PROSPECTUS/PROXY STATEMENT DATED NOVEMBER 14, 1997
Acquisition of Assets of
EVERGREEN (FORMERLY KEYSTONE) SMALL COMPANY GROWTH
FUND II
200 Berkeley Street
Boston, Massachusetts 02116
and
KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN SMALL COMPANY GROWTH FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Evergreen (formerly Keystone) Small Company Growth Fund II ("Evergreen Small
Company Growth II") and Keystone Small Company Growth Fund (S-4) ("Keystone
Small Company Growth (S-4)") in connection with a proposed Agreement and Plan of
Reorganization (the "Plan") to be submitted to shareholders of each of Evergreen
Small Company Growth II and Keystone Small Company Growth (S- 4) for
consideration at a Special Meeting of Shareholders to be held on January 6, 1998
at 3:00 p.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley
Street, Boston, Massachusetts 02116, and any adjournments thereof (the
"Meeting"). Each Plan provides for all of the assets of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4), respectively, to be acquired
by Evergreen Small Company Growth Fund ("Evergreen Small Company Growth") in
exchange for shares of Evergreen Small Company Growth and the assumption by
Evergreen Small Company Growth of certain identified liabilities of Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4), respectively
(hereinafter referred to individually as the "Reorganization" or collectively as
the "Reorganizations"). Evergreen Small Company Growth, Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) are sometimes hereinafter
referred to individually as the "Fund" and collectively as the "Funds."
Following the Reorganizations, shares of Evergreen Small Company Growth will be
distributed to shareholders of Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4) in
<PAGE>
liquidation of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) and such Funds will be terminated. Holders of shares of Evergreen
Small Company Growth II will receive shares of the class of Evergreen Small
Company Growth (the "Corresponding Shares") having the same letter designation
and the same distribution- related fees, shareholder servicing-related fees and
contingent deferred sales charges ("CDSCs"), if any, as the shares of the class
of Evergreen Small Company Growth II held by them prior to the Reorganization.
Holders of shares of Keystone Small Company Growth (S-4) will receive shares of
Evergreen Small Company Growth having the same distribution-related fees,
shareholder servicing-related fees and CDSCs, if any, as the shares of Keystone
Small Company Growth (S-4) held by them prior to the Reorganization. As a result
of the proposed Reorganizations, shareholders of Evergreen Small Company Growth
II will receive that number of full and fractional Corresponding Shares of
Evergreen Small Company Growth, and shareholders of Keystone Small Company
Growth (S-4) will receive that number of full and fractional shares of Evergreen
Small Company Growth, having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares of Evergreen Small Company Growth
II or Keystone Small Company Growth (S- 4). Each Reorganization is being
structured as a tax-free reorganization for federal income tax purposes.
Evergreen Small Company Growth is a separate series of Evergreen Equity
Trust, an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
Evergreen Small Company Growth is to provide shareholders with long-term growth
of capital. Such investment objective is identical to those of Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Small Company
Growth that shareholders of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4) should know before voting on the Reorganizations. Certain
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference.
A Statement of Additional Information dated November 14, 1997 relating to this
Prospectus/Proxy Statement and the Reorganizations incorporating by reference
the financial statements of Evergreen Small Company Growth II dated May 31, 1997
and Keystone Small Company Growth (S-4) dated May 31, 1997 has been filed with
the SEC and is
<PAGE>
incorporated by reference in its entirety into this Prospectus/Proxy Statement.
Evergreen Small Company Growth is a newly created series of Evergreen Equity
Trust and has had no operations to date. Consequently, there are no current
financial statements of Evergreen Small Company Growth. A copy of such Statement
of Additional Information is available upon request and without charge by
writing to Evergreen Small Company Growth at 200 Berkeley Street, Boston,
Massachusetts 02116, or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen Small Company Growth dated November
10, 1997 are incorporated herein by reference in their entirety. The
Prospectuses, which pertain (i) to Class Y shares and (ii) to Class A, Class B
and Class C shares, differ only insofar as they describe the separate
distribution and shareholder servicing arrangements applicable to the classes.
Shareholders of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the class of shares of Evergreen Small Company Growth
that they will receive as a result of the consummation of each Reorganization.
Additional information about Evergreen Small Company Growth is contained in its
Statement of Additional Information of the same date which has been filed with
the SEC and which is available upon request and without charge by writing to or
calling Evergreen Small Company Growth at the address or telephone number listed
in the preceding paragraph.
The Prospectuses of Evergreen Small Company Growth II dated August 1,
1997, as supplemented, and the Prospectus of Keystone Small Company Growth (S-4)
dated August 1, 1997, as supplemented, are incorporated herein in their entirety
by reference. Copies of the Prospectuses and related Statements of Additional
Information dated the same respective dates are available upon request without
charge by writing or calling the Fund of which you are a shareholder at the
address listed in the second preceding paragraph.
Included as Exhibits A-1 and A-2 to this Prospectus/Proxy Statement are
copies of each Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk,
including possible loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES......................................... 6
SUMMARY................................................................. 12
Proposed Plans of Reorganization............................... 12
Tax Consequences............................................... 14
Investment Objectives and Policies
of the Funds................................................. 14
Comparative Performance Information
for each Fund....................................... 15
Management of the Funds........................................ 16
Investment Adviser ............................................ 16
Portfolio Management........................................... 17
Distribution of Shares......................................... 17
Purchase and Redemption Procedures............................. 21
Exchange Privileges............................................ 21
Dividend Policy................................................ 21
Risks.......................................................... 22
REASONS FOR THE REORGANIZATIONS......................................... 23
Agreements and Plans of Reorganization......................... 27
Federal Income Tax Consequences................................ 30
Pro-forma Capitalization....................................... 32
Shareholder Information........................................ 33
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................ 35
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS......................... 37
Forms of Organization.......................................... 37
Capitalization................................................. 37
Shareholder Liability.......................................... 38
Shareholder Meetings and Voting Rights......................... 39
Liquidation or Dissolution..................................... 40
Liability and Indemnification of Trustees...................... 40
ADDITIONAL INFORMATION.................................................. 41
VOTING INFORMATION CONCERNING THE MEETINGS...................... 42
FINANCIAL STATEMENTS AND EXPERTS........................................ 45
LEGAL MATTERS........................................................... 46
OTHER BUSINESS.......................................................... 46
<PAGE>
COMPARISON OF FEES AND EXPENSES
It is anticipated that on or about January 9, 1998 Keystone Small
Company Growth (S-4) will become a multiple class fund. As of that date the Fund
will offer Class A, Class B and Class C shares, each of which class of shares
will be similar in all respects to the Class A, Class B and Class C shares of
Evergreen Small Company Growth. It is further anticipated that current
outstanding shares of Keystone Small Company Growth (S-4) will become Class B
shares of the Fund at that time. On or about January 16, 1998, it is anticipated
that any Class B shares of Keystone Small Company Growth (S-4) purchased prior
to January 1, 1995 will be converted to Class A shares of the Fund. Should these
events occur, shareholders of Keystone Small Company Growth (S-4) will receive
on the date of the Reorganization the same class of shares of Evergreen Small
Company Growth held by them in the Fund after January 16, 1998. See "Reasons for
the Reorganizations - Pro-forma Capitalization."
The amounts for Class Y, Class A, Class B and Class C shares of
Evergreen Small Company Growth II set forth in the following tables and in the
examples are based on the expenses for Evergreen Small Company Growth II's
fiscal year ended May 31, 1997. The amounts for shares of Keystone Small Company
Growth (S-4) set forth in the following tables and in the examples are based on
the expenses for Keystone Small Company Growth (S-4)'s fiscal year ended May 31,
1997. The pro forma amounts for Class Y, Class A, Class B and Class C shares of
Evergreen Small Company Growth are based on the estimated expenses of Evergreen
Small Company Growth for the fiscal year ending September 30, 1998.
The following tables show for Evergreen Small Company Growth II,
Keystone Small Company Growth (S-4) and Evergreen Small Company Growth pro forma
the shareholder transaction expenses and annual fund operating expenses
associated with an investment in the shares of each Fund.
<TABLE>
<CAPTION>
Comparison of Shares of Evergreen Small Company Growth
With Shares of Evergreen Small Company Growth II
and Keystone Small Company Growth (S-4)
Evergreen Small Company Growth II
----------------
Shareholder Class Y Class A Class B Class C
Transaction Expenses ------- ------- ------- -------
<S> <C> <C> <C> <C>
<PAGE>
Maximum Sales Load
Imposed on Purchases None 4.75% None None
(as a percentage of
offering price)
Maximum Sales Load None None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
Contingent Deferred None None 5.00% in 1.00% in
Sales Charge (as a the first the first
percentage of original year, year and
purchase price or declining 0.00%
redemption proceeds, to 1.00% thereafter
whichever is lower) in the
sixth year
and 0.00%
thereafter
Exchange Fee None None None None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.70% 0.70% 0.70% 0.70%
12b-1 Fees (1) None 0.25% 1.00% 1.00%
Other Expenses 1.02% 1.02% 1.02% 1.03%
----- ----- ----- -----
Annual Fund Operating 1.72% 1.97% 2.72% 2.73%
Expenses(3) ----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Keystone Small Company Growth (S-4)
------------------------------------
Shareholder
Transaction Expenses
<PAGE>
Contingent Deferred 4.00% in the
Sales Charge (as a first year,
percentage of original declining to
purchase price or 1.00% in the
redemption proceeds, fourth year and
whichever is lower) 0.00%
thereafter
Exchange Fee None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.46%
12b-1 Fees (1) 1.00%
Other Expenses 0.29%
-----
Annual Fund Operating 1.75%
Expenses(3) -----
--------
<TABLE>
<CAPTION>
Evergreen Small Company Growth Pro Forma
Shareholder
Transaction Class Y Class A Class B Class C
Expenses ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Load None 4.75% None None
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Sales Load None None None None
Imposed on
Reinvested
Dividends (as a
percentage of
offering price)
<PAGE>
Contingent Deferred None None 5.00% in 1.00% in
Sales Charge (as a the first the first
percentage of year, year and
original purchase declining 0.00%
price or redemption to 1.00% thereafter
proceeds, whichever in the
is lower) sixth year
and 0.00%
thereafter
(2)
Exchange Fee None None None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee 0.48% 0.48% 0.48% 0.48%
12b-1 Fees (1) None 0.25% 1.00% 1.00%
Other Expenses 0.27% 0.27% 0.27% 0.27%
--------- ------- ---------- ----------
Annual Fund
Operating 0.75% 1.00% 1.75% 1.75%
Expenses --------- ------- ---------- ----------
--------- ------- ---------- ----------
</TABLE>
- ---------------
(1) Class A Shares of Evergreen Small Company Growth and Evergreen Small
Company Growth II can pay up to 0.75% of average daily net assets as a
12b-1 fee. For the foreseeable future, the Class A 12b-1 fees will be
limited to 0.25% of average daily net assets. For shares of Keystone Small
Company Growth (S-4) and for Class B and Class C shares of Evergreen Small
Company Growth and Evergreen Small Company Growth II, a portion of the
12b-1 fees equivalent to 0.25% of average daily net assets will be
shareholder servicing-related. Distribution-related 12b-1 fees will be
limited to 0.75% of average daily net assets as permitted under the rules
of the National Association of Securities Dealers, Inc.
