-----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, NVHs2cPosHuGHzyhbfRBOQKkjB1FTn4w527gpEdSMjC68QPLFKCPGsxbHIrlg1RX vJ8TfqgNM3llPyx3pPTCbA== 0000907244-00-000004.txt : 20000107 0000907244-00-000004.hdr.sgml : 20000107 ACCESSION NUMBER: 0000907244-00-000004 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR FUNDS CENTRAL INDEX KEY: 0000883428 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251679376 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 333-82853 FILM NUMBER: 502032 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-06550 FILM NUMBER: 502033 BUSINESS ADDRESS: STREET 1: RIVERFRONT PLAZA STREET 2: WEST TOWER 901 E BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047823648 MAIL ADDRESS: STREET 1: RIVERFRONT PLAZA STREET 2: WEST TOWER 901 E BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 FORMER COMPANY: FORMER CONFORMED NAME: CAMBRIDGE SERIES TRUST DATE OF NAME CHANGE: 19920717 485APOS 1 MENTOR FUNDS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 2 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 3 [X] MENTOR FUNDS (Reserve Money Market Funds) (Exact Name of Registrant as Specified in Charter) 200 Berkeley Street, Boston, Massachusetts 02116-5034 (Address of Principal Executive Offices) (617) 210-3200 (Registrant's Telephone Number) The Corporation Trust Company 1209 Orange Street Wilmington, Delaware 19801 (Name and Address of Agent for Service) It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [X] 60 days after filing pursuant to paragraph (a)(i) [ ] on (date) pursuant to paragraph (a)(i) [ ] 75 days after filing pursuant to paragraph (a)(ii) [ ] on (date) pursuant to paragraph (a)(ii) of Rule 485 If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment [ ] 60 days after filing pursuant to paragraph (a)(i) [ ] on (date) pursuant to paragraph (a)(i) MENTOR FUNDS CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT This Post-Effective Amendment No. 2 to Registrant's Registration Statement No. 333-82853 and 811-06555 consists of the following pages, items of information and documents: The Facing Sheet The Contents Page PART A ------ Prospectus for Evergreen Reserve Money Market Fund (formerly Mentor Money Market Portfolio) Evergreen Reserve U.S. Government Money Market Fund (formerly Mentor U.S. Government Money Market Portfolio) Evergreen Reserve Tax-Exempt Money Market Fund (formerly Mentor Tax-Exempt Money Markt Portfolio) is contained herein. PART B ------ Statement of Additional Information for Evergreen Reserve Money Market Fund (formerly Mentor Money Market Portfolio) Evergreen Reserve U.S. Government Money Market Fund (formerly Mentor U.S. Government Money Market Portfolio) Evergreen Reserve Tax-Exempt Money Market Fund (formerly Mentor Tax-Exempt Money Market Portfolio) is contained herein. PART C ------ Exhibits Indemnification Business and Other Connections of Investment Adviser Principal Underwriter Location of Accounts and Records Undertakings Signatures RESERVE MONEY MARKET FUNDS PART A PROSPECTUS Evergreen Reserve Money Market Funds Evergreen Reserve Money Market Fund (Formerly Mentor Money Market Portfolio) Evergreen Reserve U.S. Government Money Market Fund (Formerly Mentor U.S. Government Money Market Portfolio) Evergreen Reserve Tax-Exempt Money Market Fund (Formerly Mentor Tax-Exempt Money Market Fund) Retail shares Institutional shares Prospectus, February 1, 2000 The Securities and Exchange Commission has not determined that the information in this prospectus is accurate or complete, nor has it approved or disapproved these securities. Anyone who tells you otherwise is committing a crime. 1 FUND RISK/RETURN SUMMARIES: Overview of Fund Risks 1 Evergreen Reserve Money Market Fund 2 Evergreen Reserve U.S. Government Money Market Fund 4 Evergreen Reserve Tax-Exempt Money Market Fund 6 GENERAL INFORMATION: The Funds' Investment Advisor 8 Calculating the Share Price 8 How to Choose an Evergreen Fund 9 How to Choose the Share Class That Best Suits You 8 How to Buy Shares 10 How to Redeem Shares 11 Other Services 12 The Tax Consequences of Investing in the Funds 12 Fees and Expenses of the Funds 13 Financial Highlights 15 Other Fund Practices 16 In general, Funds included in this prospectus seek to provide investors with a high rate of current income consistent with preservation of capital and maintenance of liquidity and, in the case of Evergreen Reserve Tax-Exempt Money Market Fund, such income will be exempt from federal income tax. Fund Summaries Key Each Fund's summary is organized around the following basic topics and questions: Investment Goal What is the Fund's financial objective? You can find clarification on how the Fund seeks to achieve its objective by looking at the Fund's strategy and investment policies. The Fund's Board of Trustees can change the investment objective without a shareholder vote. Investment Strategy How does the Fund go about trying to meet its goals? What types of investments does it contain? What style of investing and investment philosophy does it follow? Does it have limits on the amount invested in any particular type of security? Risk Factors What are the specific risks for an investor in the Fund? Performance How well has the Fund performed in the past year? The past five years? The past ten years? Expenses How much does it cost to invest in the Fund? What is the difference between sales charges and expenses? Reserve Money Market Funds typically rely on a combination of the following strategies: o maintaining $1.00 per share net asset value; o investing primarily in U.S. dollar-denominated high quality securities and other U.S. dollar-denominated money market instruments meeting credit criteria which the Fund's investment advisor believes present minimal credit risk. o investing in high quality, short-term money market instruments including U.S. government securities; o maintaining a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days; and o selling a portfolio investment when the investment no longer appears to meet the Fund's investment objective, when the Fund must meet redemptions, or for other investment reasons which the portfolio manager deems necessary. may be appropriate for investors who: o are seeking current income consistent with preservation of capital and maintenance of liquidity. o are seeking a conservative investment offering maximum liquidity combined with competitive yields and a portfolio consisting of only the highest quality, most liquid short-term securities. Following this overview, you will find information on each Money Market Fund's specific investment strategies and risks. Risk Factors For All Mutual Funds Please remember that mutual fund shares are: o not guaranteed to achieve their investment goal o not a deposit with a bank o not insured, endorsed or guaranteed by the FDIC or any government agency o subject to investment risks, including possible loss of your original investment Although the Reserve Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Funds. Following are some of the most important factors that may affect the value of your investment. Other factors may be described in the discussion following this overview: Interest Rate Risk When interest rates go up, the value of debt securities and certain dividend-paying stocks tends to fall. If your Fund invests a significant portion of its portfolio in debt securities or stocks purchased primarily for dividend income and, if interest rates rise, then the value of your investment may decline. When interest rates go down, interest earned by your Fund on its investments may also decline, which could cause the Fund to reduce the dividends it pays. Credit Risk The value of a debt security is directly affected by the issuer's ability to repay principal and pay interest on time. If your Fund invests in debt securities, then the value of and total return earned on your investment may decline if an issuer fails to pay an obligation on a timely basis. FUND FACTS: Goals: o High Current Income o Maintain Liquidity o Preservation of Capital Principal Investment: o High Quality Short-Term Instruments Classes of Shares Offered in this Prospectus: o Retail shares o Institutional shares Investment Advisor: o Mentor Investment Advisors, LLC NASDAQ Symbol: o None Dividend Payment Schedule: o Monthly Reserve Money Market Fund investment Goal The Fund seeks as high a rate of current income as the investment advisor believes is consistent with preservation of capital and maintenance of liquidity. investment Strategy The following supplements the investment strategies discussed in the "Overview of Fund Risks" on page 1. The Fund will invest in high quality, short-term instruments consisting of any or all of the following: U.S. Government securities, bankers' acceptances, prime commercial paper, repurchase agreements and other short-term obligations of corporate issuers. The Fund primarily invests in U.S. dollar-denominated high quality securities and other U.S. dollar-denominated money market instruments meeting credit criteria which the Fund's investment advisor believes present minimal credit risk. "High quality securities," in the case of the Money Market Funds, are (i) commercial paper or other short-term obligations rated A-1 by Standard & Poor's Ratings Services ("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's") and (ii) obligations rated AAA or AA by S&P and Aaa or Aa by Moody's at the time of investment. The Fund may invest in obligations of foreign issuers and in bank certificates of deposit and bankers' acceptances payable in U.S. dollars and issued by foreign banks (including U.S. branches of foreign banks) or by foreign branches of U.S. banks. Risk Factors Your investment in the Fund is subject to the risks discussed in the "Overview of Fund Risks" on page 1 under the headings: o Interest Rate Risk o Credit Risk If your Fund invests in non-U.S. securities it could be exposed to certain unique risks of foreign investing. For example, political turmoil and economic instability in the countries in which the Fund invests could adversely affect the value of your investment. Certain foreign countries have less developed and less regulated securities markets and accounting systems than the U.S. This may make it harder to get accurate information about a security or company, and increase the likelihood that an investment will not perform as well as expected. For further information regarding the Fund's investment strategy and risk factors see "Other Fund Practices." Performance The following charts show how the Fund has performed in the past. Past performance is not an indication of future results. The chart below shows the percentage gain or loss for Institutional shares of the Fund in each calendar year since its inception on 11/19/1997. It should give you a general idea of how the Fund's return has varied from year-to-year. This graph includes the effects of Fund expenses. Year-by-Year Total Return for Institutional Shares (%) 1998 1999 5.39% Best Quarter: 3rd Quarter 1998 1.35% Worst Quarter: 1st Quarter 1999 1.15% This next table lists the Fund's average annual total return by class over the past year and since inception (through 12/31/1999). This table is intended to provide you with some indication of the risks of investing in the Fund. Average Annual Total Return (for the period ended 12/31/1999)* Inception Performance Date of Class 1 year 5 year 10 year Since 11/19/1997 Retail shares 10/15/1998 % NA NA % Institutional 11/19/1997 % NA NA % shares *Historical performance shown for the Retail shares prior to its inception is based on the performance of the Institutional shares, the original class offered. These historical returns for the Retail shares have not been adjusted to reflect the effect of the Class' 0.38% 12b-1 fee. The Institutional shares do not pay a 12b-1 fee. If these fees had been reflected, returns would have been lower. To obtain current yield information call 1-800-343-2898. EXPENSES This section describes the fees and expenses you would pay if you bought and held shares of the Fund. You pay no shareholder transaction fees. Annual Fund Operating Expenses (expenses that are deducted from Fund assets) + Management 12b-1 Other Total Fund Fees Fees Expenses Operating Expenses Retail shares 0.17% 0.38% 0.27% 0.82% Institutional 0.17% 0.00% 0.10% 0.27% Shares + Restated to reflect current fees for the fiscal year ended 9/30/1999. The table below shows the total expenses you would pay on a $10,000 investment over one and three year periods. The example is intended to help you compare the cost of investing in this Fund versus other mutual funds and is for illustration only. The example assumes a 5% average annual return and that you reinvest all of your dividends. Your actual costs may be higher or lower. Example of Fund Expenses Assuming Redemption at End of Period After: Retail shares Institutional shares 1 year $ 84 $ 28 3 years $ 262 $ 87 5 years $ 455 $ 152 10 years $ 1,014 $ 343 FUND FACTS: Goals: o High Current Income o Maintain Liquidity o Preservation of Capital Principal Investment: o U.S. Government Securities Classes of Shares Offered in this Prospectus: o Retail shares o Institutional shares Investment Advisor: o Mentor Investment Advisors, LLC NASDAQ Symbol: o None Dividend Payment Schedule: o Monthly Reserve U.S. Government Money Market Fund investment Goal The Fund seeks as high a rate of current income as is consistent with preservation of capital and maintenance of liquidity . investment Strategy The following supplements the investment strategies discussed in the "Overview of Fund Risks" on page 1. The Fund invests exclusively in short-term obligations of the U.S. Government, its agencies, or instrumentalities and repurchase agreements with respect to such obligations. Short-term U.S. Government obligations generally are considered among the safest short-term investments. Because of their added safety, the yields available from U.S. Government obligations are generally lower than the yields available from comparable corporate debt securities. The U.S. Government guarantee of securities owned by the Fund does not guarantee the net asset value of the Fund's shares, which the Fund seeks to maintain at $1.00 per share. Risk Factors Your investment in the Fund is subject to the risks discussed in the "Overview of Fund Risks" on page 1 under the headings: o Interest Rate Risk o Credit Risk For further information regarding the Fund's investment strategy and risk factors see "Other Fund Practices." Performance The following charts show how the Fund has performed in the past. Past performance is not an indication of future results. The chart below shows the percentage gain or loss for Institutional shares of the Fund in each calendar year since inception. It should give you a general idea of how the Fund's return has varied from year-to-year. This graph includes the effects of Fund expenses. Year-by-Year Total Return for Institutional Shares (%) 1998 1999 5.28% Best Quarter: 1st Quarter 1999 1.35% Worst Quarter: 4th Quarter 1997 1.14% This next table lists the Fund's average annual total return by class over the past year and since inception (through 12/31/1999). This table is intended to provide you with some indication of the risks of investing in the Fund. Average Annual Total Return (for the period ended 12/31/1999)* Inception Performance Since Date of Class 1 year 5 year 10 year 11/19/1997 Retail shares 10/15/1998 % N/A N/A % Institutional 6/27/1997 % N/A N/A % shares * Historical performance shown for the Retail shares prior to its inception is based on the performance of the Institutional shares, the original class offered. These historical returns for the Retail shares have not been adjusted to reflect the effect of the Class' 0.38% 12b-1 fee. The Institutional shares do not pay a 12b-1 fee. If these fees had been reflected, returns would have been lower. EXPENSES This section describes the fees and expenses you would pay if you bought and held shares of the Fund. You pay no shareholder transaction fees. Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+ Management 12b-1 Other Total Fund Fees Fees Expenses Operating Expenses Retail shares 0.17% 0.38% 0.26% 0.81% Institutional 0.17% 0.00% 0.11% 0.28% shares +Restated to reflect current fees for the fiscal year ended 9/30/1999. The table below shows the total expenses you would pay on a $10,000 investment over one and three year periods. The example is intended to help you compare the cost of investing in this Fund versus other mutual funds and is for illustration only. The example assumes a 5% average annual return and that you reinvest all of your dividends. Your actual costs may be higher or lower. Example of Fund Expenses Assuming Redemption at End of Period After: Retail shares Institutional shares 1 year $ 83 $ 29 3 years $ 259 $ 90 5 years $ 450 $ 157 10 years $ 1,002 $ 356 FUND FACTS: Goals: o High Current Income Exempt from Federal Income Tax o Maintain Liquidity o Preservation of Capital Principal Investment: o Tax-Exempt Securities Class of Shares Offered in this Prospectus: o Retail shares Investment Advisor: o Mentor Investment Advisors, LLC NASDAQ Symbol: o None Dividend Payment Schedule: o Monthly Reserve Tax-Exempt Money Market Fund investment Goal The Fund seeks as high a rate of current income exempt from federal income tax as the investment advisor believes is consistent with preservation of capital and maintenance of liquidity. investment Strategy The following supplements the investment strategies discussed in the "Overview of Fund Risks" on page 1. The Fund invests, as a fundamental policy, at least 80% of its net assets in tax-exempt securities such as: municipal notes, municipal bonds, municipal securities backed by the U.S. government or any of its agencies or instrumentalities and tax-exempt commercial paper. Tax-exempt securities are debt obligations issued by a state (including the District of Columbia), a U.S. territory or possession, or any of their political subdivisions, the interest from which is, in the opinion of bond counsel, exempt from federal income tax including the alternative minimum tax. The two principal classifications of tax-exempt securities are general obligation and special obligation (or revenue) securities. General obligation securities involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Special obligations are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source and generally are not payable from the unrestricted revenues of the issuer. The Fund may temporarily invest up to 100% of its assets in high quality money market instruments in response to adverse economic, political or market conditions. This strategy is inconsistent with the Fund's principal investment strategy and investment goal, and if employed could result in a lower return and loss of market opportunity. Risk Factors Your investment in the Fund is subject to the risks discussed in the "Overview of Fund Risks" on page 1 under the headings: o Interest Risk o Credit Risk For further information regarding the Fund's investment strategy and risk factors see "Other Fund Practices." PERFORMANCE The following charts show how the Fund has performed in the past. Past performance is not an indication of future results. The chart below shows the percentage gain or loss for Retail shares of the Fund in each calendar year since inception on 10/16/1998. It should give you a general idea of how the Fund's return has varied from year-to-year. This graph includes the effects of Fund expenses. Year-by-Year Total Return for Retail Shares (%) 1998 1999 N/A Best Quarter: 3rd Quarter 1999 0.64% Worst Quarter: 1st Quarter 1999 0.56% This next table lists the Fund's average annual total return by class over the past year and since inception (through 12/31/1999). This table is intended to provide you with some indication of the risks of investing in the Fund. Average Annual Total Return (for the period ended 12/31/1999)* Inception Performance Since Date of Class 1 year 5 year 10 year 10/16/1998 Retail shares 10/16/1998 NA NA NA % To obtain current yield information call 1-800-343-2898. EXPENSES This section describes the fees and expenses you would pay if you bought and held shares of the Fund. You pay no shareholder transaction fees. Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+ Management 12b-1 Other Total Fund Fees Fees Expenses Operating Expenses Retail shares0.21% 0.33% 0.20% 0.74% The table below shows the total expenses you would pay on a $10,000 investment over one and three year periods. The example is intended to help you compare the cost of investing in this Fund versus other mutual funds and is for illustration only. The example assumes a 5% average annual return and that you reinvest all of your dividends. Your actual costs may be higher or lower. Example of Fund Expenses Assuming Redemption at End of Period After: Retail shares 1 year $ 76 3 years $ 237 5 years $ 411 10 years $ 918 The Funds' Investment Advisor The investment advisor manages a Fund's investments and supervises its daily business affairs. There is one investment advisor for the Evergreen Reserve Money Market Funds. All investment advisors for the Evergreen Funds are subsidiaries of First Union Corporation, the sixth largest bank holding company in the United States, with over $XXX billion in consolidated assets of X/X/1999. First Union Corporation is located at 301 South College Street, Charlotte, North Carolina 28288-0013. Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment advisor to the Funds. Mentor Advisors currently serves as investment advisor to ____ Evergreen Funds and currently has over $15 billion in assets under management. Mentor Advisors is located at 901 East Byrd Street, Richmond, Virginia 23219. For the fiscal year ended 9/30/1999, the aggregate advisory fee paid to Mentor Advisors by the Funds were as follows: % of the Fund's average Fund daily net assets Reserve Money Fund 0.17% Reserve U.S. Government Fund 0.17% Reserve Tax-Exempt Fund 0.21% Calculating The Share Price The value of one share of a Fund, also known as the net asset value, or NAV, is calculated twice daily on each day the New York Stock Exchange is open at 12 noon (Eastern time) and as of the time the Exchange closes (normally 4 p.m. Eastern time). The Fund calculates its share price for each share by adding up its total assets, subtracting all liabilities, then dividing the result by the total number of shares outstanding. Each class of shares is calculated separately. Each security held by a Fund is valued on an amortized cost basis according to Rule 2a-7 under the Investment Company Act of 1940. Under this method of valuation, a security is initially valued at its acquisition cost, and thereafter a constant straightline amortization of any discount or premium is assumed each day regardless of the impact of fluctuating interest rates on the market value of the security. The price per share for a Fund purchase or the amount received for a Fund redemption is based on the next price calculated after the order is received and all required information is provided. The value of your account at any given time is the lates share price multiplied by the number of shares you own. How To Choose AN EVERGREEN Fund When choosing an Evergreen Fund, you should: o Most importantly, read the prospectus to see if the Fund is suitable for you. o Consider talking to an investment professional. He or she is qualified to give you investment advice based on your investment goals and financial situation and will be able to answer questions you may have after reading the Fund's prospectus. He or she can also assist you through all phases of opening your account. o Request any additional information you want about the Fund, such as the Statement of Additional Information, Annual Report or Semi-annual Report by calling 1-800-343-2898. In addition, any of these documents, with the exception of the SAI, may be downloaded off our website at www.evergreen-funds.com. How To Choose The Share Class That Best Suits You After choosing a Fund, you select a share class. Each Funds in this prospectus offers up to two different share classes: Retail and Institutional shares. Pay particularly close attention to the fee structure of each class so you know how much you will be paying before you invest. Retail shares Each Fund offers Class Retail shares at net asset value without an initial sales charge or deferred sales charge. Class Retail shares are subject to 12b-1 fees. There is no minimum investment required. Institutional shares Each Fund (except Reserve Tax-Exempt Money Market Fund) offers Class Institutional shares at net asset value without an initial sales charge, deferred sales charge or 12b-1 fees. Investors will be required to make minimum initial investments of $500,000 and minimum subsequent investments of $25,000. Investments made through advisory accounts maintained with investment advisers registered under the Investment Advisors Act of 1940, as amended (including "wrap" accounts), are not subject to these minimum investment requirements. The Portfolios reserve the right at any time to change the initial and subsequent investment minimums required of investors. How To Buy Shares Once you decide on an amount and a share class, simply fill out an application and send in your payment, or talk to your investment professional.
Method Opening an Account Adding to an Account By Mail or through o Complete and sign the account application. o Make your check payable to an Investment o Make the check payable to Evergreen Funds. Evergreen Funds. Professional o Mail the application and your check to the address o Write a note specifying: below: - The Fund name Evergreen Service Company Overnight Address: - Share class P.O. Box 2121 Evergreen Service Company - Your account number Boston, MA 02106-2121 200 Berkeley Street - The name(s) in which the account is Boston, MA 02106-2121 Boston, MA 02116-5039 registered. o Mail to the address to the left or o Or deliver them to your investment o Or deliver them to your investment representative representative (provided he or she has a broker/dealer arrangement with EDI). By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express Line at and get wiring instructions (call before 12 noon if 1-800-346-3858 24 hours a day or you want wired funds to be credited that day). 1-800-343-2898 between 8 a.m. and 6 o Instruct your bank to wire or transfer your p.m. Eastern time, on any business purchase (they may charge a wiring fee). day. o Complete the account application and mail to: o If your bank account is set up on Evergreen Service Company Overnight Address: file, you can request either: P.O. Box 2121 Evergreen Service Company - Federal Funds Wire (offers Service Company 200 Berkeley Street immediate access to funds) or Boston, MA 02106-2121 Boston, MA 02116-5039 - Electronic transfer through the Automated Clearing House which avoids wiring fees. o Wires received after 4 p.m. Eastern time on market trading days will receive the next market day's closing price.* By Exchange o You can make an additional investment by exchange from an existing Evergreen Fund's account by contacting your investment representative or calling the Evergreen Express Line at 1-800-346-3858.** o You can only exchange shares within the same class. o There is no sales charge or redemption fee when exchanging Funds within the Evergreen Funds family.*** o Orders placed before 4 p.m. Eastern time on market trading days will receive that day's closing share price (if not, you will receive the next market day's closing price).* o Exchanges are limited to three per calendar quarter, but in no event more than five per calendar year. o Exchanges between accounts which do not have identical ownership must be made in writing with a signature guarantee (see below). Systematic o You can transfer money automatically from your bank account Investment Plan into your Fund on a monthly basis. (SIP) o Initial investment minimum is $50 if you invest at least $25 (Retail shares per month with this service. Only) o To enroll, check off the box on the account application and provide: - Your bank account information - The amount and date of your monthly investment.
