGIC).................. 1,004,364 300 Sunnyvale Financing Auth. Utils. RB (Solid Waste Materials Recovery & Transfer Station), (1992 Ser. B), 5.10%, 10/1/98 (MBIA)................. 305,388 TOTAL LONG-TERM INVESTMENTS (COST $17,515,707)............. 17,616,563
27 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA STATEMENT OF INVESTMENTS -- (CONTINUED) (City view at dusk) AUGUST 31, 1996
PRINCIPAL AMOUNT (000) VALUE SHORT-TERM INVESTMENTS -- 5.8% $ 900 County of Orange Irvine Coast Assessment Dist. No. 88-1 Ltd. Oblig. Imp. Bonds, 3.65% -- VRDN (LOC: Indl. Bank of Japan, Ltd., Fuji Bank, Ltd., and Mitsubishi Bank, Ltd., 1/3 each)................................. $ 900,000 200 Irvine Ranch Wtr. Dist. Constituting the Consolidated Several GO of Imp. Dist. No. 103, 105, 109, 121, 140, 161, 3(203), 221, 250, 261 & 290, (Ser. 1993A), 3.70% -- VRDN (LOC: Bank of America).............................. 200,000 TOTAL SHORT-TERM INVESTMENTS (COST $1,100,000)........ 1,100,000 TOTAL INVESTMENTS -- (COST $18,615,707)....... 98.9% 18,716,563 OTHER ASSETS AND LIABILITIES -- NET....... 1.1 198,676 NET ASSETS --............... 100.0% $18,915,239
Summary of Abbreviations: AMBAC -- Insured by American Municipal Bond Assurance Corp. COP -- Certificates of Participation FGIC -- Insured by Financial Guaranty Insurance Co. GO -- General Obligations LOC -- Letter of Credit MBIA -- Insured by Municipal Bond Investors Assurance RB -- Revenue Bonds RRB -- Refunding Revenue Bonds VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days' 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 upon the terms of the security. The interest rates presented for these securities are those in effect at August 31, 1996. See accompanying notes to financial statements. 28 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA STATEMENT OF ASSETS AND LIABILITIES (City view at dusk) AUGUST 31, 1996
ASSETS: Investments at value (identified cost $18,615,707)............................................................. $18,716,563 Interest receivable............................................................................................ 261,778 Receivable for Fund shares sold................................................................................ 10,191 Prepaid expenses............................................................................................... 868 Total assets............................................................................................. 18,989,400 LIABILITIES: Payable for Fund shares repurchased............................................................................ 39,543 Accrued expenses............................................................................................... 22,370 Dividend payable............................................................................................... 5,748 Accrued advisory fee........................................................................................... 4,838 Due to custodian bank.......................................................................................... 1,662 Total liabilities........................................................................................ 74,161 NET ASSETS........................................................................................................ $18,915,239 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $19,156,341 Accumulated net realized loss on investment transactions....................................................... (341,958) Net unrealized appreciation of investments..................................................................... 100,856 Net assets............................................................................................... $18,915,239 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($9.98 1 share of beneficial interest issued and outstanding)................................... $ 9.98 Sales charge -- 3.25% of public offering price................................................................. .34 Maximum offering price................................................................................... $ 10.32 Class B Shares ($9.98 1 share of beneficial interest issued and outstanding)................................... $ 9.98 Class Y Shares ($18,915,219 1,895,650 shares of beneficial interest issued and outstanding)................................................................................................ $ 9.98
See accompanying notes to financial statements. 29 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA STATEMENT OF OPERATIONS (City view at dusk) YEAR ENDED AUGUST 31, 1996
INVESTMENT INCOME: Interest............................................................................................ $ 959,613 EXPENSES: Advisory fee........................................................................................ $109,714 Custodian fee....................................................................................... 41,391 Transfer agent fee.................................................................................. 23,949 Professional fees................................................................................... 21,140 Reports and notices to shareholders................................................................. 8,578 Insurance........................................................................................... 