(2) The contingent deferred sales charge, if any, applicable to shares of
Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) prior to the Reorganizations will carry over to the shares of
<PAGE>
Evergreen Small Company Growth received in the
Reorganizations.
(3) Expense ratios include indirectly paid expenses, which represent
expense offset arrangements with the Fund's custodian.
Examples. The following tables show for Evergreen Small Company Growth
II and Keystone Small Company Growth (S-4), and for Evergreen Small Company
Growth pro forma, assuming consummation of the Reorganizations, examples of the
cumulative effect of shareholder transaction expenses and annual fund operating
expenses indicated above on a $1,000 investment in each class of shares for the
periods specified, assuming (i) a 5% annual return, and (ii) redemption at the
end of such period, and additionally for Class B and Class C shares of Evergreen
Small Company Growth and Evergreen Small Company Growth II and shares of
Keystone Small Company Growth (S-4), no redemption at the end of each period.
<TABLE>
<CAPTION>
Evergreen Small Company Growth II
--------------------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $17 $54 $93 $203
Class A $67 $106 $149 $266
Class B $78 $114 $164 $279
(Assuming
redemption at end
of period)
Class B $28 $84 $144 $279
(Assuming no
redemption at end
of period)
Class C $38 $85 $144 $306
(Assuming
redemption at end
of period)
<PAGE>
Class C $28 $85 $144 $306
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Keystone Small Company Growth (S-4)
-----------------------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
(Assuming $58 $75 $95 $206
redemption at end
of period)
(Assuming no $18 $55 $95 $206
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Small Company Growth Pro Forma
-----------------------------------------
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $8 $24 $42 $93
Class A $57 $78 $100 $164
Class B $68 $85 $115 $177
(Assuming
redemption at end
of period)
Class B $18 $55 $95 $177
(Assuming no
redemption at end
of period)
Class C $28 $55 $95 $206
(Assuming
redemption at end
of period)
<PAGE>
Class C
(Assuming no $18 $55 $95 $206
redemption at end
of period)
</TABLE>
The purpose of the foregoing examples is to assist Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4) shareholders in
understanding the various costs and expenses that an investor in Evergreen Small
Company Growth as a result of the Reorganizations would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in each Fund. These examples should not be considered a
representation of past or future expenses or annual return. Actual expenses may
be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement
and, to the extent not inconsistent with such additional information, the
Prospectuses of Evergreen Small Company Growth dated November 10, 1997 and the
Prospectuses of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) each dated August 1, 1997, as supplemented, (which are incorporated
herein by reference), and the Plans, forms of which are attached to this
Prospectus/Proxy Statement as Exhibits A-1 and A-2.
Proposed Plans of Reorganization
The Plans provide for the transfer of all of the assets of Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4), as applicable,
in exchange for shares of Evergreen Small Company Growth and the assumption by
Evergreen Small Company Growth of certain identified liabilities of each Fund.
The identified liabilities consist only of those liabilities reflected on each
Fund's statement of assets and liabilities determined immediately preceding the
Reorganizations. The Plans also call for the distribution of shares of Evergreen
Small Company Growth to Evergreen Small Company Growth II and Keystone Small
Company Growth (S- 4) shareholders in liquidation of those Funds as part of the
Reorganizations. As a result of the Reorganizations, the shareholders of
Evergreen Small Company Growth II will become owners of that number of full and
fractional Corresponding Shares of Evergreen Small Company Growth and the
shareholders of Keystone Small Company Growth (S-4) will
<PAGE>
become the owners of that number of full and fractional shares of Evergreen
Small Company Growth having an aggregate net asset value equal to the aggregate
net asset value of the shareholder's respective class of shares of Evergreen
Small Company Growth II and Keystone Small Company Growth (S- 4)as of the close
of business immediately prior to the date that such Fund's assets are exchanged
for shares of Evergreen Small Company Growth. See "Reasons for the
Reorganizations Agreements and Plans of Reorganization."
The Trustees of Evergreen Small Company Growth II and the Trustees of
Keystone Small Company Growth (S-4), including the Trustees who are not
"interested persons," (the "Trustees") as such term is defined in the 1940 Act
(the "Independent Trustees"), have concluded that the Reorganizations would be
in the best interests of shareholders of Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4), respectively, and that the interests of the
shareholders of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4), respectively, will not be diluted as a result of the transactions
contemplated by the Reorganizations. Accordingly, the Trustees have submitted
the Plans for the approval of Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4) shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN SMALL COMPANY
GROWTH II
RECOMMENDS APPROVAL BY SHAREHOLDERS OF EVERGREEN
SMALL COMPANY GROWTH II OF THE PLAN
EFFECTING THE REORGANIZATION.
THE BOARD OF TRUSTEES OF KEYSTONE SMALL COMPANY GROWTH (S-4)
RECOMMENDS APPROVAL BY SHAREHOLDERS OF KEYSTONE
SMALL COMPANY GROWTH (S-4) OF THE PLAN
EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Equity Trust have also approved the Plans, and
accordingly, Evergreen Small Company Growth's participation in the
Reorganizations.
Approval of a Reorganization on the part of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) will require the affirmative
vote of a majority of each Fund's shares present and entitled to vote, with all
classes voting together as a single class at Meetings at which a quorum of each
Fund's shares is present. A majority of the outstanding shares of each Fund
entitled to vote, represented in person or by proxy, is required to constitute a
quorum at
<PAGE>
the Meetings. See "Voting Information Concerning the
Meetings."
The Reorganizations are scheduled to take place on or about January 23,
1998.
If the shareholders of Evergreen Small Company Growth II or Keystone
Small Company Growth (S-4) do not vote to approve the Reorganizations, the
Trustees will consider other possible courses of action in the best interests of
shareholders.
Tax Consequences
Prior to or at the completion of a Reorganization, Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4) will each have
received an opinion of counsel that the Reorganization has been structured so
that no gain or loss will be recognized by the Fund or its shareholders for
federal income tax purposes as a result of the receipt of shares of Evergreen
Small Company Growth in the Reorganization. The holding period and aggregate tax
basis of shares of Evergreen Small Company Growth that are received by each
Fund's shareholders will be the same as the holding period and aggregate tax
basis of shares of the Fund previously held by such shareholders, provided that
shares of the Fund are held as capital assets. In addition, the holding period
and tax basis of the assets of each Fund in the hands of Evergreen Small Company
Growth as a result of the Reorganization will be the same as in the hands of
each Fund immediately prior to the Reorganization, and no gain or loss will be
recognized by Evergreen Small Company Growth upon the receipt of the assets of
each Fund in exchange for shares of Evergreen Small Company Growth and the
assumption by Evergreen Small Company Growth of certain identified liabilities.
Investment Objectives and Policies of the Funds
The investment objective and policies of each of Evergreen Small
Company Growth, Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) are identical. Each Fund seeks to provide shareholders with
long-term growth of capital. Each Fund will invest at least 65% of its total
assets in equity securities of companies with market capitalizations of less
than $1 billion ("small cap") at the time of the Fund's investment. While each
Fund focuses on small cap stocks, it may also invest in other types of
securities, without regard to the market capitalization of the issuer and which
may be listed on exchanges or traded over-the-counter, including other common
stocks,
<PAGE>
securities convertible into common stocks or having common stock
characteristics, and rights and warrants to purchase common stocks. Each Fund
may purchase the securities of foreign issuers and certain derivative
securities, including futures and options.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statements of Additional Information of the
Funds. Evergreen Small Company Growth, as of the date of this Prospectus/Proxy
Statement, had not commenced operations. The total return of Evergreen Small
Company Growth II for the one year period ended August 31, 1997, the total
return of Keystone Small Company Growth (S-4) for the one, five and ten year
periods ended August 31, 1997 and for both Funds for the periods from inception
through August 31, 1997 are set forth in the table below. The calculations of
total return assume the reinvestment of all dividends and capital gains
distributions on the reinvestment date and the deduction of all recurring
expenses (including sales charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return
5 Years
1 Year Ended 10 Years From
Ended August Ended Inception
August 31, August To August Inception
31, 1997 1997 31, 1997 31, 1997 Date
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
Small Company
Growth II
Class A 8.62% N/A N/A 7.33% 2/20/96
shares
Class B 8.22% N/A N/A 7.43% 2/20/96
shares
Class C 12.22% N/A N/A 9.93% 2/20/96
shares
Class Y N/A N/A N/A 18.17%
shares 1/13/97
<PAGE>
Keystone
Small Company 12.56% 19.68% 12.69% 10.30% 9/11/35
Growth (S-4)
</TABLE>
- --------------
Management of the Funds
The overall management of Evergreen Small Company Growth, of Evergreen
Small Company Growth II and of Keystone Small Company Growth (S-4) is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Equity Trust, Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4), respectively.