* The Fund's shares may be made available through financial service firms which are also investment dealers and which have a service agreement with EDI. The Fund has approved the acceptance of purchase and repurchase request orders effective as of the time of their receipt by certain authorized financial intermediaries. ** Once you have authorized either the telephone exchange or redemption service, anyone with a Personal Identification Number (PIN) and the required account information (including your broker) can request a telephone transaction in your account. All calls are recorded or monitored for verification, recordkeeping and quality-assurance purposes. The Evergreen Funds reserve the right to terminate the exchange privilege of any shareholder who exceeds the listed maximum number of exchanges, as well as to reject any large dollar exchange if placing it would, in the judgment of the portfolio manager, adversely affect the price of the Fund. *** This does not apply to exchanges from Class A shares of an Evergreen Money Market Fund. How To Redeem Shares We offer you several convenient ways to redeem your shares in any of the Evergreen Funds: Methods Requirements Call Us o Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-2898 between 8 a.m. and 6 p.m. Eastern time, on any business day. o This service must be authorized ahead of time, and is only available for regular accounts.** o All authorized requests made before 4 p.m. Eastern time on market trading days will be processed at that day's closing price. Requests after 4 p.m. will be processed the following business day.* o We can either: - wire the proceeds into your bank account (service charges may apply) - electronically transmit the proceeds to your bank account via the Automated Clearing House service - mail you a check. o All telephone calls are recorded for your protection. We are not responsible for acting on telephone orders we believe are genuine. o See exceptions list below for requests that must be made in writing. Write Us o You can mail a redemption request to: Evergreen Service Company Overnight Address: P.O. Box 2121 Evergreen Service Company Boston, MA 02106-2121 200 Berkeley St. Boston, MA 02116-5039 o Your letter of instructions must: - list the Fund name and the account number - indicate the number of shares or dollar value you wish to redeem - be signed by the registered owner(s). o See exceptions list below for requests that must be signature guaranteed. o To redeem from an IRA or other retirement account, call 1-800-343-2898 for a special application. Sell Your o You may also redeem your shares through participating broker-dealers Shares in by delivering a letter as Shares in Person described above to your Person broker-dealer. o A fee may be charged for this service. Systematic o You can transfer money automatically from your Fund account on a Withdrawal monthly or quarterly basis Withdrawal without redemption fees. Plan (SWP) Plan (SWP) o The withdrawal can be mailed to you, or deposited directly to your bank account. (Retail shares (Retail shares o The minimum is $75 per month. Only) o The maximum is 1% of your account per month or 3% per quarter. o To enroll, call 1-800-343-2898 for an application. Timing of Proceeds Normally, we will send your redemption proceeds on the next business day after we receive your request; however, we reserve the right to wait up to seven business days to redeem any investments made by check and five business days for investments made by Automated Clearing House transfer. We also reserve the right to redeem in kind by paying you the proceeds of a redemption in securities rather than in cash, and to redeem the remaining amount in the account if your redemption brings the account balance below the initial minimum of $1,000. Exceptions: Redemption Requests That Require A Signature Guarantee To protect you and the Evergreen Funds against fraud, certain redemption requests must be made in writing with your signature guaranteed. A signature guarantee can be obtained at most banks and securities dealers. A notary public is not authorized to provide a signature guarantee. The following circumstances require signature guarantees: o You are redeeming more than $50,000. (Retail shares Only) o You want the proceeds transmitted to a bank account not listed on the account. Who Can Provide A Signature o You want the proceeds payable to anyone other than the registered owner(s) of Guarantee: the account. o Commercial Bank o Either your address or the address of your bank account has been changed within o Trust Company 30 days. o Savings Association o The account is registered in the name of a fiduciary corporation or any other o Credit Union organization. o Member of a U.S. stock In these cases, additional documentation is required: (Retail shares Only) exchange corporate accounts: certified copy of corporate resolution fiduciary accounts: copy of the power of attorney or other governing document
* The Fund's shares may be made available through financial service firms which are also investment dealers and which have a service agreement with EDI. The Fund has approved the acceptance of purchase and repurchase request orders effective as of the time of their receipt by certain authorized financial intermediaries. ** Once you have authorized either the telephone exchange or redemption service, anyone with a Personal Identification Number (PIN) and the required account information (including your broker) can request a telephone transaction in your account. All calls are recorded or monitored for verification, recordkeeping and quality-assurance purposes. The Evergreen Funds reserve the right to terminate the exchange privilege of any shareholder who exceeds the listed maximum number of exchanges, as well as to reject any large dollar exchange if placing it would, in the judgment of the portfolio manager, adversely affect the price of the Fund. *** This does not apply to exchanges from Class A shares of an Evergreen Money Market Fund. Other Services Automatic Reinvestment of Dividends For the convenience of investors, all dividends and capital gains distributions are automatically reinvested, unless you request otherwise. Distributions can be made by check or electronic transfer through the Automated Clearing House to your bank account. The details of your dividends and other distributions will be included on your statement. Payroll Deduction (Retail shares only) If you want to invest automatically through your paycheck, call us to find out how you can set up direct payroll deductions. The amounts deducted will be invested in your Fund account using the Electronic Funds Transfer System. We will provide the Fund account number. Your payroll department will let you know the date of the pay period when your investment begins. Telephone Investment Plan You may make additional investments electronically in an existing Fund account at amounts of not less than $100 or more than $10,000 per investment. Telephone requests received by 4 p.m. Eastern time will be invested the day the request is received. Dividend Exchange You may elect on the application to reinvest capital gains and/or dividends earned in one Evergreen Fund into an existing account in another Evergreen Fund in the same share class -- automatically. Please indicate on the application the Evergreen Fund(s) into which you want to invest the distributions. Reinvestment Privileges Under certain circumstances, shareholders may, within one year of redemption, reinstate their accounts at the current price. This is the Fund's net asset value, also sometimes referred to as the Fund's "NAV." The Tax Consequences of Investing in the funds You may be taxed in two ways: o On Fund distributions (dividends and capital gains) o On any profit you make when you sell any or all of your shares. Fund Distributions A mutual fund passes along to all of its shareholders the net income or profits it receives from its investments. The shareholders of the fund then pay any taxes due, whether they receive these distributions in cash or elect to have them reinvested. The Reserve Tax-Exempt Money Market Fund expect that substantially all of their regular dividends will be exempt from federal income tax including alternative minimum tax. Otherwise, the Funds will distribute two types of taxable income to you: o Dividends. To the extent that the regular dividends are derived from interest that is not tax exempt, or from short-term capital gains, you will have to include them in your federal taxable income. Each Fund pays a monthly dividend from the dividends, interest and other income on the securities in which it invests. o Capital Gains. When a mutual fund sells a security it owns for a profit, the result is a capital gain. Evergreen Reserve Money Market Funds generally distribute capital gains, if any, at least once a year, near the end of the calendar year. Short-term capital gains reflect securities held by the Fund for a year or less and are considered ordinary income just like dividends. Profits on securities held longer than 12 months are considered long-term capital gains and are taxed at a special tax rate (20% for most taxpayers). It is not anticipated that any significant capital gains will be realized by the Funds. Dividend and Capital Gain Reinvestment Unless you choose otherwise on the account application, all dividend and capital gain payments will be reinvested to buy additional shares. Distribution checks that are returned and distribution checks that are uncashed when the shareholder has failed to respond to mailings from the shareholder servicing agent will automatically be reinvested to buy additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. We will send you a statement each January with the federal tax status of dividends and distributions paid by each Fund during the previous calendar year. Profits You Realize When You Redeem Shares When you sell shares in a mutual fund, whether by redeeming or exchanging, you have created a taxable event. You must report any gain or loss on your tax return unless the transaction was entered into by a tax-deferred retirement plan. Investments in money market funds typically do not generate capital gains. It is your responsibility to keep accurate records of your mutual fund transactions. You will need this information when you file your income tax return, since you must report any capital gains or losses you incur when you sell shares. Remember, an exchange is a purchase and a sale for tax purposes. Tax Reporting Evergreen Service Company provides you with a tax statement of your dividend and capital gains distributions for each calendar year on Form 1099 DIV. Proceeds from a sale are reported on Form 1099B. You must report these on your tax return. Since the IRS receives a copy as well, you could pay a penalty if you neglect to report them. Evergreen Service Company will send you a tax information guide each year during tax season, which may include a cost basis statement detailing the gain or loss on taxable transactions you had during the year. Please consult your own tax advisor for further information regarding the federal, state and local tax consequences of an investment in the Funds. Retirement Plans You may invest in each Fund through various retirement plans, including IRAs, 401(k) plans, Simplified Employee Plans, (SEPs), IRAs, 403(b) plans, 457 plans and others. For special rules concerning these plans, including applications, restrictions, tax advantages, and potential sales charge waivers, contact your broker-dealer. To determine if a retirement plan may be appropriate for you, consult your tax advisor. FEES and Expenses OF THE FUNDS Every mutual fund has fees and expenses that are assessed either directly or indirectly. This section describes each of those fees. Management Fee The management fee pays for the normal expenses of managing the fund, including portfolio manager salaries, research costs, corporate overhead expenses and related expenses. 12b-1 Fees The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees for Retail shares of the Funds. Up to 0.75% of the average daily net assets of Class R shares are payable as 12b-1 fees. However, currently the 12b-1 fees for Retail shares is limited to 0.33% of the average daily net assets of the class. These fees increase the cost of your investment. The purpose of these 12b-1 fees is to promote the sale of more shares of the Funds to the public. The Funds might use these fees for advertising and marketing and as "service fees" to the broker-dealer for additional shareholder services. Other Expenses Other expenses include miscellaneous fees from affiliated and outside service providers. These may include legal, audit, custodial and safekeeping fees, the printing and mailing of reports and statements, automatic reinvestment of distributions and other conveniences for which the shareholder pays no transaction fees. Total Fund Operating Expenses The total cost of running the Fund is called the expense ratio. As a shareholder, you are not charged these fees directly; instead they are taken out before the Fund's net asset value is calculated, and are expressed as a percentage of the Fund's average daily net assets. The effect of these fees is reflected in the performance results for that share class. Because these fees are "invisible," investors should examine them closely in the prospectus, especially when comparing one fund with another fund in the same investment category. There are three things to remember about expense ratios: 1) your total return in the Fund is reduced in direct proportion to the fees; 2) expense ratios can vary greatly between funds and fund families, from under 0.25% to over 3.0%; and 3) a Fund's advisor may waive a portion of the Fund's expenses for a period of time, reducing its expense ratio. Financial Highlights This section looks in detail at the results for one share in each share class of the Funds -- how much income it earned, how much of this income was passed along as a distribution and how much the return was reduced by expenses. The tables have been derived from financial information audited by [auditor], the Funds' independent auditor. For a more complete picture of the Funds' financial statements, please see the Funds' Annual Report as well as the Statement of Additional Information. OTHER FUND PRACTICES The Funds may purchase securities on a when-issued or delayed delivery basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. Purchases made under such conditions may involve the risk that the security may be valued at less than its purchase price, causing an unrealized loss to the Fund. In addition, when the Fund engages in such purchases, it relies on the other party to consummate the sale, if the other party fails to perform its obligations, the Fund may be disadvantaged. The Funds do not intend to purchase when-issued securities for speculative purposes. In addition, the Funds may borrow money and lend their securities. Borrowing is a form of leverage that may magnify a Fund's gain or loss. Lending securities may cause the Fund to lose the opportunity to sell these securities at the most desirable price and, therefore, lose money. Please consult the Statement of Additional Information for more information regarding these and other investment practices used by the Funds, including risks. Evergreen Funds Money Market Florida Municipal Money Market Fund Money Market Fund Municipal Money Market Fund New Jersey Municipal Money Market Fund Pennsylvania Municipal Money Market Fund Treasury Municipal Money Market Fund U.S. Government Money Market Fund Tax Advantaged Connecticut Municipal Bond Fund Florida High Income Municipal Bond Fund Florida Municipal Bond Fund Georgia Municipal Bond Fund High Grade Municipal Bond Fund Maryland Municipal Bond Fund Municipal Bond Fund Municipal Income Fund New Jersey Municipal Bond Fund North Carolina Municipal Bond Fund Pennsylvania Municipal Bond Fund Short-Intermediate Municipal Fund South Carolina Municipal Bond Fund Virginia Municipal Bond Fund Income Capital Preservation and Income Fund Diversified Bond Fund High Income Fund High Yield Bond Fund Intermediate Term Bond Fund Quality Income Fund Short-Duration Income Fund Short-Intermediate Bond Fund Strategic Income Fund U.S. Government Fund Balanced Balanced Fund Capital Balanced Fund Capital Income and Growth Fund Foundation Fund Tax Strategic Foundation Fund Growth & Income America's Utility Fund Blue Chip Fund Equity Income Fund Growth and Income Fund Income and Growth Fund Small Cap Value Fund Utility Fund Value Fund Domestic Growth Aggressive Growth Fund Capital Growth Fund Evergreen Fund Growth Fund Masters Fund Omega Fund Small Company Growth Fund Stock Selector Fund