6,084 Trustees' fees and expenses......................................................................... 3,787 Registration and filing fees........................................................................ 897 Miscellaneous....................................................................................... 1,897 217,437 Less: Advisory fee waiver........................................................................... (49,870) Net expenses.................................................................................. 167,567 Net investment income.................................................................................. 792,046 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investment transactions........................................................ 90,220 Net decrease in unrealized appreciation of investments.............................................. (259,661) Net loss on investments................................................................................ (169,441) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................... $ 622,605
See accompanying notes to financial statements. 30 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA (City view at dusk) STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED AUGUST 31, AUGUST 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income........................................................................ $ 792,046 $ 1,004,141 Net realized gain (loss) on investments...................................................... 90,220 (432,178) Net change in unrealized appreciation of investments......................................... (259,661) 279,942 Net increase resulting from operations................................................. 622,605 851,905 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- Class Y Shares...................................................... (792,046) (1,004,141) Net realized gains on investments -- Class Y Shares.......................................... -- (77,128) Total distributions to shareholders.................................................... (792,046) (1,081,269) FUND SHARE TRANSACTIONS: Proceeds from shares sold.................................................................... 5,889,030 8,632,605 Proceeds from reinvestment of distributions.................................................. 694,476 954,278 Payments for shares redeemed................................................................. (8,860,850) (16,428,530) Net decrease resulting from Fund share transactions.................................... (2,277,344) (6,841,647) Net decrease in net assets............................................................. (2,446,785) (7,071,011) NET ASSETS: Beginning of year............................................................................ 21,362,024 28,433,035 End of year.................................................................................. $18,915,239 $ 21,362,024
See accompanying notes to financial statements. 31 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA FINANCIAL HIGHLIGHTS (City view at dusk) CLASS Y SHARES
YEAR ENDED AUGUST 31, 1996 1995 1994 1993|| PER SHARE DATA: Net asset value, beginning of period............................................. $10.06 $10.09 $10.34 $10.00 Income from investment operations: Net investment income.......................................................... .40 .41 .43 .41 Net realized and unrealized gain (loss) on investments......................... (.08) -- (.24) .34 Total income from investment operations...................................... .32 .41 .19 .75 Less distributions to shareholders from: Net investment income.......................................................... (.40) (.41) (.43) (.41) Net realized gain on investments............................................... -- (.03) (.01) -- Total distributions.......................................................... (.40) (.44) (.44) (.41) Net asset value, end of period................................................... $9.98 $10.06 $10.09 $10.34 TOTAL RETURN+.................................................................... 3.2% 4.2% 1.8% 7.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................................ $18,915 $21,362 $28,433 $30,136 Ratios to average net assets: Expenses*...................................................................... .84% .79% .52% .30% Net investment income*......................................................... 3.97% 4.10% 4.20% 3.96% Portfolio turnover rate.......................................................... 44% 29% 12% 37% 1992|| PER SHARE DATA: Net asset value, beginning of period............................................. $10.00 Income from investment operations: Net investment income.......................................................... .33 Net realized and unrealized gain (loss) on investments......................... -- Total income from investment operations...................................... .33 Less distributions to shareholders from: Net investment income.......................................................... (.33) Net realized gain on investments............................................... -- Total distributions.......................................................... (.33) Net asset value, end of period................................................... $10.00 TOTAL RETURN+.................................................................... 3.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................................ $34,452 Ratios to average net assets: Expenses*...................................................................... .40% Net investment income*......................................................... 3.36% Portfolio turnover rate.......................................................... --