Investment Adviser
The investment adviser to Evergreen Small Company Growth, Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4) is Keystone
Investment Management Company ("Keystone"). Keystone has provided investment
advisory and management services to investment companies and private accounts
since 1932. Keystone is an indirect wholly-owned subsidiary of First Union
National Bank ("FUNB"). Keystone is located at 200 Berkeley Street, Boston,
Massachusetts 02116- 5034.
FUNB is a subsidiary of First Union Corporation, the sixth largest bank
holding company in the U.S. based on total assets as of June 30, 1997.
Evergreen Small Company Growth, Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) each pay Keystone a fee for its services at
the annual rate below:
Aggregate Net Asset
Value of the Shares
Management Fee of the Fund
0.70% of the first $100,000,000, plus
0.65% of the next $100,000,000, plus
0.60% of the next $100,000,000, plus
0.55% of the next $100,000,000, plus
0.50% of the next $100,000,000, plus
0.45% of the next $500,000,000, plus
0.40% of the next $500,000,000, plus
0.35% of amounts
over $1,500,000,000.
<PAGE>
Keystone's fee is computed as of the close of business each business
day and payable monthly.
Keystone may, at its discretion, also reduce or waive its fee or
reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Keystone may reduce or cease these voluntary waivers and
reimbursements at any time.
Portfolio Management
The portfolio manager of both Evergreen Small Company Growth and Keystone
Small Company Growth (S-4) is J. Gary Craven, who joined Keystone in November,
1996. Mr. Craven is currently a Keystone Senior Vice President, Chief Investment
Officer and Group Leader for the small cap equity area. Prior to joining
Keystone, Mr. Craven was a portfolio manager at Invista Capital Management, Inc.
since 1987.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Small Company Growth's, Evergreen
Small Company Growth II's and Keystone Small Company Growth (S-4)'s shares. EDI
distributes each Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Evergreen Small Company
Growth and Evergreen Small Company Growth II both offer four classes of shares:
Class A, Class B, Class C and Class Y. Keystone Small Company Growth (S-4)
currently offers only one class of shares. However, it is anticipated that on or
about January 9, 1998, Keystone Small Company Growth (S-4) will offer three
classes of shares, Class A, Class B and Class C. Each class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below.) No class bears the distribution expenses
relating to the shares of any other class.
In the proposed Reorganizations, shareholders of Evergreen Small
Company Growth II will receive the corresponding class of shares of Evergreen
Small Company Growth which they currently hold. The Class A, Class B, Class C
and Class Y shares of Evergreen Small Company Growth have substantially
identical arrangements with respect to the imposition of initial sales charges,
CDSCs and distribution and service fees as the comparable classes of shares of
Evergreen Small Company Growth II. Holders of shares of Keystone Small Company
Growth (S-4) will receive Class A and Class B shares of Evergreen Small Company
Growth. As of January 9, 1998, it is anticipated that each class of
<PAGE>
Evergreen Small Company Growth, Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4) will have identical arrangements with respect to
CDSCs and distribution and service fees. Because the Reorganizations will be
effected at net asset value without the imposition of a sales charge, Evergreen
Small Company Growth shares acquired by shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) pursuant to the proposed
Reorganizations would not be subject to any initial sales charge or CDSC as a
result of the Reorganizations. However, shares acquired as a result of the
Reorganizations would continue to be subject to a CDSC upon subsequent
redemption to the same extent as if shareholders had continued to hold their
shares of Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4). The CDSC applicable to a class of shares received in the Reorganizations
will be the CDSC schedule in effect at the time shares of Evergreen Small
Company Growth II or Keystone Small Company Growth (S-4) were originally
purchased.
The following is a summary description of charges and fees for each of
the different classes of shares. More detailed descriptions of the distribution
arrangements applicable to the classes of shares are contained in the respective
Evergreen Small Company Growth Prospectuses, the Evergreen Small Company Growth
II Prospectuses, the Keystone Small Company Growth (S-4) Prospectus and in each
Fund's respective Statement of Additional Information.
Currently, Keystone Small Company Growth (S-4) offers only one class of
shares. Shares are sold without any front-end sales charges, but are subject to
a CDSC which ranges from 4% to 1% if shares are redeemed during the first four
calendar years after purchase. In addition, shares are subject to
distribution-related and shareholder servicing-related fees as described below.
It is anticipated that Keystone Small Company Growth (S-4) will become a
multiple class fund on or about January 9, 1998. Should this occur, the Fund
will offer three classes of shares identical to the Class A, Class B and Class C
shares of Evergreen Small Company Growth and hereafter described, including
identical distribution-related and shareholder servicing-related expenses.
Class Y Shares. Class Y shares are sold at net asset value without any
initial sales charge and are not subject to distribution-related fees. Class Y
shares are only available to certain classes of investors as is more fully
described in the Prospectuses for Evergreen Small Company Growth.
<PAGE>
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed
during the first six years after the month of purchase. In addition, Class B
shares are subject to distribution-related fees and shareholder
servicing-related fees as described below. Class B shares issued in the
Reorganizations will automatically convert to Class A shares in accordance with
the conversion schedule of Evergreen Small Company Growth in effect at the time
of the Reorganizations. For purposes of determining when Class B shares issued
in the Reorganizations to shareholders of Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) will convert to Class A shares, such shares
will be deemed to have been purchased as of the date the shares of Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4) were originally
purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). The higher fees mean a higher expense ratio, so
Class B shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares of the Fund.
Class C Shares. Class C shares are sold without an initial sales charge
but, as indicated below, are subject to distribution and shareholder
servicing-related fees. Class C shares are subject to a 1% CDSC if such shares
are redeemed during the month of purchase and the 12-month period following the
month of purchase. No CDSC is imposed on amounts redeemed thereafter. Class C
shares incur higher distribution and shareholder servicing-related fees than
Class A shares but, unlike Class B shares, do not convert to any other class of
shares.
The amount of the CDSC applicable to redemptions of shares of Keystone
Small Company Growth (S-4), Evergreen Small Company Growth and Evergreen Small
Company Growth II is charged as a percentage of the lesser of the then current
net asset value or original cost. The CDSC is deducted from the amount of the
redemption and is paid to the respective Fund's distributor or its predecessor,
as the case may be. Shares of each Fund acquired through dividend or
distribution reinvestment are not subject to a CDSC. For purposes of determining
the schedule of CDSCs, and the time of conversion
<PAGE>
to Class A shares, applicable to shares of Evergreen Small Company Growth
received by Evergreen Small Company Growth II's or Keystone Small Company Growth
(S-4)'s shareholders in the Reorganizations, Evergreen Small Company Growth will
treat such shares as having been sold on the date the shares of Evergreen Small
Company Growth II or Keystone Small Company Growth (S-4) were originally
purchased by such Fund's shareholder. Additional information regarding the
Classes of shares of each Fund is included in its respective Prospectus and
Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses.
Evergreen Small Company Growth and Evergreen Small Company Growth II have each
adopted a Rule 12b-1 plan with respect to its Class A shares under which the
Class may pay for distribution-related expenses at an annual rate which may not
exceed 0.75% of average daily net assets attributable to the Class. Payments
with respect to Class A shares of Evergreen Small Company Growth and Evergreen
Small Company Growth II are currently limited to 0.25% of average daily net
assets attributable to the Class, which amount may be increased to the full plan
rate for such Fund by the Trustees without shareholder approval.
Each of Evergreen Small Company Growth and Evergreen Small Company
Growth II has also adopted a Rule 12b- 1 plan with respect to its Class B and
Class C shares under which each Class may pay for distribution-related and
shareholder servicing-related expenses at an annual rate which may not exceed
1.00% of average daily net assets attributable to the Class.
The Class B and Class C Rule 12b-1 plans provide that, of the total
1.00% 12b-1 fees, up to 0.25% may be for payment in respect of "shareholder
services." Consistent with the requirements of Rule 12b-1 and the applicable
rules of the National Association of Securities Dealers, Inc. ("NASD"),
following the Reorganizations Evergreen Small Company Growth may make
distribution-related and shareholder servicing- related payments with respect to
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4) shares
sold prior to the Reorganizations, including payments to Keystone Small Company
Growth (S-4)'s former underwriter.
Keystone Small Company Growth (S-4) has adopted a Rule 12b-1 plan with
respect to its shares pursuant to which the Fund may pay for
distribution-related and shareholder servicing-related expenses at an annual
rate that may not exceed 1.25% of average daily net assets. The NASD limits the
amount that the Fund may pay annually in distribution costs
<PAGE>
for the sale of its shares and shareholder service fees. The NASD currently
limits such annual expenditures to 1.00% of the aggregate average daily net
asset value of its shares, of which 0.75% may be used to pay distribution costs
and 0.25% may be used to pay shareholder service fees.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges, distribution-related
fees and shareholder servicing-related fees is described above. Investments in
the Funds are not insured. The minimum initial purchase requirement for each
Fund is $1,000. There is no minimum for subsequent purchases of shares of any
Fund. Each Fund provides for telephone, mail or wire redemption of shares at net
asset value, less any CDSC, as next determined after receipt of a redemption
request on each day the New York Stock Exchange ("NYSE") is open for trading.
Additional information concerning purchases and redemptions of shares, including
how each Fund's net asset value is determined, is contained in the respective
Prospectus for each Fund. Each Fund may involuntarily redeem shareholders'
accounts that have less than $1,000 of invested funds. All funds invested in
each Fund are invested in full and fractional shares. The Funds reserve the
right to reject any purchase order.
Exchange Privileges
Shares of Evergreen Small Company Growth II may be exchanged for a
similar class of shares of any other fund in the Evergreen Keystone fund family
other than any shares of a fund in the Keystone Classic fund family. Exchanges
of shares of Keystone Small Company Growth (S-4) are limited to shares of the
funds in the Keystone Classic fund family and Class K shares of Evergreen Money
Market Fund. Shares of Evergreen Small Company Growth may be exchanged for a
similar class of shares of any fund in the Evergreen Keystone fund family other
than shares of any fund in the Keystone Classic fund family. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another fund must amount to at least $1,000. The current exchange privileges,
and the requirements and limitations attendant thereto, are described in each
Fund's respective Prospectus and Statement of Additional Information.