Strategic Growth Fund Tax Strategic Equity Fund Select Equity Fund Select Equity Index Fund Select Special Equity Fund Global International Emerging Markets Growth Fund Global Leaders Fund Global Opportunities Fund International Growth Fund Latin America Fund Perpetual Global Fund Perpetual International Fund Precious Metals Fund Investor Services 800.343.2898 www.evergreen-funds.com 1. Non-retirement account holders Call 1-800-343-2898 Monday through Friday, 8 a.m. to 6 p.m. Eastern time to o buy, redeem or exchange shares o order applications o get assistance with your account 2. Information Line for Hearing and Speech Impaired (TTY/TDD) Call 1-800-343-2888 Monday through Friday, 8 a.m. to 6 p.m. Eastern time 3. Write us a letter Evergreen Service Company P.O. Box 2121 Boston, MA 02106-2121 o to buy, redeem or exchange shares o to change the registration on your account o for general correspondence 4. For express, registered or certified mail: Evergreen Service Company 200 Berkeley Street Boston, MA 02116-5039 5. Visit us on-line: www.evergreen-funds.com 6. Regular communications you will receive: Account Statements -- You will receive quarterly statements for each Fund you own. Confirmation Notices -- We send a confirmation of any transaction you make within five days of the transaction. Annual and Semi-annual reports -- You will receive a detailed financial report on your Fund(s) twice a year. Tax Forms -- Each January you will receive any tax forms you need to file your taxes as well as the Evergreen Tax Information Guide. For More Information About the Evergreen Reserve Money Market Funds, Ask for: The Funds' most recent Annual or Semi-annual Report, which contains a complete financial accounting for each Fund and a complete list of the Fund's holdings as of a specific date, as well as commentary from the Fund's portfolio manager. This Report discusses the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal year or period. The Statement of Additional Information (SAI), which contains more detailed information about the policies and procedures of the Funds. The SAI has been filed with the Securities and Exchange Commission (SEC) and its contents are legally considered to be part of this prospectus. For questions, other information, or to request a copy, without charge, of any of the documents, call 1-800-343-2898 or ask your investment representative. We will mail material within three business days. In addition, any of these documents, with the exception of the SAI, may be downloaded off our website at www.evergreen-funds.com. Information about these Funds (including the SAI) is also available on the SEC's Internet web site at http://www.sec.gov, or, for a duplication fee, by writing the SEC Public Reference Section, Washington, DC 20549-6009. This material can also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. For more information, call the SEC at 1-800-SEC-0330. [LOGO OF EVERGREEN FUNDS APPEARS HERE] Evergreen Distributor, Inc. 90 Park Avenue New York, New York 10016 SEC File No.: EVERGREEN RESERVE MONEY MARKET FUNDS PART B STATEMENT OF ADDITIONAL INFORMATION RESERVE MONEY MARKET FUNDS 200 Berkeley Street Boston, Massachusetts 02116 (800) 633-2700 STATEMENT OF ADDITIONAL INFORMATION February 1, 2000 Evergreen Reserve Money Market Fund ("Reserve Money Fund") Evergreen Reserve U.S. Government Money Market Fund ("Reserve U.S. Government Fund") Evergreen Reserve Tax-Exempt Money Market Fund ("Reserve Tax-Exempt Fund") (Each a "Fund"; together, the "Funds") Each Fund is a series of Mentor Funds (the "Trust"). This statement of additional information ("SAI") pertains to all classes of shares of the Funds. It is not a prospectus but should be read in conjunction with the prospectus dated February 1, 2000 for the Fund in which you are interested. The Funds are offered through one single prospectus offering Retail shares and Institutional shares of the Funds. The information in Part 1 of this SAI is specific information about the Funds in the prospectus. The information in Part 2 of this SAI contains more general information that may or may not apply to the Fund or Class of shares in which you are interested. Certain information may be incorporated by reference to the Funds' Annual Report dated June 30, 1999. You may obtain a copy of the Annual Report without charge by calling (800) 343-2898 or downloading it off our website at www.evergreen-funds.com. TABLE OF CONTENTS PART 1 TRUST HISTORY..............................................................1- INVESTMENT RESTRICTIONS....................................................1- MONEY MARKET SECURITIES AND PRACTICES......................................1- PRINCIPAL HOLDERS OF FUND SHARES...........................................1- EXPENSES...................................................................1- PERFORMANCE................................................................1- SERVICE PROVIDERS..........................................................1- FINANCIAL STATEMENTS.......................................................1- ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES..............1- PURCHASE AND REDEMPTION OF SHARES ........................................1- PRICING OF SHARES.........................................................1- PERFORMANCE CALCULATIONS..................................................1- PRINCIPAL UNDERWRITER.....................................................1- DISTRIBUTION EXPENSES UNDER RULE 12b-1 1- TAX INFORMATION...........................................................1- BROKERAGE.................................................................1- ORGANIZATION..............................................................1- INVESTMENT ADVISORY AGREEMENT.............................................1- MANAGEMENT OF THE TRUST...................................................1- CORPORATE AND MUNICIPAL BOND RATINGS......................................1- ADDITIONAL INFORMATION....................................................1- 1-2 1-1 PART 1 TRUST HISTORY The Mentor Funds is an open-end management investment company, which was organized as a Massachusetts business trust on January 20, 1992. Each Fund is a diversified series of the Trust. A copy of the Declaration of Trust is on file as an exhibit to the Trust's Registration Statement, of which this SAI is a part. The foregoing is qualified in its entirety by reference to the Declaration of Trust. INVESTMENT RESTRICTIONS As fundamental investment restrictions, which may not be changed with respect to a Portfolio without approval by the holders of a majority of the outstanding shares of that Portfolio, a Portfolio may not: 1. Purchase any security (other than U.S. Government securities) if as a result: (i) as to 75% of such Portfolio's total assets, more than 5% of the Portfolio's total assets (taken at current value) would then be invested in securites of a single issuer, or (ii) more than 25% of the Portfolio's total assets would be invested in a single industry; except that the Institutional Money Market Portfolio may invest up to 100% of its assets in securities of issuers in the banking industry. 2. Acquire more than 10% of the voting securities of any issuer. 3. Act as underwriter of securities of other issuers except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. 4. Issue any class of securities which is senior to the Portfolio's shares of beneficial interest. 5. Purchase or sell real estate or interest in real estate, including real estate mortgage loans, although it may purchase and sell securities which are secured by real estate and securities of companies that invest or deal in real estate or real estate limited partnership interests. (For purpose of this restriction, investments by a Portfolio in mortgage-backed securities and other securities representing interest in mortgage pools shall not constitute the purchase or sale of real estate or interests in real estate or real estate mortgage loans.) 6. Borrow money in excess of 5% of the value (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) at the time the borrowing is made, and then only from banks as a temporary measure to facilitate the meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. 7.Purchase or sell commodities or commodity contracts, except that a Portfolio may purchase or sell financial futures contracts, options on futures contracts, and futures contracts, and futures contracts, forward contracts, and options with respect to foreing currencies, and may enter into swap transactions. 8. Make loans, except by purchase of debt obligations in which the Portfolio may invest consistent with its investment policies, by entering into repurchase agreements. or by lending its portfolio securities. In addition, it is contrary to the current policy of each Portfolio, which policy may be changed without shareholder approval, to invest in (a) securities which at the time of such investment are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the Trust (or the person designated by the Trustees to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 10% of the Portfolio's net assets (taken at current value) would then be invested in securities described in (a), (b) and (c). All percentage limitations on investment will apply at the time of investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. Except for the investment restrictions listed above as fundamental or to the extent designated as such in a Prospectus with respect to a Portfolio, the other investment policies described in this Statement or in a Prospectus are not fundamental and may be changed by approval of the Trustees. The Investment Company Act of 1940, as amended (the "1940 Act"), provides that a "vote of a majority of the outstanding voting securities" of a Portfolio means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Portfolio, and (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. MONEY MARKET SECURITIES AND PRACTICES Listed below are securities and investment practices the Funds may use in addition to those discussed in the prospectus. The information below applies to all Funds unless otherwise noted. When-Issued, Delayed Delivery and Forward Commitment Transactions Repurchase Agreements Reverse Repurchase Agreements Illiquid and Restricted Securities Investment in Other Investment Companies Short Sales Securities Lending Borrowing U.S. Treasury Obligations Stand-by Commitments Floating Rate and Variable Rate Obligations Foreign Securities (Reserve Money Market Fund only) Municipal Securities Loans of Portfolio Securities Tax-Exempt Securities When-Issued, Delayed-Delivery and Forward Commitment Transactions The Fund may purchase securities on a when-issued or delayed delivery basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Fund may purchase securities under such conditions only with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, the Fund may be required to pay more at settlement than the security is worth. In addition, the purchaser is not entitled to any of the interest earned prior to settlement. Upon making a commitment to purchase a security on a when-issued, delayed delivery or forward commitment basis the Fund will hold liquid assets worth at least the equivalent of the amount due. The liquid assets will be monitored on a daily basis and adjusted as necessary to maintain the necessary value. Purchases made under such conditions may involve the risk that yields secured at the time of commitment may be lower than otherwise available by the time settlement takes place, causing an unrealized loss to the Fund. In addition, when the Fund engages in such purchases, it relies on the other party to consummate the sale. If the other party fails to perform its obligations, the Fund may miss the opportunity to obtain a security at a favorable price or yield. Repurchase Agreements The Fund may enter into repurchase agreements with entities that are registered as U.S. Government securities dealers, including member banks of the Federal Reserve System having at least $1 billion in assets, primary dealers in U.S. government securities or other financial institutions believed by the investment advisor to be creditworthy. In a repurchase agreement the Fund obtains a security and simultaneously commits to return the security to the seller at a set price (including principal and interest) within a period of time usually not exceeding seven days. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or maturity of the underlying security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value of the underlying security. The Fund's custodian or a third party will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund's investment advisor believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker-dealers, which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. Reverse Repurchase Agreements As described herein, the Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. Illiquid and Restricted Securities The Fund may not invest more than 15% (10% for money market funds) of its net assets in securities that are illiquid. A security is illiquid when the Fund cannot dispose of it in the ordinary course of business within seven days at approximately the value at which the Fund has the investment on its books. The Fund may invest in "restricted" securities, i.e., securities subject to restrictions on resale under federal securities laws. Rule 144A under the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to trade freely among qualified institutional investors. Since Rule 144A securities may have limited markets, the Board of Trustees will determine whether such securities should be considered illiquid for the purpose of determining the Fund's compliance with the limit on illiquid securities indicated above. In determining the liquidity of Rule 144A securities, the Trustees will consider: (1) the frequency of trades and quotes for the security; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades. Investment in Other Investment Companies The Fund may purchase the shares of other investment companies to the extent permitted under the 1940 Act. Currently, the Fund may not (1) own more than 3% of the outstanding voting stocks of another investment company, (2) invest more than 5% of its assets in any single investment company, and (3) invest more than 10% of its assets in investment companies. However, the Fund may invest all of its investable assets in securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and limitations as the Fund. Investing in other investment companies may expose a Fund to duplicate expenses and lower its value. Short Sales A short sale is the sale of a security the Fund has borrowed. The Fund expects to profit from a short sale by selling the borrowed security for more than the cost of buying it to repay the lender. After a short sale is completed, the value of the security sold short may rise. If that happens, the cost of buying it to repay the lender may exceed the amount originally received for the sale by the Fund. The Fund may engage in short sales, but it may not make short sales of securities or maintain a short position unless, at all times when a short position is open, it owns an equal amount of such securities or of securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. The Fund may effect a short sale in connection with an underwriting in which the Fund is a participant. Securities Lending The Fund may lend portfolio securities to brokers, dealers and other financial institutions. These transactions must be fully collateralized at all times with cash or short-term debt obligations, but involve some risk to the Fund if the other party should default on its obligation and the Fund is delayed or prevented from exercising its rights in respect of the collateral. Any investment of collateral by the Fund would be made in accordance with the Fund's investment objective and policies described in the prospectus. Stand-by Commitments When the Tax-Exempt Money Market Portfolio purchases Tax-Exempt Securities, it has the authority to acquire stand-by commitments from banks and broker-dealers with respect to those Tax-Exempt Securities. A stand-by commitment may be considered a security independent of the state tax-exempt security to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances, would be substantially the same as the market value of the underlying Tax-Exempt Security to a third party at any time. The Tax-Exempt Money Market Portfolio expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. No Fund expects to assign any value to stand-by commitments. Borrowing U.S. Treasury Obligations Variable or Floating Rate Instruments The Fund may invest in variable or floating rate instruments which may involve a demand feature and may include variable amount master demand notes which may or may not be backed by bank letters of credit. Variable or floating rate instruments bear interest at a rate which varies with changes in market rates. The holder of an instrument with a demand feature may tender the instrument back to the issuer at par prior to maturity. A variable amount master demand note is issued pursuant to a written agreement between the issuer and the holder, its amount may be increased by the holder or decreased by the holder or issuer, it is payable on demand, and the rate of interest varies based upon an agreed formula. The quality of the underlying credit must, in the opinion of the investment advisor, be equivalent to the long-term bond or commercial paper ratings applicable to permitted investments for the Fund. The investment advisor will monitor, on an ongoing basis, the earning power, cash flow, and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and interest on demand. Foreign Securities (Reserve Money Market Fund only) The Fund may invest in foreign securities or U.S. securities traded in foreign markets. In addition to securities issued by foreign companies, permissible investments may also consist of obligations of foreign branches of U.S. banks and of foreign banks, including European certificates of deposit, European time deposits, Canadian time deposits and Yankee certificates of deposit. The Fund may also invest in Canadian commercial paper and Europaper. These instruments may subject the Fund to investment risks that differ in some respects from those related to investments in obligations of U.S. issuers. Such risks include the possibility of adverse political and economic developments; imposition of withholding taxes on interest or other income; seizure, nationalization, or expropriation of foreign deposits; establishment of exchange controls or taxation at the source; greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. Such investments may also entail higher custodial fees and sales commissions than domestic investments. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those respecting domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. The fund may also invest in the stocks of companies located in emerging markets. These countries generally have economic structures that are less diverse and mature, and political systems that are less stable than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of companies located in emerging markets are often subject to rapid and large price fluctuations; however, these markets may also provide higher long-term rates of return. Municipal Bonds The Fund may invest in municipal bonds of any state, territory or possession of the United States ("U.S."), including the District of Columbia. The Fund may also invest in municipal bonds of any political subdivision, agency or instrumentality (e.g., counties, cities, towns, villages, districts, authorities) of the U.S. or its possessions. Municipal bonds are debt instruments issued by or for a state or local government to support its general financial needs or to pay for special projects such as airports, bridges, highways, public transit, schools, hospitals, housing and water and sewer works. Municipal bonds may also may be issued to refinance public debt. Municipal bonds are mainly divided between "general obligation" and "revenue" bonds. General obligation bonds are backed by the full faith and credit of governmental issuers with the power to tax. They are repaid from the issuer's general revenues. Payment, however, may be dependent upon legislative approval and may be subject to limitations on the issuer's taxing power. Enforcement of payments due under general obligation bonds varies according to the law applicable to the issuer. In contrast, revenue bonds are supported only by the revenues generated by the project or facility. The Fund may also invest in industrial development bonds. Such bonds are usually revenue bonds issued to pay for facilities with a public purpose operated by private corporations. The credit quality of industrial development bonds is usually directly related to the credit standing of the owner or user of the facilities. To qualify as a municipal bond, the interest paid on an industrial development bond must qualify as fully exempt from federal income tax. However, the interest paid on an industrial development bond may be subject to the federal alternative minimum tax. The yields on municipal bonds depend on such factors as market conditions, the financial condition of the issuer and the issue's size, maturity date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such ratings, however, are opinions, not absolute standards of quality. Municipal bonds with the same maturity, interest rates and rating may have different yields, while municipal bonds with the same maturity and interest rate, but different ratings, may have the same yield. Once purchased by the Fund, a municipal bond may cease to be rated or receive a new rating below the minimum required for purchase by the Fund. Neither event would require the Fund to sell the bond, but the Fund's investment advisor would consider such events in determining whether the Fund should continue to hold it. The ability of the Fund to achieve its investment objective depends upon the continuing ability of issuers of municipal bonds to pay interest and principal when due. Municipal bonds are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. Such laws extend the time for payment of principal and/or interest, and may otherwise restrict the Fund's ability to enforce its rights in the event of default. Since there is generally less information available on the financial condition of municipal bond issuers compared to other domestic issuers of securities, the Fund's investment advisor may lack sufficient knowledge of an issue's weaknesses. Other influences, such as litigation, may also materially affect the ability of an issuer to pay principal and interest when due. In addition, the market for municipal bonds is often thin and can be temporarily affected by large purchases and sales, including those by the Fund. From time to time, Congress has considered restricting or eliminating the federal income tax exemption for interest on municipal bonds. Such actions could materially affect the availability of municipal bonds and the value of those already owned by the Fund. If such legislation were passed, the Trust's Board of Trustees may recommend changes in the Fund's investment objectives and policies or dissolution of the Fund. EXPENSES Advisory Fees The Funds investment advisor is Mentor Investment Advisors, LLC ("Mentor Advisors"). For more information, see Investment Advisory Agreements in Part 2 of this SAI. Mentor Advisors serves as investment advisor to each Fund pursuant to a Management Contract with the Trust. Subject to the supervision and direction of the Trustees, Mentor Advisors manages a Fund's portfolio in accordance with the stated policies of that Fund and of the Trust. Mentor Advisors makes investment decisions for the Funds and places the purchase and sale orders for portfolio transactions. Mentor Advisors bears all of its expenses in connection with the performance of its services. In addition, Mentor Advisors pays the salaries of all officer and employees who are employed by it and the Trust. Average Daily Net Assets Fee First $500 million 0.22% Next $500 million 0.20% Next $1 billion 0.175% Next $1 billion 0.16% Over $3 billion 0.15% Advisory Fees Paid Below are the advisory fees paid by each Fund for the last three fiscal periods. Fiscal Period/Fund Advisory Fee Year or Period Ended September 30, 1999 Reserve Money Fund $307,339 Reserve U.S. Government Fund $301,770 Reserve Tax-Exempt Fund $64,707 Year or Period Ended September 30, 1998 Reserve Money Fund $52,000 Reserve U.S. Government Fund $202,000 Reserve Tax-Exempt Fund NA Year or Period Ended September 30, 1997 Reserve Money Fund N/A Reserve U.S. Government Fund 29,982 Reserve Tax-Exempt Fund N/A Brokerage Commissions The Funds paid no brokerage commissions during the fiscal year or period ended September 30, 1997, 1998 and 1999. Underwriting Commissions For each Fund, there are no Underwriting Commissions for the last two fiscal periods. For more information, see "Principal Underwriter" in Part 2 of this SAI. 12b-1 Fees Below are the 12b-1 fees paid by each Fund with respect to the Retail shares of the Funds for the fiscal year ended September 30, 1999. For more information, see "Distribution Expenses Under Rule 12b-1" in Part 1 of this SAI. Fund Service Fees Reserve Money Fund $527,195 Reserve U.S. Government Fund $180,368 Reserve Tax-Exempt Fund $100,106 MANAGEMENT OF THE TRUST The Trust is supervised by a Board of Trustees that is responsible for representing the interest of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, reviewing, among other things, the Fund's performance and its contractual arrangements with various service providers. Each Trustee is paid a fee for his or her services. See "Expenses-Trustee Compensation" in Part 1 of this SAI. The Trust has an Executive Committee which consists of the Chairman of the Board, Michael S. Scofield, K. Dunn Gifford and Russell Salton, each of whom is an Independent Trustee. The Executive Committee recommends Trustees to fill vacancies, prepares the agenda for Board Meetings and acts on routine matters between scheduled Board meetings. Set forth below are the Trustees and officers of the Trust and their principal occupations and affiliations over the last five years. Unless otherwise indicated, the address for each Trustee and officer is 200 Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of the other Trusts in the Evergreen Fund complex. As of December 15, 1999, each of the following was elected Trustee of the Trust.
Name Position with Trust Principal Occupations for Last Five Years Laurence B. Ashkin Trustee Real estate developer and construction consultant; and (DOB: 2/2/28) President of Centrum Equities (real estate development) and Centrum Properties, Inc.(real estate development). Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment (DOB: 10/23/34) advice); former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice); Director, The Andover Companies (insurance); and Trustee, Arthritis Foundation of New England. K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee, (DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American Institute of Food and Wine; Chairman and President, Oldways Preservation and Exchange Trust (education); former Chairman of the Board, Director, and Executive Vice President, The London Harness Company (leather goods purveyor); former Managing Partner, Roscommon Capital Corp.; former Chief Executive Officer, Gifford Gifts of Fine Foods; former Chairman, Gifford, Drescher & Associates (environmental consulting). James S. Howell* Chairman of the Board Former Chairman of the Distribution Committee, Foundation (DOB: 8/13/24) of Trustees for the Carolinas; and former Vice President of Lance Inc. (food manufacturing). Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson (DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total Return Fund and Equifax, Inc. (worldwide information management); Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund; and former President, Morehouse College. Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc. (DOB: 7/14/39) (steel producer). Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation (DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative Credit Union. William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A. (DOB: 8/26/55) David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR (DOB: 9/14/41) International, Inc. (executive recruitment); former Senior Vice President, Boyden International Inc. (executive recruitment); and Director, Commerce and Industry Association of New Jersey, 411 International, Inc. (communications), and J&M Cumming Paper Co. Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services; (DOB: 6/2/47) former Managed Health Care Consultant; and former President, Primary Physician Care. Michael S. Scofield* Vice Chairman of the Attorney, Law Offices of Michael S. Scofield. (DOB: 2/20/43) Board of Trustees Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental (DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of CTG Resources, Inc. (natural gas), Hartford Hospital, Old State House Association, and Enhance Financial Services, Inc.; former Director Middlesex Mutual Assurance Company; former Chairman, Board of Trustees, Hartford Graduate Center; Trustee, Greater Hartford YMCA. Anthony J. Fischer** President and Treasurer Vice President/Client Services, BISYS Fund Services. (DOB:2/10/59) Nimish S. Bhatt*** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant (DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National Bank; former Senior Tax Consulting/Acting Manager, Investment Companies Group, PricewaterhouseCoopers LLP, New York. Bryan Haft*** Vice President Team Leader, Fund Administration, BISYS Fund Services. (DOB: 1/23/65) Senior Vice President and Assistant General Counsel, First Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General (DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
* As of January 1, 2000, Michael S. Scofield will become Chairman of the Board and James S. Howell will become Trustee Emeritis. ** Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016 *** Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001 Trustee Compensation Listed below is the Trustee compensation paid by the Trust individually for the fiscal year ended September 30, 1999 and by the Trust and the eleven other trusts in the in the Evergreen Fund Complex for the calendar year ended December 31, 1999. The Trustees do not receive pension or retirement benefits from the Funds. For more information, see "Management of the Trust" in Part 2 of this SAI. Total Compensation from the Trust and Fund Complex Paid to Trustees for the calendar year Trustee Aggregate Compensation from ended 12/31/1999** Mentor Funds for the fiscal year ended 9/30/1999 Daniel J. Ludeman $ $ Arnold H. Dreyfuss $ $ Thomas F. Keller $ $ Louis W. Moelchert, Jr. $ $ Troy A. Peery, Jr. $ $ Peter J. Quinn, Jr. $ $ Arch T. Allen, III $ $ Weston E. Edwards $ $ Jerry R. Barrientine $ $ J. Garnett Nelson $ $ Paul F. Costello $ $ Terry L. Perkins $ $ Michael Wade $ $ PRINCIPAL HOLDERS OF FUND SHARES As of January 1, 2000 the officers and Trustees of the Trust owned as a group less than 1% of the outstanding shares of any class of each Fund. Set forth below is information with respect to each person who, to each Fund's knowledge, owned beneficially or of record more than 5% of the outstanding shares of any class of each Fund as of January 1, 2000. - ----------------------------------------------------- Reserve Money Fund Retail shares - ----------------------------------------------------- - ----------------------------------------------------- % - ----------------------------------------------------- - ----------------------------------------------------- Reserve Money Fund Institutional shares - ----------------------------------------------------- - ----------------------------------------------------- % - ----------------------------------------------------- - ----------------------------------------------------- Reserve U.S. Government Fund Retail shares - ----------------------------------------------------- % - ----------------------------------------------------- Reserve U.S. Government Fund Institutional shares - ----------------------------------------------------- % - ----------------------------------------------------- Reserve Tax-Exempt Fund Retail shares - ----------------------------------------------------- % - ----------------------------------------------------- PERFORMANCE Current, Effective and Tax Equivalent Yields Below are the yields for each class of shares of the Funds for the seven-day period ended September 30, 1999. With respect to the tax-equivalent yield of the Reserve Tax-Exempt Money Markt Fund, a combined federal and state rate (36.0%)is assumed. Fund/Class Current Effective Tax Equivalent Yield Reserve Money Fund Retail shares 4.58% 4.68% 7.16% Institutional shares 5.21% 5.34% 8.14% Reserve U.S. Government Fund Retail shares 4.53% 4.64% 7.08% Institutional shares 5.16% 5.29% 8.06% Reserve Tax-Exempt Fund Retail shares 3.00% 3.04% 4.69% Total Return Below are the annual total returns for each class of shares of the Funds (including applicable sales charges) as of September 30, 1999. For more information, see "Total Return" under "Performance Calculations" in Part 2 of this SAI.