|| On October 16, 1992, the Fund was converted to a short-intermediate municipal fund with a fluctuating net asset value per share from a money market fund with a stable net asset value per share. The shares outstanding and the related per share data for the fiscal year ended August 31, 1992 are restated to reflect the 1 for 10 reverse share split on October 21, 1992. Total return calculated after October 16, 1992 reflects the fluctuation in net asset value per share. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. * Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
YEAR ENDED AUGUST 31, 1996 1995 1994 1993 Expenses................................................................... 1.09% .99% .95% .98% Net investment income...................................................... 3.72% 3.90% 3.77% 3.28% 1992 Expenses................................................................... .84% Net investment income...................................................... 2.92%
See accompanying notes to financial statements. 32 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS The Evergreen Tax-Free Funds (the "Funds") are separate series of open-end management companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Evergreen Tax-Free Funds consist of Evergreen High Grade Tax Free Fund ("High Grade"), Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate") and Evergreen Short-Intermediate Municipal Fund -- California ("California"), known collectively as the Funds. High Grade is a series of the Evergreen Investment Trust. Short-Intermediate and California are each series of the Evergreen Municipal Trust. High Grade's objective is to seek a high level of Federally tax free income that is consistent with preservation of capital. Short-Intermediate's investment objective is to achieve as high a level of current income, exempt from Federal income tax other than the Federal alternative minimum tax as is consistent with preserving capital and providing liquidity. California's investment objective is to achieve as high a level of current income exempt from Federal and California income taxes as is consistent with preserving capital and providing liquidity. Effective July 7, 1995, High Grade acquired substantially all of Evergreen National Tax-Free Fund's net assets, valued at $28,779,194 through a non-taxable exchange for 2,679,627 shares of High Grade. The net assets of Evergreen National Tax-Free Fund acquired included unrealized appreciation of $528,003. The aggregate net assets of High Grade immediately after the acquisition were $128,792,690. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. SECURITY VALUATIONS -- Municipal bonds are valued by an independent pricing service taking into consideration yield, liquidity, interest rate risk, credit quality, coupon, maturity, type of issue and any other factors or market data it deems relevant in determining valuations for normal institutional size trading units of debt securities which it believes to reflect the fair value of securities. The independent pricing service does not rely exclusively on quoted prices. Short term securities purchased with remaining maturities of sixty days or less are stated at amortized cost which approximates market value. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains or losses are determined on the identified cost basis. INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued daily. Premiums and discounts paid on securities are amortized or accreted into interest income. WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record when-issued or delayed delivery transactions on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are declared daily and paid monthly. Dividends from net realized capital gains on investments, if any, will be distributed at least annually. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from the amounts available for distribution under generally accepted accounting principles. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets. As of August 31, 1996, a reclassification has been made for High Grade to increase undistributed net investment income and accumulated net realized loss on investment transactions by $93,088. INCOME TAXES -- It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and other net income to its shareholders. Accordingly, 33 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued no provisions for Federal income or excise taxes are necessary. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. At August 31, 1996, the Funds had capital loss carryforwards as follows:
EXPIRATION 2002 2003 2004 High Grade $1,880,012 -- -- Short-Intermediate -- $267,515 $433,191 California -- -- 341,958