Dividend Policy
<PAGE>
Each Fund distributes its investment company taxable income annually
and net realized capital gains at least annually. Dividends and distributions
are reinvested in additional shares of the same class of the respective Fund, or
paid in cash, as a shareholder has elected. See the respective Prospectus of
each Fund for further information concerning dividends and distributions.
After the Reorganizations, shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) who have elected to have their
dividends and/or distributions reinvested will have dividends and/or
distributions received from Evergreen Small Company Growth reinvested in shares
of Evergreen Small Company Growth. Shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) who have elected to receive
dividends and/or distributions in cash will receive dividends and/or
distributions from Evergreen Small Company Growth in cash after the
Reorganizations, although they may, after the Reorganizations, elect to have
such dividends and/or distributions reinvested in additional shares of Evergreen
Small Company Growth.
Each of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) has qualified and intends to continue to qualify, and Evergreen
Small Company Growth intends to qualify, to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). While
so qualified, so long as each Fund distributes all of its investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are
identical, the risks involved in investing in each Fund's shares are comparable.
For a discussion of each Fund's objectives and policies, see "Comparison of
Investment Objectives and Policies."
<PAGE>
Investing in companies with small market capitalizations involves
greater risk than investing in large companies. Their stock prices can rise very
quickly and drop dramatically in a short period of time. This volatility results
from a number of factors, including reliance by these companies on limited
product lines, markets and financial and management resources. These and other
factors may make small cap companies more susceptible to setbacks or downturns.
These companies may experience higher rates of bankruptcy or other failures than
larger companies. They may be more likely to be negatively affected by changes
in management. In addition, the stock of small cap companies may be thinly
traded.
Each Fund may invest in derivatives. The market values of derivatives
or structured securities may vary depending upon the manner in which the
investments have been structured and may fluctuate much more rapidly and to a
much greater extent than investments in other securities. As a result, the
values of such investments may change at rates in excess of the rates at which
traditional fixed income securities change and, depending on the structure of a
derivative, would change in a manner opposite to the change in the market value
of a traditional fixed income security. See each Fund's Prospectus and Statement
of Additional Information for further discussion of the risks inherent in the
use of derivatives.
Each Fund may invest in foreign securities. Investing in securities of
foreign issuers generally involves greater risk than investing in securities of
domestic issuers for the following reasons: publicly available information on
issuers and securities may be scarce; many foreign countries do not follow the
same accounting, auditing, and financial reporting standards as are used in the
U.S.; market trading volumes may be smaller, resulting in less liquidity and
more price volatility compared to U.S. securities of comparable quality; there
may be less regulation of securities trading and its participants; the
possibility may exist for expropriation, confiscatory taxation, nationalization,
establishment of exchange controls, political or social instability or negative
diplomatic developments; and dividend or interest withholding may be imposed at
the source.
Fluctuations in foreign exchange rates impose an additional level of
risk, possibly affecting the value of the Fund's foreign investments and
earnings, gains and losses realized through trades, and the unrealized
appreciation or depreciation of investments. Each Fund may also incur costs when
it shifts assets from one country to another.
REASONS FOR THE REORGANIZATIONS
<PAGE>
At a regular meeting held on September 17, 1997, the Board of Trustees
of Keystone Small Company Growth II considered and approved the Reorganization
as in the best interests of shareholders and determined that the interests of
existing shareholders of Keystone Small Company Growth II will not be diluted as
a result of the transactions contemplated by the Reorganization.
At a regular meeting held on September 17, 1997, the Board of Trustees
of Keystone Small Company Growth (S-4) considered and approved the
Reorganization as in the best interests of shareholders and determined that the
interests of existing shareholders of Keystone Small Company Growth (S-4) will
not be diluted as a result of the transactions contemplated by the
Reorganization.
In approving each Plan, the Trustees reviewed various factors about the
respective Funds and the proposed Reorganizations. The Reorganizations are part
of an overall plan to convert the Evergreen Keystone funds into series of
Delaware business trusts and, to the extent practicable, simplify and make
consistent various investment restrictions and policies. Holders of shares of
beneficial interest in a Massachusetts business trust or a Pennsylvania common
law trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. Although provisions of the
Declaration of Trust and other legal documents pertaining to each Fund's affairs
seek to minimize the potential for such liability, some degree of exposure,
however unlikely, continues to exist with respect to the Funds as long as they
are governed by Massachusetts or Pennsylvania law, as applicable. Substantially
all written agreements, obligations, instruments, or undertakings made by
Evergreen Small Company Growth II or Keystone Small Company Growth (S-4) must
contain a provision limiting the obligations created by that transaction to the
Fund to which the transaction relates, as well as related provisions to the
effect that the shareholders of the Fund and Trustees of the Trust under which
the Fund operates are not personally liable thereunder. Although the
Declarations of Trust of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4) provide for indemnification out of the Funds' property of
any shareholder held personally liable for the obligations of a Fund solely by
reason of his or her being or having been a shareholder, a shareholder could
conceivably incur financial loss exceeding any amounts indemnified on account of
shareholder liability if the circumstances were such that the Fund had
insufficient assets or would otherwise be unable to meet its obligations.
<PAGE>
As a Delaware business trust, the Evergreen Equity Trust's operations
will be governed by applicable Delaware law rather than by Massachusetts or
Pennsylvania law. The Delaware Business Trust Act (the "Delaware Act") provides
that a shareholder of a Delaware business trust shall be entitled to the same
limitation of personal liability extended to stockholders of Delaware
corporations. Shareholders of Delaware corporations do not have personal
liability for obligations of the corporation.
Delaware has obtained a favorable national reputation for its business
laws and business environment. The Delaware courts, which may be called upon to
interpret the Delaware Act, are among the nation's most highly respected and
have an expertise in corporate matters which in part grew out of the fact that
Delaware corporate legal issues are concentrated in the Court of Chancery where
there are no juries and where judges issue written opinions explaining their
decisions. Thus, there is a well established body of precedent which may be
relevant in deciding issues pertaining to a Delaware business trust.
There are other advantages that may be afforded by a Delaware business
trust. Under Delaware law, the Evergreen Equity Trust will have the flexibility
to respond to future business contingencies. For example, the Trustees will have
the power to change the Evergreen Equity Trust to a corporation, to merge or
consolidate it with another entity, to cause each series to become a separate
trust, and to change the Evergreen Equity Trust's domicile without a shareholder
vote. This flexibility could help to assure that the Evergreen Equity Trust
operates under the most advanced form of organization and could reduce the
expense and frequency of future shareholder meetings for non-investment related
issues.
In addition, although it is proposed that Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) each sell all of its assets to
Evergreen Small Company Growth, a newly established series of Evergreen Equity
Trust, an important part of the Reorganizations is that Evergreen Small Company
Growth II, for all practical purposes, will be combined with Keystone Small
Company Growth (S-4). The investment objective and policies of Evergreen Small
Company Growth are identical to those of Keystone Small Company Growth (S-4) and
Evergreen Small Company Growth II. Consequently, in considering the
Reorganizations, each Fund's Trustees reviewed the Reorganization in the context
of Evergreen Small Company Growth II being combined with Keystone Small Company
Growth (S-4).
<PAGE>
Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) have identical investment objectives and policies and comparable risk
profiles. See "Comparison of Investment Objectives and Policies" below. At the
same time, the Boards of Trustees of Evergreen Small Company Growth II and
Keystone Small Company Growth (S- 4) evaluated the potential economies of scale
associated with larger mutual funds and concluded that operational efficiencies
may be achieved upon the combination of Evergreen Small Company Growth II with
another Evergreen Keystone fund with a greater level of assets. As of August 31,
1997, Keystone Small Company Growth (S-4)'s net assets were approximately $1,481
million and Evergreen Small Company Growth II's net assets were approximately
$41 million.
In addition, assuming that an alternative to the Reorganizations would
be to propose that Evergreen Small Company Growth II and Keystone Small Company
Growth (S- 4) continue their existences as separate series of Evergreen Equity
Trust, Keystone Small Company II would be offered through common distribution
channels with the substantially identical Keystone Small Company Growth (S-4).
Evergreen Small Company Growth II would also have to bear the cost of
maintaining its separate existence. Keystone believes that the prospect of
dividing the resources of the Evergreen Keystone mutual fund organization
between two substantially identical funds could result in each Fund being
disadvantaged due to an inability to achieve optimum size, performance levels
and the greatest possible economies of scale. Accordingly, for the reasons noted
above and recognizing that there can be no assurance that any economies of scale
or other benefits will be realized, Keystone believes that the proposed
Reorganizations would be in the best interests of each Fund and its
shareholders.
The Board of Trustees of Evergreen Small Company Growth II and the
Board of Trustees of Keystone Small Company Growth (S-4) met and considered the
recommendation of Keystone, and, in addition, considered among other things, (i)
the disadvantages which apply to operating each Fund as a Massachusetts business
trust or a Pennsylvania common law trust, respectively; (ii) the advantages
which apply to each Fund operating as a series of a Delaware business trust;
(iii) the terms and conditions of the Reorganization; (iv) whether the
Reorganization would result in the dilution of shareholders' interests; (v)
expense ratios, fees and expenses of Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4); (vi) the comparative performance records of
each of the Funds; (vii) compatibility of their investment objectives and
policies; (viii) the investment
<PAGE>
experience, expertise and resources of Keystone; (ix) service features available
to shareholders of the respective Funds and Evergreen Small Company Growth; (x)
the fact that FUNB will bear the expenses incurred by Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) in connection with the
Reorganizations; (xi) the fact that Evergreen Small Company Growth will assume
certain identified liabilities of Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4); and (xii) the expected federal income tax
consequences of the Reorganizations.