- ----------------------- -------------------- --------------------- -------------------- ===================== Fund/Class One Year Five Years Ten Years or Since Inception Date Inception Money Fund 4.43% N/A 4.93% 10/15/1998 Retail shares 4.95% N/A 5.21% 11/19/1998 Institutional shares U.S. Government Fund 4.31% N/A 4.93% 10/15/1998 Retail shares 4.80% N/A 5.15% 06/27/1997 Institutional shares Tax-Exempt Fund N/A N/A 2.53% 10/16/1998 Retail shares
SERVICE PROVIDERS Administrator Evergreen Investment Services, Inc. ("EIS") serves as administrator to the Funds, subject to the supervision and control of the Trust's Board of Trustees. EIS provides the Funds with facilities, equipment and personnel and is entitled to receive a fee from each Fund at the annual rate of 0.10% of the Fund's average daily net assets. Transfer Agent Evergreen Service Company ("ESC"), a subsidiary of First Union Corporation, is the Funds' transfer agent. ESC issues and redeems shares, pays dividends and performs other duties in connection with the maintenance of shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston, Massachusetts 02106-2121. The Fund pays ESC annual fees as follows: Annual Fee Per Annual Fee Per Fund Type Open Account Closed Account** Monthly Dividend Funds $25.50 $9.00 Quarterly Dividend Funds $24.50 $9.00 Semiannual Dividend Funds $23.50 $9.00 Annual Dividend Funds $23.50 $9.00 Money Market Funds $25.50 $9.00 *For shareholder accounts only. The Fund pays ESC cost plus 15% for broker accounts. ** Closed account are maintained on the system in order to facilitate historical and tax information. PURCHASE AND REDEMPTION OF SHARES You may buy shares of the Fund through Evergreen Distributor, Inc. ("EDI"), broker-dealers that have entered into special agreements with EDI or certain other financial institutions. With certain exceptions, the Fund may offer up to four different classes of shares that differ primarily with respect to sales charges and distribution fees. Depending upon the class of shares, you will pay an initial sales charge when you buy the Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales charges at all. Each Fund offers different classes of shares. Refer to the prospectus to determine which classes of shares are offered by each Fund. Retail Shares Each Fund offers Class Retail shares at net asset value without an initial sales charge or deferred sales charge. Class Retail shares are subject to 12b-1 fees. There is no minimum investment required. Institutional Shares Each Fund (except Reserve Tax-Exempt Money Market Fund) offers Class Institutional shares at net asset value without an initial sales charge, deferred sales charge or 12b-1 fees. Investors will be required to make minimum initial investments of $500,000 and minimum subsequent investments of $25,000. Investments made through advisory accounts maintained with investment advisers registered under the Investment Advisors Act of 1940, as amended (including "wrap" accounts), are not subject to these minimum investment requirements. The Portfolios reserve the right at any time to change the initial and subsequent investment minimums required of investors. Exchanges Investors may exchange shares of the Fund for shares of the same class of any other Fund within the Mentor Funds which offers the same class of shares. See "By Exchange" under "How to Buy Shares" in the prospectus. Before you make an exchange, you should read the prospectus of the Evergreen Fund into which you want to exchange. The Trust's Board of Trustees reserves the right to discontinue, alter or limit the exchange privilege at any time. Automatic Reinvestment As described in the prospectus, a shareholder may elect to receive dividends and capital gains distributions in cash instead of shares. However, ESC will automatically reinvest all dividends and distributions in additional shares when it learns that the postal or other delivery service is unable to deliver checks or transaction confirmations to the shareholder's address of record. When a check is returned, the Fund will hold the check amount in a no-interest account in the shareholder's name until the shareholder updates his or her address or automatic reinvestment begins. Uncashed or returned redemption checks will also be handled in the manner described above. PRICING OF SHARES Calculation of Net Asset Value The Fund calculates its net asset value ("NAV") twice daily on Monday through Friday, as described in the prospectus. The Fund will not compute its NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV of the Fund is calculated by dividing the value of the Fund's net assets attributable to that class by all of the shares issued for that class. Valuation of Portfolio Securities Current values for the Fund's portfolio securities are determined as follows: (1) Securities that are traded on an established securities exchange or the over-the-counter National Market System ("NMS") are valued on the basis of the last sales price on the exchange where primarily traded or on the NMS prior to the time of the valuation, provided that a sale has occurred. (2) Securities traded on an established securities exchange or in the over-the-counter market for which there has been no sale and other securities traded in the over-the-counter market are valued at the mean of the bid and asked prices at the time of valuation. (3) Short-term investments maturing in more than 60 days, for which market quotations are readily available, are valued at current market value. (4) Short-term investments maturing in sixty days or less are valued at amortized cost, which approximates market. (5) Securities, including restricted securities, for which market quotations are not readily available; listed securities or those on NMS if, in the investment advisor's opinion, the last sales price does not reflect an accurate current market value; and other assets are valued at prices deemed in good faith to be fair under procedures established by the Board of Trustees. (6) Municipal bonds are valued by an independent pricing service at fair value using a variety of factors which may include yield, liquidity, interest rate risk, credit quality, coupon, maturity and type of issue. Foreign securities are generally valued on the basis of valuations provided by a pricing service, approved by the Fund's Board of Trustees, which uses information with respect to transactions in such securities, quotations from broker-dealers, market transactions in comparable securities, and various relationships between securities and yield to maturity in determining value. PERFORMANCE CALCULATIONS Total Return Total return quotations for a class of shares of the Fund as they may appear from time to time in advertisements are calculated by finding the average annual compounded rates of return over one, five and ten year periods, or the time periods for which such class of shares has been effective, whichever is relevant, on a hypothetical $1,000 investment that would equate the initial amount invested in the class to the ending redeemable value. To the initial investment all dividends and distributions are added, and all recurring fees charged to all shareholder accounts are deducted. The ending redeemable value assumes a complete redemption at the end of the relevant periods. The following is the formula used to calculate average annual total return: [OBJECT OMITTED] P = initial payment of $1,000 T = average annual total return N = number of years ERV = ending redeemable value of the initial $1,000 Yield Described below are yield calculations the Fund may use. Yield quotations are expressed in annualized terms and may be quoted on a compounded basis. Yields based on these calculations do not represent the Fund's yield for any future period. 30-Day Yield If the Fund invests primarily in bonds, it may quote its 30-day yield in advertisements or in reports or other communications to shareholders. It is calculated by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: [OBJECT OMITTED] [OBJECT OMITTED] Where: a = Dividends and interest earned during the period b = Expenses accrued for the period (net of reimbursements) c = The average daily number of shares outstanding during the period that were entitled to receive dividends d = The maximum offering price per share on the last day of the period 7-Day Current and Effective Yield If the Fund invests primarily in money market instruments, it may quote its 7-day current yield or effective yield in advertisements or in reports or other communications to shareholders. The current yield is calculated by determining the net change, excluding capital changes and income other than investment income, in the value of a hypothetical, pre-existing account having a balance of one share at the beginning of the 7-day base period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then multiplying the base period return by (365/7). The effective yield is based on a compounding of the current yield, according to the following formula: [OBJECT OMITTED] Tax Equivalent Yield If the Fund invests primarily in municipal bonds, it may quote in advertisements or in reports or other communications to shareholders a tax equivalent yield, which is what an investor would generally need to earn from a fully taxable investment in order to realize, after income taxes, a benefit equal to the tax free yield provided by the Fund. Tax equivalent yield is calculated using the following formula: [OBJECT OMITTED] The quotient is then added to that portion, if any, of the Fund's yield that is not tax exempt. Depending on the Fund's objective, the income tax rate used in the formula above may be federal or a combination of federal and state. PRINCIPAL UNDERWRITER EDI is the principal underwriter for the Trust and with respect to each class of shares of the Fund. The Trust has entered into a Principal Underwriting Agreement ("Underwriting Agreement") with EDI with respect to each class of the Fund. EDI is a subsidiary of The BISYS Group, Inc. EDI, as agent, has agreed to use its best efforts to find purchasers for the shares. EDI may retain and employ representatives to promote distribution of the shares and may obtain orders from broker-dealers, and others, acting as principals, for sales of shares to them. The Underwriting Agreement provides that EDI will bear the expense of preparing, printing, and distributing advertising and sales literature and prospectuses used by it. All subscriptions and sales of shares by EDI are at the public offering price of the shares, which is determined in accordance with the provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All orders are subject to acceptance by the Fund and the Fund reserves the right, in its sole discretion, to reject any order received. Under the Underwriting Agreement, the Fund is not liable to anyone for failure to accept any order. EDI has agreed that it will, in all respects, duly conform with all state and federal laws applicable to the sale of the shares. EDI has also agreed that it will indemnify and hold harmless the Trust and each person who has been, is, or may be a Trustee or officer of the Trust against expenses reasonably incurred by any of them in connection with any claim, action, suit, or proceeding to which any of them may be a party that arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact on the part of EDI or any other person for whose acts EDI is responsible or is alleged to be responsible, unless such misrepresentation or omission was made in reliance upon written information furnished by the Trust. The Underwriting Agreement provides that it will remain in effect as long as its terms and continuance are approved annually (i) by a vote of a majority of the Trust's Trustees who are not interested persons of the Fund, as defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a majority of the Trust's Trustees, in each case, cast in person at a meeting called for that purpose. The Underwriting Agreement may be terminated, without penalty, on 60 days' written notice by the Board of Trustees or by a vote of a majority of outstanding shares subject to such agreement. The Underwriting Agreement will terminate automatically upon its "assignment," as that term is defined in the 1940 Act. From time to time, if, in EDI's judgment, it could benefit the sales of shares, EDI may provide to selected broker-dealers promotional materials and selling aids, including, but not limited to, personal computers, related software, and data files. DISTRIBUTION EXPENSES UNDER RULE 12b-1 The Fund bears some of the costs of selling its Class Retail shares, as applicable, including certain advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1 of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as shown by the Fund's expense table in the prospectus. Under the Distribution Plans (each a "Plan," together, the "Plans") that the Fund has adopted for its Class Retail shares, as applicable, the Fund may incur expenses for 12b-1 fees up to a maximum annual percentage of the average daily net assets attributable to a class, as follows: ------------------------------- --------------- Class Retail 0.75%* ------------------------------- --------------- * Currently limited to 0.33% or less to be used exclusively as a shareholder service fee. See the expense table in the prospectus of the Fund in which you are interested. Of the amounts above, each class may pay under its Plan a maximum service fee of 0.33% to compensate organizations, which may include the Fund's investment advisor or its affiliates, for personal services provided to shareholders and the maintenance of shareholder accounts. The Fund may not, during any fiscal period, pay distribution or service fees greater than the amounts above. Service fees are accrued daily and paid at least annually on Class Retail and are charged as class expenses, as accrued. Amounts paid under the Plans are used to compensate EDI pursuant to Distribution Agreements (each an "Agreement," together, the "Agreements") that the Fund has entered into with respect to its Class Retail shares, as applicable. The compensation is based on a maximum annual percentage of the average daily net assets attributable to a class, as follows: ----------------------------- ------------- Class Retail 0.25%* ----------------------------- ------------- *May be lower. See the expense table in the prospectus of the Fund in which you are interested. The Agreements provide that EDI will use the distribution fees received from the Fund for the following purposes: (1) to compensate broker-dealers or other persons for distributing Fund shares; (2) to compensate broker-dealers, depository institutions and other financial intermediaries for providing administrative, accounting and other services with respect to the Fund's shareholders; and (3) to otherwise promote the sale of Fund shares. The Agreements also provide that EDI may use distribution fees to make interest and principal payments in respect of amounts that have been financed to pay broker-dealers or other persons for distributing Fund shares. EDI may assign its rights to receive compensation under the Plans to secure such financings. FUNB or its affiliates may finance payments made by EDI to compensate broker-dealers or other persons for distributing shares of the Fund. In the event the Fund acquires the assets of another mutual fund, compensation paid to EDI under the Agreements may be paid by the Fund's Distributor to the acquired fund's distributor or its predecessor. Since EDI's compensation under the Agreements is not directly tied to the expenses incurred by EDI, the compensation received by it under the Agreements during any fiscal year may be more or less than its actual expenses and may result in a profit to EDI. Distribution expenses incurred by EDI in one fiscal year that exceed the compensation paid to EDI for that year may be paid from distribution fees received from the Fund in subsequent fiscal years. Distribution fees are accrued daily and paid at least annually on Class Retail shares and are charged as class expenses, as accrued. The distribution fees attributable to the Class Retail shares are designed to permit an investor to purchase such shares through broker-dealers without the assessment of a front-end sales charge, while at the same time permitting EDI to compensate broker-dealers in connection with the sale of such shares. Under the Plans, the Treasurer of the Trust reports the amounts expended under the Plans and the purposes for which such expenditures were made to the Trustees of the Trust for their review on a quarterly basis. Also, each Plan provides that the selection and nomination of the Independent Trustees are committed to the discretion of such Independent Trustees then in office. The investment advisor may from time to time from its own funds or such other resources as may be permitted by rules of the SEC make payments for distribution services to EDI; the latter may in turn pay part or all of such compensation to brokers or other persons for their distribution assistance. Each Plan and the Agreement will continue in effect for successive 12-month periods provided, however, that such continuance is specifically approved at least annually by the Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of that class and, in either case, by a majority of the Independent Trustees of the Trust. The Plans permit the payment of fees to brokers and others for distribution and shareholder-related administrative services and to broker-dealers, depository institutions, financial intermediaries and administrators for administrative services as to Class Retail shares. The Plans are designed to (i) stimulate brokers to provide distribution and administrative support services to the Fund and holders of Class Retail shares and (ii) stimulate administrators to render administrative support services to the Fund and holders of Class Retail shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding Class Retail shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for its Class Retail shares. In the event that the Plan or Distribution Agreement is terminated or not continued with respect to one or more classes of the Fund, (i) no distribution fees (other than current amounts accrued but not yet paid) would be owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund would not be obligated to pay EDI for any amounts expended under the Distribution Agreement not previously recovered by the EDI from distribution services fees in respect of shares of such class or classes through deferred sales charges. All material amendments to any Plan or Agreement must be approved by a vote of the Trustees of the Trust or the holders of the Fund's outstanding voting securities, voting separately by class, and in either case, by a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval; and any Plan or Distribution Agreement may not be amended in order to increase materially the costs that a particular class of shares of the Fund may bear pursuant to the Plan or Distribution Agreement without the approval of a majority of the holders of the outstanding voting shares of the class affected. Any Plan or Distribution Agreement may be terminated (i) by the Fund without penalty at any time by a majority vote of the holders of the outstanding voting securities of the Fund, voting separately by class or by a majority vote of the Independent Trustees, or (ii) by EDI. To terminate any Distribution Agreement, any party must give the other parties 60 days' written notice; to terminate a Plan only, the Fund need give no notice to EDI. Any Distribution Agreement