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of shares or to a specific fund in a trust are charged to that class or fund. Expenses common to a trust as a whole are allocated to the funds in that trust. Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. USE OF ESTIMATES -- The preparation of financial statements is in accordance with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North Carolina ("First Union") is entitled to an annual fee of .50 of 1% of High Grade's average daily net assets pursuant to an investment advisory agreement. For the year ended August 31, 1996, First Union voluntarily waived $228,548 of its advisory fee. First Union can modify or terminate this voluntary waiver at any time. Pursuant to an agreement with Short-Intermediate's and California's investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee based on Short-Intermediate's and California's average daily net assets, respectively, in accordance with the following schedule:
SHORT-INTERMEDIATE CALIFORNIA First $1 billion 0.50% 0.55 % Over $1 billion 0.45% 0.50 %
Evergreen Asset has agreed to reimburse Short-Intermediate and California to the extent that the Funds' operating expenses (including the investment advisory fee and amortization of organizational expenses but excluding interest, taxes, brokerage commissions, 12b-1 distribution and shareholder services fees and extraordinary expenses) exceed 1.00% of its average daily net assets for any fiscal year. Evergreen Asset waived $17,957 for California under this limitation. In addition, for the year ended August 31, 1996, Evergreen Asset voluntarily waived $109,619 and $31,913 of its advisory fee for Short- Intermediate and California, respectively, and voluntarily reimbursed expenses amounting to $30,962 for Short-Intermediate. Evergreen Asset can modify or terminate these voluntary waivers and reimbursements at any time. Lieber & Company, an affiliate of First Union, is the investment sub-adviser to Short-Intermediate and California. Lieber & Company is reimbursed by Evergreen Asset at no additional expense to the Funds. Evergreen Asset furnishes Short-Intermediate and California with administrative services as part of their advisory agreements and accordingly, these Funds do not pay a separate administration fee. Furman Selz LLC ("Furman Selz") is each Fund's sub-administrator. As sub-administrator, Furman Selz provides the officers of the Funds. For Short-Intermediate and California, Furman Selz' fee is paid by Evergreen Asset and is not a Fund expense. 34 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued Evergreen Asset is also High Grade's administrator and Furman Selz is the sub-administrator. Evergreen Asset's and Furman Selz' fees for High Grade are based on the average daily net assets of all of the Funds administered by Evergreen Asset for which First Union or Evergreen Asset is also the investment adviser. These fees are calculated at the following annual rates:
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.050% on the first $7 billion 0.035% on the next $3 billion 0.030% on the next $5 billion 0.020% on the next $10 billion 0.015% on the next $5 billion 0.010% in excess of $30 billion SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.0100% on the first $7 billion 0.0075% on the next $3 billion 0.0050% on the next $15 billion 0.0040% in excess of $25 billion
At August 31, 1996, assets for which Evergreen Asset was the administrator for which either Evergreen Asset or First Union was investment adviser totaled approximately $15.7 billion. PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A and Class B Shares, Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the Act (see Note 4). Under the terms of the Plans, the Funds may incur distribution-related and shareholder servicing expenses which may not exceed an annual fee of .75 of 1% for Class A Shares and 1% for Class B Shares. The payments for High Grade and Short-Intermediate for Class A Shares were voluntarily limited to .25 of 1% and .10 of 1% of average daily net assets, respectively, for the year ended August 31, 1996. No fee was charged to California's Class A and Class B Shares. In connection with their Plans, Short-Intermediate and California have entered into distribution agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz whereby Short-Intermediate and California will compensate EFD for its services at a rate which may not exceed an annual fee of .10 of 1% of Class A Share's average daily net assets and an annual fee of 1% of Class B Share's average daily net assets. A portion of the payments under Short-Intermediate's and California's Class B Plans, up to .25 of 1% of average daily net assets may constitute a shareholder service fee. EFD has entered into a Shareholder Services Agreement with First Union Brokerage Services ("FUBS"), an affiliate of First Union, whereby they will compensate FUBS for certain services provided to shareholders and/or maintenance of shareholder accounts relating to each of the Funds' Class B Shares. In connection with its Plan, High Grade entered into a distribution agreement with EFD whereby High Grade will compensate EFD for its services at a rate which may not exceed an annual fee of .25 of 1% of Class A average daily net assets and an annual fee of .75 of 1% of Class B average daily net assets. Pursuant to a Shareholder Services Agreement, High Grade compensated FUBS an annual fee of .25 of 1% of Class B average daily net assets for certain services provided to Class B shareholders. SALES CHARGES -- EFD has advised the Funds that it has retained $9,050 and $8,464 from front-end sales charges resulting from sales of Class A shares of High Grade and Short-Intermediate, respectively, during the year ended August 31, 1996. 