The Trustees of Evergreen Small Company Growth II also considered the
benefits to be derived by shareholders of Evergreen Small Company Growth II from
its combination, for all practical purposes, with Keystone Small Company Growth
(S-4). In this regard, the Trustees considered the potential benefits of being
associated with a larger entity and the economies of scale that could be
realized by the participation by shareholders of Evergreen Small Company Growth
II.
In addition, the Trustees of Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) considered that there are alternatives
available to shareholders of Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4), including the ability to redeem their shares, as
well as the option to vote against the Reorganizations.
During their consideration of the Reorganizations the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen Equity Trust on behalf of Evergreen Small
Company Growth also approved at a meeting on September 17, 1997 the
proposed Reorganizations.
THE TRUSTEES OF EVERGREEN SMALL COMPANY GROWTH II
RECOMMEND THAT SHAREHOLDERS APPROVE THE PROPOSED
REORGANIZATION.
THE TRUSTEES OF KEYSTONE SMALL COMPANY GROWTH (S-4)
RECOMMEND THAT SHAREHOLDERS APPROVE THE
PROPOSED REORGANIZATION.
Agreements and Plans of Reorganization
The following summary is qualified in its entirety by reference to the
Plans (Exhibits A-1 and A-2 hereto).
<PAGE>
Each Plan provides that Evergreen Small Company Growth will acquire all
of the assets of Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4), respectively, in exchange for shares of Evergreen Small Company
Growth and the assumption by Evergreen Small Company Growth of certain
identified liabilities of Evergreen Small Company Growth II and Keystone Small
Company Growth (S- 4) on or about January 23, 1998 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4) will
endeavor to discharge all of their known liabilities and obligations. Evergreen
Small Company Growth will not assume any liabilities or obligations of Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4) other than those
reflected in an unaudited statement of assets and liabilities of Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4) prepared as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on the
business day immediately prior to the Closing Date. Evergreen Small Company
Growth will provide the Trustees of Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) with certain indemnifications as set forth
in each Plan. The number of full and fractional shares of Evergreen Small
Company Growth to be received by the shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) will be as follows.
Shareholders of Keystone Small Company Growth (S-4) will receive the number of
shares of each class of Evergreen Small Company Growth equal to the number of
shares of each corresponding class as they currently hold of Keystone Small
Company Growth (S-4). Shareholders of Evergreen Small Company Growth II will
receive the number of shares of Evergreen Small Company Growth determined by
multiplying the respective outstanding class of shares of Evergreen Small
Company Growth II by a factor which shall be computed by dividing the net asset
value per share of the respective class of Evergreen Small Company Growth II by
the net asset value per share of the respective class of Evergreen Small Company
Growth. Such computations will take place as of the close of regular trading on
the NYSE on the business day immediately prior to the Closing Date. The net
asset value per share of each class will be determined by dividing assets, less
liabilities, in each case attributable to the respective class, by the total
number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of Evergreen Small Company Growth II's and Keystone Small
Company Growth (S-4)'s respective portfolio securities. The method of valuation
<PAGE>
employed will be consistent with the procedures set forth in the Prospectus and
Statement of Additional Information of Evergreen Small Company Growth, Rule
22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) will have declared a dividend or dividends
and distribution or distributions which, together with all previous dividends
and distributions, shall have the effect of distributing to each Fund's
shareholders (in shares of each Fund, or in cash, as the shareholder has
previously elected) all of each Fund's investment company taxable income for the
taxable period ending on the Closing Date (computed without regard to any
deduction for dividends paid) and all of its net capital gains realized in all
taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Evergreen
Small Company Growth II and Keystone Small Company Growth (S-4) will liquidate
and distribute pro rata to shareholders of record as of the close of business on
the Closing Date the full and fractional shares of Evergreen Small Company
Growth received by each Fund. Such liquidation and distribution will be
accomplished by the establishment of accounts in the names of each Fund's
shareholders on the share records of Evergreen Small Company Growth's transfer
agent. Each account will represent the respective pro rata number of full and
fractional shares of Evergreen Small Company Growth due to each Fund's
shareholders. All issued and outstanding shares of each Fund, including those
represented by certificates, will be canceled. The shares of Evergreen Small
Company Growth to be issued will have no preemptive or conversion rights. After
such distributions and the winding up of its affairs, Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) will be terminated. In
connection with such terminations, Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) will file with the SEC applications for
termination as registered investment companies.
The consummation of each Reorganization is subject to the conditions
set forth in the Plan for Evergreen Small Company Growth II and the Plan for
Keystone Small Company Growth (S-4), including approval by each Fund's
shareholders, accuracy of various representations and warranties and receipt of
opinions of counsel, including opinions with respect to those matters referred
to in "Federal Income Tax Consequences"
<PAGE>
below. Notwithstanding approval of each Fund's shareholders, each Plan may be
terminated (a) by the mutual agreement of the Fund and Evergreen Small Company
Growth; or (b) at or prior to the Closing Date by either party (i) because of a
breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
The expenses of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4) in connection with the Reorganizations (including the cost
of any proxy soliciting agent) will be borne by FUNB whether or not the
Reorganizations are consummated. The current Trustees of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4), including those Trustees not
continuing to serve as Trustees of Evergreen Equity Trust, will retain their
ability to make claims under their existing directors and officers insurance
policy for a period of three years following consummation of the
Reorganizations.
If the Reorganization is not approved by shareholders of a Fund, the
Board of Trustees of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4), as applicable, will consider other possible courses of
action in the best interests of shareholders.
Federal Income Tax Consequences
Each Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of a Reorganization, Evergreen Small Company Growth II
and Keystone Small Company Growth (S-4) will each receive an opinion of counsel
to the effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) The transfer of all of the assets of the Fund solely in exchange
for shares of Evergreen Small Company Growth and the assumption by Evergreen
Small Company Growth of certain identified liabilities, followed by the
distribution of Evergreen Small Company Growth's shares by the Fund in
dissolution and liquidation of the Fund, will constitute a "reorganization"
within the meaning of section 368(a)(1)(C) (with respect to Evergreen Small
Company Growth II and 368(a)(1)(F) with respect to Keystone Small Company Growth
<PAGE>
(S-4)) of the Code, and Evergreen Small Company Growth and the Fund will each be
a "party to a reorganization" within the meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by the Fund on the transfer of
all of its assets to Evergreen Small Company Growth solely in exchange for
Evergreen Small Company Growth's shares and the assumption by Evergreen Small
Company Growth of certain identified liabilities of the Fund or upon the
distribution of Evergreen Small Company Growth's shares to the Fund's
shareholders in exchange for their shares of the Fund;
(3) The tax basis of the assets transferred will be the same to
Evergreen Small Company Growth as the tax basis of such assets to the Fund
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Small Company Growth will include the period during
which the assets were held by the Fund;
(4) No gain or loss will be recognized by Evergreen Small Company
Growth upon the receipt of the assets from the Fund solely in exchange for the
shares of Evergreen Small Company Growth and the assumption by Evergreen Small
Company Growth of certain identified liabilities of the Fund;
(5) No gain or loss will be recognized by the Fund's shareholders upon
the issuance of the shares of Evergreen Small Company Growth to them, provided
they receive solely such shares (including fractional shares) in exchange for
their shares of the Fund; and
(6) The aggregate tax basis of the shares of Evergreen Small Company
Growth, including any fractional shares, received by each of the shareholders of
the Fund pursuant to the Reorganization will be the same as the aggregate tax
basis of the shares of the Fund held by such shareholder immediately prior to
the Reorganization, and the holding period of the shares of Evergreen Small
Company Growth, including fractional shares, received by each such shareholder
will include the period during which the shares of the Fund exchanged therefor
were held by such shareholder (provided that the shares of the Fund were held as
a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If a Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) would recognize a taxable gain
or loss equal to the difference
<PAGE>
between his or her tax basis in his or her Fund shares and the fair market value
of Evergreen Small Company Growth shares he or she received. Shareholders of
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4) should
consult their tax advisers regarding the effect, if any, of the proposed
Reorganization in light of their individual circumstances. It is not anticipated
that the securities of the combined portfolio will be sold in significant
amounts in order to comply with the policies and investment practices of
Evergreen Small Company Growth. Since the foregoing discussion relates only to
the federal income tax consequences of the Reorganization, shareholders of
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4) should
also consult their tax advisers as to the state and local tax consequences, if
any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4) as of August 31, 1997
and the capitalization of Evergreen Small Company Growth on a pro forma basis as
of that date, giving effect to the proposed acquisitions of assets at net asset
value and the conversion of certain Keystone Small Company Growth (S-4) Class B
shares to Class A shares. See "Comparison of Fees and Expenses." As a newly
created series of Evergreen Equity Trust, Evergreen Small Company Growth,
immediately preceding the Closing Date, will have nominal assets and
liabilities. The pro forma data reflects an exchange ratio of approximately
1.34, 1.32, 1.32, and 1.34 Class A, Class B, Class C and Class Y shares of
Evergreen Small Company Growth issued for each share of Evergreen Small Company
Growth II Class A, Class B, Class C and Class Y, respectively, and an exchange
ratio of approximately 1.00 Class B share of Evergreen Small Company Growth
issued for each share of Keystone Small Company Growth (S-4).
<TABLE>
<CAPTION>
Capitalization of Evergreen Small Company Growth II,
Keystone Small Company Growth (S-4) and Evergreen
Small Company Growth (Pro Forma)
<PAGE>
Evergreen
Small Company
Evergreen Keystone Growth (After
Small Small Company Reorgani-
Company Growth (S-4) zations)
Growth II ----------- -----------
------------
<S> <C> <C> <C>
Net Assets
Class A........................ $11,039,856 N/A
$938,042,892
Class B........................ $22,239,365 $1,481,308,783
$576,545,112
Class C........................ $6,797,412 N/A $6,797,412
Class Y........................ $469,283 N/A $469,283
----------- -------------- ------------
Total Net
Assets........................ $40,545,916 $1,481,308,783 $1,521,854,699
Net Asset Value Per
Share
Class A........................ $11.70 N/A $8.76
Class B........................ $11.56 $8.76 $8.76
Class C........................ $11.56 N/A $8.76
Class Y........................ $11.77 N/A $8.76
Shares Outstanding
Class A........................ 943,337 N/A
107,039,615
Class B........................ 1,924,651 169,031,126
65,791,284
Class C........................ 588,199 N/A 776,208
Class Y........................ 39,863 N/A 53,560
--------- ----------- -----------
All Classes.................... 3,496,050 169,031,126 173,660,667
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganizations; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganizations.