will terminate automatically in the event of its assignment. For more information about 12b-1 fees, see "Expenses" in the prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI. TAX INFORMATION Requirements for Qualifications as a Regulated Investment Company The Fund intends to qualify for and elect the tax treatment applicable to regulated investment companies ("RIC") under Subchapter M of the Code, as amended. (Such qualification does not involve supervision of management or investment practices or policies by the Internal Revenue Service.) In order to qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of its gross income from dividends, interest, payments with respect to proceeds from securities loans, gains from the sale or other disposition of securities or foreign currencies and other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in such securities; and (ii) diversify its holdings so that, at the end of each quarter of its taxable year, (a) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. government securities and other securities limited in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies). By so qualifying, the Fund is not subject to federal income tax if it timely distributes its investment company taxable income and any net realized capital gains. A 4% nondeductible excise tax will be imposed on the Fund to the extent it does not meet certain distribution requirements by the end of each calendar year. The Fund anticipates meeting such distribution requirements. Taxes on Distributions Unless the Fund is a municipal bond fund, distributions will be taxable to shareholders whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of a share of the Fund on the reinvestment date. To calculate ordinary income for federal income tax purposes, shareholders must generally include dividends paid by the Fund from its investment company taxable income (net taxable investment income plus net realized short-term capital gains, if any). The Fund will include dividends it receives from domestic corporations when the Fund calculates its gross investment income. Unless the Fund is a municipal bond fund or U.S. Treasury or U.S. Government money market fund, it anticipates that all or a portion of the ordinary dividends which it pays will qualify for the 70% dividends-received deduction for corporations. The Fund will inform shareholders of the amounts that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S. Government money market fund, none of its income will consist of corporate dividends; therefore, none of its distributions will qualify for the 70% dividends-received deduction for corporations. From time to time, the Fund will distribute the excess of its net long-term capital gains over its short-term capital loss to shareholders (i.e., capital gain dividends). For federal tax purposes, shareholders must include such capital gain dividends when calculating their net long-term capital gains. Capital gain dividends are taxable as net long-term capital gains to a shareholder, no matter how long the shareholder has held the shares. Distributions by the Fund reduce its NAV. A distribution that reduces the Fund's NAV below a shareholder's cost basis is taxable as described above, although from an investment standpoint, it is a return of capital. In particular, if a shareholder buys Fund shares just before the Fund makes a distribution, when the Fund makes the distribution the shareholder will receive what is in effect a return of capital. Nevertheless, the shareholder may incur taxes on the distribution. Therefore, shareholders should carefully consider the tax consequences of buying Fund shares just before a distribution. All distributions, whether received in shares or cash, must be reported by each shareholder on his or her federal income tax return. Each shareholder should consult a tax advisor to determine the state and local tax implications of Fund distributions. If more than 50% of the value of the Fund's total assets at the end of a fiscal year is represented by securities of foreign corporations and the Fund elects to make foreign tax credits available to its shareholders, a shareholder will be required to include in his gross income both cash dividends and the amount the Fund advises him is his pro rata portion of income taxes withheld by foreign governments from interest and dividends paid on the Fund's investments. The shareholder may be entitled, however, to take the amount of such foreign taxes withheld as a credit against his U.S. income tax, or to treat the foreign tax withheld as an itemized deduction from his gross income, if that should be to his advantage. In substance, this policy enables the shareholder to benefit from the same foreign tax credit or deduction that he would have received if he had been the individual owner of foreign securities and had paid foreign income tax on the income therefrom. As in the case of individuals receiving income directly from foreign sources, the credit or deduction is subject to a number of limitations. Taxes on The Sale or Exchange of Fund Shares Upon a sale or exchange of Fund shares, a shareholder will realize a taxable gain or loss depending on his or her basis in the shares. A shareholder must treat such gains or losses as a capital gain or loss if the shareholder held the shares as capital assets. Capital gain on assets held for more than 12 months is generally subject to a maximum federal income tax rate of 20% for an individual. Generally, the Code will not allow a shareholder to realize a loss on shares he or she has sold or exchanged and replaced within a 61-day period beginning 30 days before and ending 30 days after he or she sold or exchanged the shares. The Code will not allow a shareholder to realize a loss on the sale of Fund shares held by the shareholder for six months or less to the extent the shareholder received exempt interest dividends on such shares. Moreover, the Code will treat a shareholder's loss on shares held for six months or less as a long-term capital loss to the extent the shareholder received distributions of net capital gains on such shares. Shareholders who fail to furnish their taxpayer identification numbers to the Fund and to certify as to its correctness and certain other shareholders may be subject to a 31% federal income tax backup withholding requirement on dividends, distributions of capital gains and redemption proceeds paid to them by the Fund. If the withholding provisions are applicable, any such dividends or capital gain distributions to these shareholders, whether taken in cash or reinvested in additional shares, and any redemption proceeds will be reduced by the amounts required to be withheld. Investors may wish to consult their own tax advisors about the applicability of the backup withholding provisions. Other Tax Considerations The foregoing discussion relates solely to U.S. federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). It does not reflect the special tax consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt organizations and foreign persons). Shareholders are encouraged to consult their own tax advisors regarding specific questions relating to federal, state and local tax consequences of investing in shares of the Fund. Each shareholder who is not a U.S. person should consult his or her tax advisor regarding the U.S. and foreign tax consequences of ownership of shares of the Fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on amounts treated as income from U.S. sources under the Code. Distributor Evergreen Distributor, Inc. (the "Distributor") markets the Funds through broker-dealers and other financial representatives. Its address is 125 W. 55th Street, New York, NY 10019. Independent Auditor KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the financial statements of each Fund. Custodian State Street Bank and Trust Company keeps custody of each Fund's securities and cash and performs other related duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts 02110. Legal Counsel Sullivan & Worcester LLP provides legal advice to the Funds. Its address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036. FINANCIAL STATEMENTS The audited financial statements and the reports thereon are hereby incorporated by reference to the Funds' Annual Report, a copy of which may be obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts 02106-2121. BROKERAGE Brokerage Commissions If the Fund invests in equity securities, it expects to buy and sell them through brokerage transactions for which commissions are payable. Purchases from underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include a dealer's mark-up or reflect a dealer's mark-down. Where transactions are made in the over-the-counter market, the Fund will deal with primary market makers unless more favorable prices are otherwise obtainable. If the Fund invests in fixed income securities, it expects to buy and sell them directly from the issuer or an underwriter or market maker for the securities. Generally, the Fund will not pay brokerage commissions for such purchases. When the Fund buys a security from an underwriter, the purchase price will usually include an underwriting commission or concession. The purchase price for securities bought from dealers serving as market makers will similarly include the dealer's mark up or reflect a dealer's mark down. When the Fund executes transactions in the over-the-counter market, it will deal with primary market makers unless more favorable prices are otherwise obtainable. Selection of Brokers When buying and selling portfolio securities, the advisor seeks brokers who can provide the most benefit to the Fund. When selecting a broker, the investment advisor will primarily look for the best price at the lowest commission, but in the context of the broker's: 1. ability to provide the best net financial result to the Fund; 2. efficiency in handling trades; 3. ability to trade large blocks of securities; 4. readiness to handle difficult trades; 5. financial strength and stability; and 6. provision of "research services," defined as (a) reports and analyses concerning issuers, industries, securities and economic factors and (b) other information useful in making investment decisions. The Fund may pay higher brokerage commissions to a broker providing it with research services, as defined in item 6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this practice is permitted if the commission is reasonable in relation to the brokerage and research services provided. Research services provided by a broker to the investment advisor do not replace, but supplement, the services the investment advisor is required to deliver to the Fund. It is impracticable for the investment advisor to allocate the cost, value and specific application of such research services among its clients because research services intended for one client may indirectly benefit another. When selecting a broker for portfolio trades, the investment advisor may also consider the amount of Fund shares a broker has sold, subject to the other requirements described above. Simultaneous Transactions The investment advisor makes investment decisions for the Fund independently of decisions made for its other clients. When a security is suitable for the investment objective of more than one client, it may be prudent for the investment advisor to engage in a simultaneous transaction, that is, buy or sell the same security for more than one client. The investment advisor strives for an equitable result in such transactions by using an allocation formula. The high volume involved in some simultaneous transactions can result in greater value to the Fund, but the ideal price or trading volume may not always be achieved for the Fund. ORGANIZATION The foregoing is qualified in its entirety by reference to the Trust's Declaration of Trust. Description of Shares The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest of series and classes of shares. Each share of the Fund represents an equal proportionate interest with each other share of that series and/or class. Upon liquidation, shares are entitled to a pro rata share of the Trust based on the relative net assets of each series and/or class. Shareholders have no preemptive or conversion rights. Shares are redeemable and transferable. Voting Rights Under the terms of the Declaration of Trust, the Trust is not required to hold annual meetings. At meetings called for the initial election of Trustees or to consider other matters, each share is entitled to one vote for each dollar of "NAV"applicable to such share. Shares generally vote together as one class on all matters. Classes of shares of the Fund have equal voting rights. No amendment may be made to the Declaration of Trust that adversely affects any class of shares without the approval of a majority of the votes applicable to the shares of that class. Shares have non-cumulative voting rights, which means that the holders of more than 50% of the votes applicable to shares voting for the election of Trustees can elect 100% of the Trustees to be elected at a meeting and, in such event, the holders of the remaining shares voting will not be able to elect any Trustees. After the initial meeting as described above, no further meetings of shareholders for the purpose of electing Trustees will be held, unless required by law (for such reasons as electing or removing Trustees, changing fundamental policies, and approving advisory agreements or 12b-1 plans), unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time, the Trustees then in office will call a shareholders' meeting for the election of Trustees. Limitation of Trustees' Liability The Declaration of Trust provides that a Trustee will not be liable for errors of judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his duties involved in the conduct of his office. Banking Laws The Glass-Steagall Act and other banking laws and regulations presently prohibit member banks of the Federal Reserve System ("Member Banks") or their non-bank affiliates from sponsoring, organizing, controlling, or distributing the shares of registered, open-end investment companies such as the Trust. Such laws and regulations also prohibit banks from issuing, underwriting or distributing securities in general. However, under the Glass-Steagall Act and such other laws and regulations, a Member Bank or an affiliate thereof may act as investment advisor, transfer agent or custodian to a registered open-end investment company and may also act as agent in connection with the purchase of shares of such an investment company upon the order of its customer. FUNB and its affiliates are subject to, and in compliance with, the aforementioned laws and regulations. Changes to applicable laws and regulations or future judicial or administrative decisions could result in FUNB and its affiliates being prevented from continuing to perform the services required under the investment advisory contract or from acting as agent in connection with the purchase of shares of the Fund by its customers. If FUNB and its affiliates were prevented from continuing to provide for services called for under the investment advisory agreement, it is expected that the Trustees would identify, and call upon the Fund's shareholders to approve a new investment advisor. If this were to occur, it is not anticipated that the shareholders of the Fund would suffer any adverse financial consequences. INVESTMENT ADVISORY AGREEMENT On behalf of the Fund, the Trust has entered into an investment advisory agreement with the Fund's investment advisor (the "Advisory Agreement"). Under the Advisory Agreement, and subject to the supervision of the Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless the Fund is Evergreen Masters Fund ) investment advisory, management and administrative services, office facilities, and equipment in connection with its services for managing the investment and reinvestment of the Fund's assets. The investment advisor pays for all of the expenses incurred in connection with the provision of its services. The Fund pays for all charges and expenses, other than those specifically referred to as being borne by the investment advisor, including, but not limited to, (1) custodian charges and expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent charges and expenses; (4) fees and expenses of Independent Trustees; (5) brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes; (7) applicable costs and expenses under the Distribution Plan (as described above) (8) taxes and trust fees payable to governmental agencies; (9) the cost of share certificates; (10) fees and expenses of the registration and qualification of the Fund and its shares with the SEC or under state or other securities laws; (11) expenses of preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy materials to shareholders of the Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and for the Independent Trustees on matters relating to the Fund; (14) charges and expenses of filing annual and other reports with the SEC and other authorities; and (15) all extraordinary charges and expenses of the Fund. For information on advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI. The Advisory Agreement continues in effect for two years from its effective date and, thereafter, from year to year only if approved at least annually by the Board of Trustees of the Trust or by a vote of a majority of the Fund's outstanding shares. In either case, the terms of the Advisory Agreement and continuance thereof must be approved by the vote of a majority of the Independent Trustees cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement may be terminated, without penalty, on 60 days' written notice by the Trust's Board of Trustees or by a vote of a majority of outstanding shares. The Advisory Agreement will terminate automatically upon its "assignment" as that term is defined in the 1940 Act. Transactions Among Advisory Affiliates The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act ("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or sell securities from another investment company for which a subsidiary of First Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow the Fund to buy or sell securities from other advisory clients for whom a subsidiary of First Union Corporation is an investment advisor. The Fund may engage in such transaction if it is equitable to each participant and consistent with each participant's investment objective. CORPORATE AND MUNICIPAL BOND RATINGS The Fund relies on ratings provided by independent rating services to help determine the credit quality of bonds and other obligations the Fund intends to purchase or already owns. A rating is an opinion of an issuer's ability to pay interest and/or principal when due. Ratings reflect an issuer's overall financial strength and whether it can meet its financial commitments under various economic conditions. If a security held by the Fund loses its rating or has its rating reduced after the Fund has purchased it, the Fund is not required to sell or otherwise dispose of the security, but may consider doing so. The principal rating services, commonly used by the Fund and investors generally, are S&P and Moody's. The Fund may also rely on ratings provided by Fitch. Rating systems are similar among the different services. As an example, the chart below compares basic ratings for long-term bonds. The "Credit Quality" terms in the chart are for quick reference only. Following the chart are the specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS ----------------- ---------------- --------------- ================================================= MOODY'S S&P FITCH Credit Quality ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= Aaa AAA AAA Excellent Quality (lowest risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= Aa AA AA Almost Excellent Quality (very low risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= A A A Good Quality (low risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= Baa BBB BBB Satisfactory Quality (some risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= Ba BB BB Questionable Quality (definite risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= B B B Low Quality (high risk) ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default ----------------- ---------------- --------------- ================================================= ----------------- ---------------- --------------- ================================================= D DDD/DD/D In Default ----------------- ---------------- --------------- =================================================