35 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued ORGANIZATIONAL EXPENSES -- Organizational expenses of High Grade were initially borne by the Fund's former administrator. High Grade had agreed to reimburse such expenses during the five-year period following February 21, 1992, the date High Grade commenced operations. As a result of a change in the administration agreement, First Union purchased the remaining unreimbursed organizational expenses from the former administrator. As of, and for the year ended August 31, 1996, $12,752 was reimbursed and $4,554 remains to be reimbursed to First Union. NOTE 4 -- SHARES OF BENEFICIAL INTEREST The Funds have an unlimited number of $0.0001 par value shares of beneficial interest authorized, which are divided into classes designated Class A, Class B and Class Y Shares. High Grade's Class A Shares are offered with a front-end sales charge of 4.75%. Short-Intermediate's and California's Class A Shares are offered with a front-end sales charge of 3.25%. The Funds' Class B Shares are offered with a contingent deferred sales charge payable when shares are redeemed which would decline from 5% to zero depending on the period of time the shares are held. Class B Shares will automatically convert to Class A Shares seven years after the date of purchase. Each Fund's Class Y shares are sold without a sales charge and are available only to investment advisory clients of First Union and its affiliates, certain institutional investors or Class Y shareholders of record of certain other funds managed by First Union and its affiliates as of December 30, 1994. All classes have identical voting, dividend, liquidation and other rights, except that Class A and Class B Shares bear distribution expenses (see Note 3) and have exclusive voting rights with respect to their distribution plans. Transactions in shares of beneficial interest were as follows:
YEAR ENDED EIGHT MONTHS ENDED AUGUST 31, 1996 AUGUST 31, 1995 HIGH GRADE SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold.......................................................... 728,801 $ 7,875,800 95,059 $ 1,003,763 Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 369,661 3,970,157 Shares issued on reinvestment of distributions....................... 144,023 1,571,241 109,500 1,150,986 Shares redeemed...................................................... (1,652,697) (17,891,048) (967,409) (10,152,313) Net decrease......................................................... (779,873) (8,444,007) (393,189) (4,027,407) CLASS B Shares sold.......................................................... 420,508 4,595,803 112,511 1,186,133 Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 243,174 2,611,688 Shares issued on reinvestment of distributions....................... 75,686 825,507 52,945 556,311 Shares redeemed...................................................... (691,236) (7,495,373) (520,448) (5,459,057) Net decrease......................................................... (195,042) (2,074,063) (111,818) (1,104,925) CLASS Y Shares sold.......................................................... 387,417 4,224,043 85,773 908,492 Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 2,066,792 22,197,350 Shares issued on reinvestment of distributions....................... 63,909 697,102 11,174 118,908 Shares redeemed...................................................... (455,583) (5,023,987) (258,812) (2,728,122) Net increase (decrease).............................................. (4,257) (102,842) 1,904,927 20,496,628 Total net increase (decrease) resulting from Fund share transactions....................................................... (979,172) ($10,620,912) 1,399,920 $15,364,296
36 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED YEAR ENDED AUGUST 31, 1996 AUGUST 31, 1995* SHORT-INTERMEDIATE SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold.......................................................... 2,806,176 $ 28,333,550 1,438,502 $14,469,110 Shares issued on reinvestment of distributions....................... 24,978 253,579 16,308 164,891 Shares redeemed...................................................... (750,660) (7,689,314) (784,474) (7,943,982) Net decrease....................................................... 2,080,494 20,897,815 670,336 6,690,019 CLASS B Shares sold.......................................................... 291,382 2,967,713 673,520 6,777,013 Shares issued on reinvestment of distributions....................... 16,079 163,265 7,150 72,369 Shares redeemed...................................................... (166,441) (1,686,967) (85,925) (870,798) Net increase....................................................... 141,020 1,444,011 594,745 5,978,584 CLASS Y Shares sold.......................................................... 635,204 6,436,731 385,625 3,882,603 Shares issued on reinvestment of distributions....................... 121,645 1,234,903 167,271 1,685,856 Shares redeemed...................................................... (1,283,965) (13,034,344) (1,791,852) (18,018,860) Net decrease....................................................... (527,116) (5,362,710) (1,238,956) (12,450,401) Total net increase (decrease) resulting from Fund share transactions....................................................... 1,694,398 $ 16,979,116 26,125 $ 218,202
* For Class A and Class B Shares, the Fund share transaction activity reflects the period January 5, 1995 (commencement of class operations) to August 31, 1995.