Shareholder Information
As of November 10, 1997 (the "Record Date"), there were 159,674,282.821
shares of Keystone Small Company Growth (S-4) outstanding and 844,475.482 Class
A, 1,926,838.317 Class B, 521,275.722 Class C and 45,633.784 Class Y shares (a
total of 3,338.223.305 shares) of Evergreen Small Company
Growth II outstanding.
<PAGE>
As of September 30, 1997, the officers and Trustees of Evergreen Small
Company Growth II beneficially owned as a group less than 1% of the outstanding
shares of Evergreen Small Company Growth II. To Evergreen Small Company Growth
II's knowledge, the following persons owned beneficially or of record more than
5% of Evergreen Small Company Growth II's total outstanding shares as of
September 30, 1997:
<TABLE>
<CAPTION>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
Merrill Lynch A 179,857 0.23
Pierce Fenner & 20.52
Smith
Attn: Book Entry
4800 Deer Lake
Drive East
3rd Floor
Jacksonville, FL
32246-6484
Merrill Lynch B 607,125 31.30 1.25
Pierce Fenner &
Smith
Attn: Book Entry
4800 Deer Lake
Drive East
3rd Floor
Jacksonville, FL
32246-6484
Merrill Lynch C 390,240 74.48
Pierce Fenner & 74.48
Smith
Attn: Book Entry
4800 Deer Lake
Drive East
3rd Floor
Jacksonville, FL
32246-6484
<PAGE>
First Union Y 45,901 98.95 98.95
National Bank
Cash Account
Attn: Trust
Operation Fund
Group
401 S. Tryon
Street
3rd Floor
Charlotte, NC
28288-1151
</TABLE>
As of September 30, 1997, the officers and Trustees of Keystone Small
Company Growth (S-4) beneficially owned as a group less than 1% of the
outstanding shares of Keystone Small Company Growth (S-4). To Keystone Small
Company Growth (S- 4)'s knowledge, the following persons owned beneficially or
of record more than 5% of Keystone Small Company Growth (S-4)'s total
outstanding shares as of September 30, 1997:
<TABLE>
<CAPTION>
Percentage
Percen- of Shares of
tage of Class
Shares Outstanding
After
No. of Before Reorgani-
Name and Address Shares Reorgani- zations
- ---------------- ------ zations ---------
---------
<S> <C> <C> <C>
Merrill Lynch Pierce 16,077,034 9.82 9.71 Class A
Fenner & Smith 9.43 Class B
Attn: Book Entry
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-
6484
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statements of
Additional Information of the Funds. The investment objective, policies
<PAGE>
and restrictions of Evergreen Small Company Growth can be found in the
Prospectuses of Evergreen Small Company Growth under the caption "Investment
Objective and Policies." The investment objectives, policies and restrictions of
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4) can be
found in the respective Prospectus of each Fund under the caption "Investment
Objective and Policies."
The investment objective and policies of each Fund are identical. Each
Fund seeks to provide shareholders with long-term growth of capital. The
investment objective of Evergreen Small Company Growth can be changed without
shareholder approval. The investment objective of Evergreen Small Company Growth
II and Keystone Small Company Growth (S- 4) cannot be changed without
shareholder approval.
Each Fund invests at least 65% of its total assets in equity securities
of companies with small market capitalizations. For this purpose, companies with
small market capitalizations are generally those with market capitalization of
less than $1 billion ("small cap") at the time of the Fund's investment.
Companies whose capitalization falls outside this range after the purchase
continue to be considered small company for this purpose.
While each Fund focuses on small cap stocks, it may also invest in
other types of securities, without regard to the market capitalization of the
issuer and which may be listed on national exchanges or traded over-the-counter,
including other common stocks, debt securities convertible into common stocks or
having common stock characteristics, and rights and warrants to purchase common
stocks.
In addition to its other investment options, each Fund may invest in
limited partnerships, including master limited partnerships, and up to 25% of
its assets in foreign securities. Each Fund does not currently intend to invest
more than 5% of its assets in foreign securities.
While income is not an objective, securities appearing to offer
attractive possibilities for future growth of income may be included in the
portfolio whenever it seems possible to do so without conflicting with the
Fund's objective of capital growth.
When market conditions warrant, each Fund may invest up to 100% of its
assets for temporary defensive purposes in short-term obligations. Such
obligations may include master demand notes, commercial paper
<PAGE>
and notes, bank deposits and other financial institution
obligations.
Each Fund may enter into repurchase and reverse repurchase agreements,
purchase and sell securities and currencies on a when-issued and
delayed-delivery basis and purchase or sell securities on a forward commitment
basis, write covered call and put options and purchase call and put options to
close out existing positions and may employ new investment techniques with
respect to such options. Each Fund may also enter into currency and other
financial futures contracts and engage in related options transactions for
hedging purposes and not for speculation, and may employ new investment
techniques with respect to such futures contracts and related options.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectus and Statement of Additional Information of each
Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Equity Trust, Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4) are open-end management investment companies
registered with the SEC under the 1940 Act, which continuously offer shares to
the public. Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) are organized as a Massachusetts business trust and a Pennsylvania common
law trust, respectively. Evergreen Equity Trust is organized as a Delaware
business trust. Each Trust is governed by a Declaration of Trust, ByLaws and a
Board of Trustees. Each Trust is also governed by applicable Delaware,
Massachusetts, Pennsylvania and federal law. Evergreen Small Company Growth is a
series of Evergreen Equity Trust. Evergreen Small Company Growth II changed its
name from Keystone Small Company Growth Fund II effective October 31, 1997.
Capitalization
The beneficial interests in Evergreen Small Company Growth are
represented by an unlimited number of transferable shares of beneficial interest
$.001 par value per share. The beneficial interests in Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) are
<PAGE>
represented by an unlimited number of transferable shares of beneficial interest
with no par value and a $1.00 par value per share, respectively. The respective
Declaration of Trust under which each Fund has been established permits the
Trustees to allocate shares into an unlimited number of series, and classes
thereof, with rights determined by the Trustees, all without shareholder
approval. Fractional shares may be issued. Except with respect to Evergreen
Small Company Growth, where each share of the Fund is entitled to one vote for
each dollar of net asset value applicable to such share, each Fund's shares have
equal voting rights with respect to matters affecting shareholders of all
classes of each Fund and represent equal proportionate interests in the assets
belonging to each class of shares of the Funds. Shareholders of each Fund are
entitled to receive dividends and other amounts as determined by the Trustees.
Shareholders of each Fund vote separately, by class, as to matters, such as
approval of or amendments to Rule 12b-1 distribution plans, that affect only
their particular class and by series as to matters, such as approval of or
amendments to investment advisory agreements or proposed reorganizations, that
affect only their particular series.
Shareholder Liability
Under Massachusetts and Pennsylvania law, shareholders of a business or
common law trust could, under certain circumstances, be held personally liable
for the obligations of the trust. However, the respective Declaration of Trust
under which Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) was established disclaims shareholder liability for acts or obligations of
the series and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or the
Trustees. Each Declaration of Trust provides for indemnification out of the
series property for all losses and expenses of any shareholder held personally
liable for the obligations of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which a disclaimer is inoperative
and the series or the Trust itself would be unable to meet its obligations. A
substantial number of mutual funds in the United States are organized as
Massachusetts business trusts.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a
<PAGE>
result, to the extent that Evergreen Equity Trust or a shareholder is subject to
the jurisdiction of courts in those states, the courts may not apply Delaware
law, and may thereby subject shareholders of a Delaware trust to liability. To
guard against this risk, the Declaration of Trust of Evergreen Equity Trust: (a)
provides that any written obligation of the Trust may contain a statement that
such obligation may only be enforced against the assets of the Trust or the
particular series in question and the obligation is not binding upon the
shareholders of the Trust; however, the omission of such a disclaimer will not
operate to create personal liability for any shareholder; and (b) provides for
indemnification out of Trust property of any shareholder personally liable for
the obligations of Evergreen Equity Trust. Accordingly, the risk of a
shareholder of the Trust incurring financial loss beyond that shareholder's
investment because of shareholder liability is limited to circumstances in
which: (i) the court refuses to apply Delaware law; (ii) no contractual
limitation of liability was in effect; and (iii) the Trust itself would be
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Equity Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Equity Trust on behalf of Evergreen Small Company
Growth, Evergreen Small Company Growth II nor Keystone Small Company Growth
(S-4) is required to hold annual meetings of shareholders. However, a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
must be called when requested in writing by the holders of at least 10% of the
outstanding shares. In addition, each is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders. Each
Trust currently does not intend to hold regular shareholder meetings. Each Trust
does not permit cumulative voting. Except when a larger quorum is required by
applicable law, twenty-five percent (25%) and, with respect to Evergreen Small
Company Growth II and Keystone Small Company Growth (S-4), a majority of the
outstanding shares entitled to vote on a matter, constitutes a quorum for
consideration of such matter. For Evergreen Small Company Growth, a majority of
the shares voted and for Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4), a majority of the shares present and entitled to vote is
sufficient to act on a matter (unless otherwise specifically required by the
applicable governing documents or other law, including the 1940 Act).