CORPORATE BONDS LONG-TERM RATINGS Moody's Corporate Long-Term Bond Ratings Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e. they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa to Caa. The modifier 1 indicates that the company ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range raking and the modifier 3 indicates that the company ranks in the lower end of its generic rating category. S&P Corporate Long-Term Bond Ratings AAA An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet it financial commitment on the obligation. CCC An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated CC is currently highly vulnerable to nonpayment. C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D The D rating, unlike other ratings, is not prospective; rather, it is used only where a default has actually occurred--and not where a default is only expected. S&P changes ratings to D either: ! On the day an interest and/or principal payment is due and is not paid. An exception is made if there is a grace period and S&P believes that a payment will be made, in which case the rating can be maintained; or ! Upon voluntary bankruptcy filing or similar action. An exception is made if S&P expects that debt service payments will continue to be made on a specific issue. In the absence of a payment default or bankruptcy filing, a technical default (i.e., covenant violation) is not sufficient for assigning a D rating. Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Fitch Corporate Long-Term Bond Ratings Investment Grade AAA Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A High credit quality. A ratings denote a lower expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. Speculative Grade BB Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C High default risk. Default is a real possibility. Capacity for meeting financial commitment is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. DDD, DD, D Default. Securities are not meeting current obligations and are extremely speculative. DDD designates the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates, for example, DD indicates expected recovery of 50%-90% of such outstandings, and D the lowest recovery potential, i.e. below 50%. + or - may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA rating category or to categories below CCC. CORPORATE SHORT-TERM RATINGS Moody's Corporate Short-Term Issuer Ratings Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics. - -- Leading market positions in well-established industries. - -- High rates of return on funds employed. - -- Conservative capitalization structure with moderate reliance on debt and ample asset protection. - -- Broad margins in earnings coverage of fixed financial changes and high internal cash generation. - -- Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P Corporate Short-Term Obligation Ratings A-1 A short-term obligation rated A-1 is rated in the highest category by S&P. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3 A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B A short-term obligation rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D The D rating, unlike other ratings, is not prospective; rather, it is used only where a default has actually occurred--and not where a default is only expected. S&P changes ratings to D either: ! On the day an interest and/or principal payment is due and is not paid. An exception is made if there is a grace period and S&P believes that a payment will be made, in which case the rating can be maintained; or ! Upon voluntary bankruptcy filing or similar action, An exception is made if S&P expects that debt service payments will continue to be made on a specific issue. In the absence of a payment default or bankruptcy filing, a technical default (i.e., covenant violation) is not sufficient for assigning a D rating. Fitch Corporate Short-Term Obligation Ratings F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade. B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions. C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D Default. Denotes actual or imminent payment default. MUNICIPAL BONDS LONG-TERM RATINGS Moody's Municipal Long-Term Bond Ratings Aaa Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa to B. The modifier 1 indicates that the company ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range raking and the modifier 3 indicates that the company ranks in the lower end of its generic rating category. S&P Municipal Long-Term Bond Ratings AAA An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet it financial commitment on the obligation. CCC An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated CC is currently highly vulnerable to nonpayment. C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Fitch Municipal Long-Term Bond Ratings Investment Grade AAA Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A High credit quality. A ratings denote a lower expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. Speculative Grade BB Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. DDD, DD, D Default. Securities are not meeting current obligations and are extremely speculative. DDD designates the highest potential for recovery of amounts outstanding on any securities involved. DD designates lower recovery potential and D the lowest. + or - may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA rating category or to categories below CCC. SHORT-TERM MUNICIPAL RATINGS Moody's Municipal Short-Term Issuer Ratings Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidence by many of the following characteristics. - -- Leading market positions in well-established industries. - -- High rates of return on funds employed. - -- Conservative capitalization structure with moderate reliance on debt and ample asset protection. - -- Broad margins in earnings coverage of fixed financial changes and high internal cash generation. - -- Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories. Moody's Municipal Short-Term Loan Ratings MIG 1 This designation denotes best quality. There is strong protection by established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing. MIG 2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG 3 This designation denotes favorable quality. Liquidity and cash-flow protection may be narrow and market access for refinancing is likely to be less well established. SG This designation denotes speculative quality. Debt instruments in this category may lack margins of protection. S&P Commercial Paper Ratings A-1 This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated B are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. S&P Municipal Short-Term Obligation Ratings SP-1 Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Fitch Municipal Short-Term Obligation Ratings F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade. B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions. C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D Default. Denotes actual or imminent payment default. ADDITIONAL INFORMATION Except as otherwise stated in its prospectus or required by law, the Fund reserves the right to change the terms of the offer stated in its prospectus without shareholder approval, including the right to impose or change fees for services provided. No dealer, salesman or other person is authorized to give any information or to make any representation not contained in the Fund's prospectus, SAI or in supplemental sales literature issued by the Fund or EDI, and no person is entitled to rely on any information or representation not contained therein. The Fund's prospectus and SAI omit certain information contained in the Trust's registration statement, which you may obtain for a fee from the SEC in Washington, D.C. EVERGREEN RESERVE MONEY MARKET FUNDS PART C OTHER INFORMATION Item 23 Exhibits Unless otherwise indicated, each of the Exhibits listed below is filed herewith.
Exhibit Number Description Location - ------- ----------- ----------- (a) Declaration of Trust Incorporated by reference to Registrant's Registration Statement Filed on December 12, 1997 (b) By-laws Incorporated by reference to Registrant's Registration Statement Filed on December 12, 1997 (c) Provisions of instruments defining the rights of holders of the securities being registered are contained in the Declaration of Trust Articles II, III.(6)(c), VI.(3), IV.(8), V, VI, VII, VIII and By-laws Articles II, III and VIII included as part of Exhibits 1 and 2 of this Registration Statement (d)(1) Investment Advisory and Management Incorporated by reference to Agreement between the Registrant and First Post-Effective Amendment No. 10 to Union National Bank Registrant's Registration Statement Filed on August 6, 1999 (d)(2) Investment Advisory and Management Incorporated by reference to Agreement between the Registrant and Evergreen Post-Effective Amendment No. 10 to Asset Management Corp. Registrant's Registration Statement Filed on August 6, 1999 (e)(1) Class A and Class C Principal Underwriting Incorporated by reference to Agreement between the Registrant and Evergreen Post-Effective Amendment No. 10 to Distributor, Inc. Registrant's Registration Statement Filed on August 6, 1999 (e)(2) Class B Principal Underwriting Agreement Incorporated by reference to between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to Inc. (Evergreen) Registrant's Registration Statement Filed on May 31, 1998 ("Post- Effective Amendment No. 4") (e)(3) Class Y Principal Underwriting Agreement Incorporated by reference to between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 10 to Inc. Registrant's Registration Statement Filed on August 6, 1999 (e)(4) Specimen of Dealer Agreement used by Evergreen Incorporated by reference to Distributor, Inc. Registrant's Registration Statement Filed on December 12, 1997 (f) Form of Deferred Compensation Plan Incorporated by reference to Registrant's Registration Statement Filed on December 12, 1997 (g)(1) Custodian Agreement between the Registrant Incorporated by reference to and State Street Bank and Trust Company Post-Effective Amendment No. 4 Registrant's Registration Statement (g)(2) Letter Amendment to Custodian Agreement Incorporated by reference to (California & U.S. Government Money Market Funds) Post-Effective Amendment No. 10 to Registrant's Registration Statement Filed on August 6, 1999 (h)(1) Administration Agreement between Evergreen Incorporated by reference to Investment Services, Inc. and the Registrant Registrant's Registration Statement Filed on August 6, 1999 (h)(2) Transfer Agent Agreement between the Incorporated by reference to Registrant and Evergreen Service Company Post-Effective Amendment No. 4 to Registrant's Registration Statement (h)(3) Letter Amendment to Transfer Agent Agreement Incorporated by reference to (California & U.S. Government Money Market Funds) Post-Effective Amendment No. 10 to Registrant's Registration Statement Filed on August 6, 1999 (i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to Registrant's Registration Statement (j)(1) Consent of PriceWaterhouseCoopers, LLP. Incorporated by reference Post-Effective Amendment (Money Market & Municipal Money Market Funds) No. 7 Filed on April 1, 1999 (j)(2) Consent of KPMG Peat Marwick, LLP. Incororated by reference Post-Effective Amendment (FL, NJ PN Municipal and Treasury Money No. 7 Filed on April 1, 1999 Market Funds) (j)(3) Consent of KPMG LLP To be filed by Amendment on or about January 26, 2000 (k) Not applicable (l) Not applicable (m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to Post-Effective Amendment No. 10 to Registrant's Registration Statement Filed on August 6, 1999 (m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's Registration Statement (m)(3) 12b-1 Distribution Plan for Class C Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's Registration Statement (n) Not applicable (o) Multiple Class Plan. Incorporated by reference to Post-Effective Amendment No. 7 filed on April 1, 1999.
Item 24. Persons Controlled by or Under Common Control with Registrant. None Item 25. Indemnification. Registrant has obtained from a major insurance carrier a trustees and officers liability policy covering certain types of errors and ommissions. Provisions for the indemnification of the Registrant's Trustees and officers are also contained in the Registrant's Declaration of Trust. Provisions for the indemnification of the Registrant's Investment Advisors are contained in their respective Investment Advisory and Management Agreements. Provisions for the indemnification of Evergreen Distributor, Inc., the Registrant's principal underwriter, are contained in the Principal Underwriting Agreement between Evergreen Distributor, Inc. and the Registrant. Provisions for the indemnification of Evergreen Service Company, the Registrant's transfer agent, are contained in the Master Transfer and Recordkeeping Agreement between Evergreen Service Company and the Registrant. Provisions for the indemnification of State Street Bank and Trust Co., the Registrant's custodian, are contained in the Custodian Agreement between State Street Bank and Trust Co., and the Registrant. Item 26. Business or Other Connections of Investment Adviser. The Directors and principal executive officers of First Union National Bank are: Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer, First Union Corporation; Chief Executive Officer and Chairman, First Union National Bank John Georgius President, Chief Operating Officer and Director, First Union Corporation; Vice Chairman, First Union National Bank Mark C. Treanor Executive Vice President, Secretary & General Counsel, First Union Corporation Robert T. Atwood Executive Vice President and Chief Financial Officer, First Union Corporation; Chief Financial Officer and Executive Vice President, First Union National Bank All of the above persons are located at the following address: First Union National Bank, One First Union Center, Charlotte, NC 28288. The information required by this item with respect to Evergreen Asset Management Corp. is incorporated by reference to the Form ADV (File No. 801-46522) of Evergreen Asset Management Corp. The information required by this item with respect to Evergreen Investment Management Company (formerly Keystone Investment Management Company) is incorporated by reference to the Form ADV (File No. 801-5436) of Evergreen Investment Management Company. The information required by this item with respect to Meridian Investment Company is incorporated by reference to the Form ADV (File No. 801-8327) of Meridian Investment Company. The information required by this item with respect to Mentor Investment Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384) of Mentor Investment Advisors, LLC. Item 27. Principal Underwriters. Evergreen Distributor, Inc. acts as principal underwriter for each registered investment company or series thereof that is a part of the Evergreen "fund Complex" as such term is defined in Item 22(a) of Schedule 14A under the Securities Exchange Act of 1934. The Directors and principal executive officers of Evergreen Distributor, Inc. are: Maryann Bruce Director, Chairman and Chief Executive Officer Dennis Sheehan Director, Chief Financial Officer J. David Huber President Kevin J. Dell Vice President, General Counsel and Secretary All of the above persons are located at the following address except Ms. Bruce: Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10016. Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288. The information required by this item with respect to Mentor Investment Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384) of Mentor Investment Advisors, LLC. The Registrant has not paid, directly or indirectly, any commissions or other compensation to the principal underwriter in the last fiscal year. Item 28. Location of Accounts and Records. All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated thereunder are maintained at one of the following locations: Evergreen Investment Services, Inc., Evergreen Service Company and Evergreen Investment Management Company (formerly Keystone Investment Management Company), all located at 200 Berkeley Street, Boston, Massachusetts 02110 First Union National Bank, One First Union Center, 301 S. College Street, Charlotte, North Carolina 28288 Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York 10577 Mentor Investment Advisors, LLC, 901 East Byrd Street, Richmond, Virginia 23219 Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777 State Street Bank and Trust Company, 2 Heritage Drive, North Quincy, Massachusetts 02171 Meridian Investment Co., 55 Valley Stream Parkway, Malvern, Pennsylvania 19355 Item 29. Management Services. Not Applicable Item 30. Undertakings. The Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of New York, and State of New York, on the 5th day of January, 2000. MENTOR FUNDS By: /s/ Anthony J. Fischer ----------------------------- Name: Anthony J. Fischer Title: President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 5th day of January, 2000.
/s/Anthony J. Fischer /s/ Laurence B. Ashkin /s/ Charles A. Austin, III - ------------------------- ----------------------------- -------------------------------- Anthony J. Fischer Laurence B. Ashkin* Charles A. Austin III* President and Treasurer (Principal Trustee Trustee Financial and Accounting Officer) /s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit - ---------------------------- ---------------------------- -------------------------------- K. Dun Gifford* James S. Howell* William Walt Pettit* Trustee Chairman of the Board and Trustee Trustee /s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield - ------------------------------- ----------------------------- -------------------------------- Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield* Trustee Trustee Vice Chairman of the Board and Trustee /s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr. - ------------------------------ ------------------------------- --------------------------------- David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.* Trustee Trustee /s/ Richard J. Shima - ------------------------------ Richard J. Shima* Trustee
*By: /s/ Catherine Foley - ------------------------------- Catherine Foley Attorney-in-Fact *Catherine Foley, by signing her name hereto, does hereby sign this document on behalf of each of the above-named individuals pursuant to powers of attorney duly executed by such persons. INDEX TO EXHIBITS Exhibit Letter Exhibit - -------------- ------- None -----END PRIVACY-ENHANCED MESSAGE-----