YEAR ENDED YEAR ENDED AUGUST 31, 1996 AUGUST 31, 1995* CALIFORNIA SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold............................................................ -- $ -- 1 $ 10 CLASS B Shares sold............................................................ -- -- 1 10 CLASS Y Shares sold............................................................ 585,998 5,889,030 866,764 8,632,585 Shares issued on reinvestment of distributions......................... 69,176 694,476 96,132 954,278 Shares redeemed........................................................ (882,764) (8,860,850) (1,656,210) (16,428,530) Net decrease......................................................... (227,590) (2,277,344) (693,314) (6,841,667) Total net decrease resulting from Fund share transactions.............. (227,590) ($2,277,344) (693,312) ($6,841,647)
* For Class A and Class B Shares, the Fund share transaction activity reflects the initial purchase of one share in each class on December 30, 1994. Through August 31, 1996 there were no further transactions. 37 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities for the year ended August 31, 1996 were as follows:
PURCHASES SALES High Grade............ $71,766,540 $81,946,077 Short-Intermediate.... 39,120,383 14,969,043 California............ 8,180,213 9,899,142
On August 31, 1996, the aggregate cost of investments for federal tax purposes was the same as it was for financial reporting purposes. The composition of unrealized appreciation and depreciation of investment securities was as follows:
APPRECIATION DEPRECIATION NET High Grade............ $3,785,801 $565,778 $3,220,023 Short-Intermediate.... 443,159 144,505 298,654 California............ 154,356 53,500 100,856
NOTE 6 -- CONCENTRATION OF CREDIT RISK High Grade and Short-Intermediate invest in obligations issued by states, territories and possessions of the United States and by the District of Columbia, and by their political subdivisions and duly constituted authorities. The issuers' abilities to meet their obligations may be affected by economic and political developments in a specific state or region. California invests in obligations issued by the State of California and by its political subdivisions and duly constituted authorities. The issuers' abilities to meet their obligations may be affected by economic and political developments in the State of California. Certain debt obligations held by each of the Funds are entitled to the benefit of insurance, standby letters of credit or other guarantees of banks or other financial institutions. NOTE 7 -- FINANCING AGREEMENT Effective July 3, 1996, a financing agreement was put in place with all of the Evergreen Funds and their custodian, State Street Bank and Trust Company (the "Bank"). Under the agreement, the Bank is providing an unsecured line of credit facility, in the aggregate amount of $100 million ($50 million committed and $50 million uncommitted), to be accessed by the Funds for temporary or emergency purposes only and is subject to each participating Fund's borrowing restrictions. Borrowings under this facility bear interest at .75% per annum above the Bank's cost of funds as set periodically by the Bank. A commitment fee of .10% per annum will be incurred on the unused portion of the committed facility which will be allocated to all participating funds. The Funds had no outstanding borrowings during the year ended August 31, 1996. 38 INDEPENDENT AUDITORS' REPORT THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN HIGH GRADE TAX FREE FUND We have audited the accompanying statement of assets and liabilities, including the statement of investments, for Evergreen High Grade Tax Free Fund as of August 31, 1996, and the related statement of operations for the year ended August 31, 1996, the statements of changes in net assets for the year ended August 31, 1996 and the eight-month period ended August 31, 1995, and the financial highlights for each of the years or periods from February 21, 1992 (commencement of operations) through August 31, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 1996 by correspondence with the custodian and brokers. An audit also includes assessing the overall accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Evergreen High Grade Tax Free Fund as of August 31, 1996, and the results of its operations, changes in its net assets and the financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania October 16, 1996 39 REPORT OF INDEPENDENT ACCOUNTANTS TO THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND AND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA In our opinion, the accompanying Statements of Assets and Liabilities, including the Statements of Investments, and the related Statements of Operations and of Changes in Net Assets and the Financial Highlights present fairly, in all material respects, the financial position of Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Fund -- California (the "Funds"), two of the Evergreen Municipal Trust Portfolios, at August 31, 1996, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1996 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York October 18, 1996 FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED) 100% of the dividends distributed by High Grade, Short-Intermediate and California for the year ended August 31, 1996 are exempt from federal income tax other than alternative minimum tax. 40 TRUSTEES AND OFFICERS TRUSTEES: Laurence B. Ashkin* Foster Bam* James S. Howell, Chairman Robert J. Jeffries*+ Gerald M. McDonnell Thomas L. McVerry William W. Pettit Russell A. Salton, III M.D. Michael S. Scofield OFFICERS: John J. Pileggi President and Treasurer Joan V. Fiore Secretary Sheryl Hirschfeld Assistant Secretary Donald E. Brostrom Assistant Treasurer Stephen W. St. Clair Assistant Treasurer * Trustees for Evergreen Short-Intermediate Municipal Fund and Evergreen Short-Intermediate Municipal Fund -- California only. + Trustee Emeritus This brochure must be preceeded or accompanied by a prospectus of an Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money. NOT May lose value FDIC No bank guarantee INSURED Evergreen Funds Distributor, Inc. Evergreen(sm) is a Service Mark of Evergreen Asset Management Corp. Copyright 1996, Evergreen Asset Management Corp. 45244 539584 10/96 -----END PRIVACY-ENHANCED MESSAGE-----