<PAGE>
Under the Declaration of Trust of Evergreen Equity Trust, each share of
Evergreen Small Company Growth is entitled to one vote for each dollar of net
asset value applicable to each share. Under the current voting provisions
governing Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) each share is entitled to one vote. Over time, the net asset values of the
Funds have changed in relation to one another and are expected to continue to do
so in the future. Because of the divergence in net asset values, a given dollar
investment in a Fund with a lower net asset value will purchase more shares and,
under the Funds' current voting provisions, have more votes than the same
investment in a Fund with a higher net asset value. Under the Declaration of
Trust of Evergreen Equity Trust, voting power is related to the dollar value of
the shareholder's investment rather than to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Small Company Growth,
Evergreen Small Company Growth II and Keystone Small Company Growth (S-4), the
shareholders are entitled to receive, when, and as declared by the Trustees, the
excess of the assets belonging to such Fund or attributable to the class over
the liabilities belonging to the Fund or attributable to the class. In either
case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
Each of the Declarations of Trust of Keystone Small Company Growth
(S-4) and of Evergreen Small Company Growth II provides that a Trustee shall be
liable only for his own willful defaults, and that no Trustee shall be protected
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Each of the Declarations of Trust
provides that a present or former Trustee or officer is entitled to
indemnification against liabilities and expenses with respect to claims related
to his or her position with the Fund, unless such Trustee or officer shall have
been adjudicated not to have acted in good faith in the reasonable belief that
his or her action was in the best interest of the Fund, or unless such Trustee
or officer is otherwise subject to liability to the Fund or its shareholders by
reason of willful misfeasance,
<PAGE>
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. In the event of settlement, no such indemnification shall
be provided unless there has been a determination that such Trustee or officer
appears to have acted in good faith in the reasonable belief that his action was
in the best interests of the Fund and that such indemnification would not
protect such person against any liability to the Fund to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under the Declaration of Trust of Evergreen Equity Trust, a Trustee is
liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws, Delaware, Massachusetts and
Pennsylvania law and is not a complete description of those documents or law.
Shareholders should refer to the provisions of such Declarations of Trust,
By-Laws, Delaware, Massachusetts and Pennsylvania law directly for more complete
information.
ADDITIONAL INFORMATION
<PAGE>
Evergreen Small Company Growth. Information concerning the operation
and management of Evergreen Small Company Growth is incorporated herein by
reference from the Prospectuses dated November 10, 1997, copies of which are
enclosed, and Statement of Additional Information dated November 10, 1997. A
copy of such Statement of Additional Information is available upon request and
without charge by writing to Evergreen Small Company Growth at the address
listed on the cover page of this Prospectus/Proxy Statement or by calling
toll-free 1-800-343-2898.
Evergreen Small Company Growth II. Information about the Fund is
included in its current Prospectuses dated August 1, 1997, as supplemented, and
in the Statement of Additional Information of the same date that have been filed
with the SEC, all of which are incorporated herein by reference. Copies of the
Prospectuses and Statement of Additional Information are available upon request
and without charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800- 343-2898.
Keystone Small Company Growth (S-4). Information about the Fund is
included in its current Prospectus dated August 1, 1997, as supplemented, and in
the Statement of Additional Information of the same date that have been filed
with the SEC, all of which are incorporated herein by reference. A copy of the
Prospectus and Statement of Additional Information are available upon request
and without charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Evergreen Small Company Growth, Evergreen Small Company Growth II and
Keystone Small Company Growth (S-4) are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information, including proxy
material and charter documents, with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETINGS
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of Evergreen Small Company Growth II and
Keystone Small
<PAGE>
Company Growth (S-4) to be used at each Special Meeting of Shareholders to be
held at 3:00 p.m., January 6, 1998, at the offices of the Evergreen Keystone
Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and at any adjournments
thereof. This Prospectus/Proxy Statement, along with a Notice of the meeting and
a proxy card, is first being mailed to shareholders of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) on or about November 14, 1997.
Only shareholders of record as of the close of business on the Record Date will
be entitled to notice of, and to vote at, the Meeting or any adjournment
thereof. The holders of a majority of the outstanding shares entitled to vote of
each Fund at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. If the enclosed
form of proxy is properly executed and returned in time to be voted at the
Meeting, the proxies named therein will vote the shares represented by the proxy
in accordance with the instructions marked thereon. Unmarked proxies will be
voted FOR the proposed Reorganization and FOR any other matters deemed
appropriate. Proxies that reflect abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote or (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Such proxies will have the
effect of being counted as votes against the Plan since the vote required is a
majority of the shares present and entitled to vote. A proxy may be revoked at
any time on or before the Meeting by written notice to the Secretary of
Evergreen Small Company Growth II or Keystone Small Company Growth (S-4), as
applicable, 200 Berkeley Street, Boston, Massachusetts 02116. Unless revoked,
all valid proxies will be voted in accordance with the specifications thereon
or, in the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby.
Approval of each Plan will require the affirmative vote of a majority
of the shares present and entitled to vote, with all Classes voting together as
a single class at Meetings at which a quorum of each Fund's shares is present.
Each full share outstanding is entitled to one vote and each fractional share
outstanding is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees
<PAGE>
of FUNB, its affiliates or other representatives of Evergreen Small Company
Growth II and Keystone Small Company Growth (S-4) (who will not be paid for
their soliciting activities). Shareholder Communications Corporation ("SCC") and
its agents have been engaged by Evergreen Small Company Growth II and Keystone
Small Company Growth (S-4) to assist in soliciting proxies, and may call
shareholders to ask if they would be willing to authorize SCC to execute a proxy
on their behalf authorizing the voting of their shares in accordance with the
instructions given over the telephone by the shareholders. In addition,
shareholders may call SCC at 1-800-733-8481 extension 404 between the hours of
9:00 a.m. and 11:00 p.m. Eastern time in order to initiate the processing of
their votes by telephone. SCC will utilize a telephone vote solicitation
procedure designed to authenticate the shareholder's identity by asking the
shareholder to provide his or her social security number (in the case of an
individual) or taxpayer identification number (in the case of an entity). The
shareholder's telephone instructions will be implemented in a proxy executed by
SCC and a confirmation will be sent to the shareholder to ensure that the vote
has been authorized in accordance with the shareholder's instructions. Although
a shareholder's vote may be solicited and cast in this manner, each shareholder
will receive a copy of this Prospectus/Proxy Statement and may vote by mail
using the enclosed proxy card. The Funds believe that this telephone voting
system complies with applicable law and have reviewed opinions of counsel to
that effect.
<PAGE>
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card included with this
Prospectus/Proxy Statement or attend in person. Any proxy given by you, whether
in writing or by telephone, is revocable.
In the event that sufficient votes to approve a Reorganization are not
received by January 6, 1998, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to a proposed Reorganization will not be
entitled under either Massachusetts or Pennsylvania law or the Declaration of
Trust of Evergreen Small Company Growth II or Keystone Small Company Growth
(S-4), as applicable, to demand payment for, or an appraisal of, his or her
shares. However, shareholders should be aware that the Reorganizations as
proposed are not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that, if the Reorganizations
are consummated, shareholders will be free to redeem the shares of Evergreen
Small Company Growth which they receive in the transaction at their then-current
net asset value. Shares of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4) may be redeemed at any time prior to the consummation of
the Reorganizations. Shareholders of Evergreen Small Company Growth II and
Keystone Small
<PAGE>
Company Growth (S-4) may wish to consult their tax advisers as to any differing
consequences of redeeming Fund shares prior to the Reorganizations or exchanging
such shares in the Reorganizations.
Evergreen Small Company Growth II and Keystone Small Company Growth
(S-4) do not hold annual shareholder meetings. If a Reorganization is not
approved, shareholders wishing to submit proposals for consideration for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of Evergreen Small Company Growth II or
Keystone Small Company Growth (S-4), as applicable, at the address set forth on
the cover of this Prospectus/Proxy Statement such that they will be received by
the Funds in a reasonable period of time prior to any such meeting.
The votes of the shareholders of Evergreen Small Company Growth are not
being solicited by this Prospectus/Proxy Statement and are not required to carry
out the Reorganizations.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Evergreen Small Company Growth II and Keystone Small Company
Growth (S-4) whether other persons are beneficial owners of shares for which
proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Small Company Growth II as of May
31, 1997, and the financial statements and financial highlights for the periods
indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Keystone Small Company Growth (S-4) as of
May 31, 1997, and the financial statements and financial highlights for the
periods indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
<PAGE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Small Company Growth will be passed upon by Sullivan & Worcester LLP,
Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Small Company Growth II and Keystone Small
Company Growth (S-4) do not intend to present any other business at the Meeting.
If, however, any other matters are properly brought before the Meeting, the
persons named in the accompanying form of proxy will vote thereon in accordance
with their judgment.
THE RESPECTIVE TRUSTEES OF EVERGREEN SMALL COMPANY GROWTH II AND
KEYSTONE SMALL COMPANY GROWTH (S-4) RECOMMEND APPROVAL OF EACH RESPECTIVE PLAN
AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN
FAVOR OF APPROVAL OF THE PLANS.
November 14, 1997
<PAGE>
EXHIBIT A-1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 30th day of September, 1997, by and between the Evergreen Equity Trust,
a Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
Small Company Growth Fund series (the "Acquiring Fund"), and Keystone Small
Company Growth Fund II, a Massachusetts business trust, with its principal place
of business at 200 Berkeley Street, Boston, Massachusetts 02116 (the "Selling
Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class Y, Class A, Class B
and Class C shares of beneficial interest, $.001 par value per share, of the
Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of certain identified liabilities of the Selling Fund; and (iii)
the distribution, after the Closing Date hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of the Selling Fund in liquidation of
the Selling Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are a registered
open-end investment company and a separate investment series of an open-end,
registered investment company of the management type, respectively, and the
Selling Fund owns securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Selling Fund have determined that the
Selling Fund should exchange all of its assets and
<PAGE>
certain identified liabilities for Acquiring Fund Shares and that the interests
of the existing shareholders of the Selling Fund will not be diluted as a result
of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Selling Fund reserves the right to sell any of such securities, but will
not, without the prior written approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. Except as specifically provided in this paragraph 1.3, the Acquiring Fund
shall assume only those liabilities, expenses, costs, charges and reserves
reflected on a Statement of Assets and Liabilities of the Selling Fund prepared
on behalf of the Selling Fund, as of the Valuation Date (as defined in paragraph
2.1), in accordance with generally accepted accounting principles consistently
applied from the prior audited period. The Acquiring Fund shall assume only
those liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not except as specifically provided in this paragraph 1.3
assume any other liabilities, whether absolute or contingent, known or unknown,
accrued or unaccrued, all of which shall remain the obligation of the Selling
Fund. The Acquiring Fund hereby agrees with the Selling Fund and each Trustee of
the Selling Fund: (i) to indemnify each Trustee of the Selling Fund against all
liabilities and expenses referred to in the indemnification provisions of the
Selling Fund's Declaration of Trust and ByLaws, to the extent provided therein,
incurred by any Trustee of the Selling Fund; and (ii) in addition to the
indemnification provided in (i) above, to indemnify each Trustee of the Selling
Fund against all liabilities and expenses and pay the same as they arise and
become due,
<PAGE>
without any exception, limitation or requirement of approval by any person, and
without any right to require repayment thereof by any such Trustee (unless such
Trustee has had the same repaid to him or her) based upon any subsequent or
final disposition or findings made in connection therewith or otherwise, if such
action, suit or other proceeding involves such Trustee's participation in
authorizing or permitting or acquiescing in, directly or indirectly, by action
or inaction, the making of any distribution in any manner of all or any assets
of the Selling Fund without making provision for the payment of any liabilities
of any kind, fixed or contingent, of the Selling Fund, which liabilities were
not actually and consciously personally known to such Trustee to exist at the
time of such Trustee's participation in so authorizing or permitting or
acquiescing in the making of any such distribution.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830,
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization
the Aggregate NASD Cap of the Selling Fund immediately prior to the
Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
<PAGE>
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets
<PAGE>
shall be determined by multiplying the shares outstanding of each class of the
Selling Fund by the ratio computed by dividing the net asset value per share of
the Selling Fund attributable to each of its classes by the net asset value per
share of the respective classes of the Acquiring Fund determined in accordance
with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about January 23, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
<PAGE>
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("ESC"), shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause ESC, its transfer agent as of the Closing Date, to issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of the Selling Fund or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts and other documents as such
other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a Massachusetts business trust duly
organized, validly existing, and in good standing under the laws of The
Commonwealth of Massachusetts.
(b) The Selling Fund is a registered investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution,
delivery, and performance of this Agreement (subject to
<PAGE>
shareholder approval) will not result, in violation of any provision of the
Selling Fund's Declaration of Trust or By-Laws or of any material agreement,
indenture, instrument, contract, lease, or other undertaking to which the
Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at May 31,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since May 31, 1997 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports
<PAGE>
shall have been paid, or provision shall have been made for the payment thereof.
To the best of the Selling Fund's knowledge, no such return is currently under
audit, and no assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling
Fund for use in no-action letters, applications for orders,
<PAGE>
registration statements, proxy materials, and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations thereunder
applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
<PAGE>
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise.
(g) At the Closing Date, there will not be any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement
<PAGE>
constitutes a valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(k) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
<PAGE>
5.2 APPROVAL OF SHAREHOLDERS. The Selling Fund will call a meeting of
its Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by its independent
auditors and certified by the Selling Fund's President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other
<PAGE>
laws relating to or affecting creditors' rights generally and
to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Selling
Fund's President or Vice President and the Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
<PAGE>
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Selling Fund.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a Massachusetts business trust
registered as an investment company under the 1940 Act, and, to such counsel's
knowledge, such registration with the Commission as an investment company under
the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall,
<PAGE>
at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Selling Fund's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends
<PAGE>
paid) and all of its net capital gains realized in all taxable periods ending on
the Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
<PAGE>
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
<PAGE>
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received
from KPMG Peat Marwick LLP a letter addressed to the Acquiring Fund and the
Selling Fund, dated on the Closing Date in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act
<PAGE>
covering the Acquiring Fund Shares to be issued pursuant to the provisions of
this Agreement; (c) registration or qualification fees and expenses of preparing
and filing such forms as are necessary under applicable state securities laws to
qualify the Acquiring Fund Shares to be issued in connection herewith in each
state in which the Selling Fund Shareholders are resident as of the date of the
mailing of the Prospectus and Proxy Statement to such shareholders; (d) postage;
(e) printing; (f) accounting fees; (g) legal fees; and (h) solicitation costs of
the transaction. Notwithstanding the foregoing, the Acquiring Fund shall pay its
own federal and state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers.
<PAGE>
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or
<PAGE>
employees of the Selling Fund personally, but shall bind only the trust property
of the Selling Fund, as provided in the Declaration of Trust of the Selling
Fund. The execution and delivery of this Agreement have been authorized by the
Trustees of the Selling Fund and signed by authorized officers of the Selling
Fund, acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officers shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Selling Fund as provided in the
Declaration of Trust of the Selling Fund.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN EQUITY TRUST
ON BEHALF OF EVERGREEN
SMALL COMPANY GROWTH FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
KEYSTONE SMALL COMPANY
GROWTH
FUND II
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
<PAGE>
EXHIBIT A-2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 30th day of September, 1997, by and between the Evergreen Equity Trust,
a Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
Small Company Growth Fund series (the "Acquiring Fund"), and Keystone Small
Company Growth Fund (S- 4), a Pennsylvania common law trust ("Keystone Trust"),
with its principal place of business at 200 Berkeley Street, Boston,
Massachusetts 02116 with respect to its Keystone Small Company Growth Fund (S-4)
series (the "Selling Fund").
This Agreement is intended to be, and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(F) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for shares of beneficial
interest, $.001 par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares"); (ii) the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; and (iii) the distribution, after the Closing
Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders
of the Selling Fund in liquidation of the Selling Fund as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund is the sole investment series of, and the
Acquiring Fund is a separate investment series of, an open-end, registered
investment company of the management type, respectively, and the Selling Fund
owns securities that generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
<PAGE>
WHEREAS, the Trustees of Keystone Trust have determined that the
Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its
<PAGE>
business in connection with the purchase and sale of securities and the payment
of its normal operating expenses. The Selling Fund reserves the right to sell
any of such securities, but will not, without the prior written approval of the
Acquiring Fund, acquire any additional securities other than securities of the
type in which the Acquiring Fund is permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. Except as specifically provided in this paragraph 1.3, the Acquiring Fund
shall assume only those liabilities, expenses, costs, charges and reserves
reflected on a Statement of Assets and Liabilities of the Selling Fund prepared
on behalf of the Selling Fund, as of the Valuation Date (as defined in paragraph
2.1), in accordance with generally accepted accounting principles consistently
applied from the prior audited period. The Acquiring Fund shall assume only
those liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not except as specifically provided in this paragraph 1.3
assume any other liabilities, whether absolute or contingent, known or unknown,
accrued or unaccrued, all of which shall remain the obligation of the Selling
Fund. The Acquiring Fund hereby agrees with Keystone Trust and each Trustee of
Keystone Trust: (i) to indemnify each Trustee of Keystone Trust against all
liabilities and expenses referred to in the indemnification provisions of
Keystone Trust's Declaration of Trust and By-Laws, to the extent provided
therein, incurred by any Trustee of Keystone Trust; and (ii) in addition to the
indemnification provided in (i) above, to indemnify each Trustee of Keystone
Trust against
<PAGE>
all liabilities and expenses and pay the same as they arise and become due,
without any exception, limitation or requirement of approval by any person, and
without any right to require repayment thereof by any such Trustee (unless such
Trustee has had the same repaid to him or her) based upon any subsequent or
final disposition or findings made in connection therewith or otherwise, if such
action, suit or other proceeding involves such Trustee's participation in
authorizing or permitting or acquiescing in, directly or indirectly, by action
or inaction, the making of any distribution in any manner of all or any assets
of the Selling Fund without making provision for the payment of any liabilities
of any kind, fixed or contingent, of the Selling Fund, which liabilities were
not actually and consciously personally known to such Trustee to exist at the
time of such Trustee's participation in so authorizing or permitting or
acquiescing in the making of any such distribution.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830,
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization
the Aggregate NASD Cap of the Selling Fund immediately prior to the
Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
<PAGE>
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets
<PAGE>
shall be determined by multiplying the shares outstanding of each class of the
Selling Fund by the ratio computed by dividing the net asset value per share of
the Selling Fund attributable to each of its classes by the net asset value per
share of the respective classes of the Acquiring Fund determined in accordance
with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about January 23, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
<PAGE>
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("ESC"), shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause ESC, its transfer agent as of the Closing Date, to issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of Keystone Trust or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts and other documents as such
other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Pennsylvania.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
<PAGE>
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Keystone Trust's Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at May 31,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since May 31, 1997 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax
returns and reports of the Selling Fund required by law to
<PAGE>
have been filed by such dates shall have been filed, and all federal and other
taxes shown due on said returns and reports shall have been paid, or provision
shall have been made for the payment thereof. To the best of the Selling Fund's
knowledge, no such return is currently under audit, and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Pennsylvania
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
<PAGE>
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
<PAGE>
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise.
(g) At the Closing Date, there will not be any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement
<PAGE>
constitutes a valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(k) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
<PAGE>
5.2 APPROVAL OF SHAREHOLDERS. Keystone Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by its independent
auditors and certified by Keystone Trust's President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other
<PAGE>
laws relating to or affecting creditors' rights generally and
to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by Keystone Trust's
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
<PAGE>
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of Keystone Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has the power to
own all of its properties and assets and to carry on its business as presently
conducted.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Pennsylvania is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall,
<PAGE>
at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Keystone Trust's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends
<PAGE>
paid) and all of its net capital gains realized in all taxable periods ending on
the Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(F) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
<PAGE>
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
<PAGE>
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received
from KPMG Peat Marwick LLP a letter addressed to the Acquiring Fund and the
Selling Fund, dated on the Closing Date in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to
<PAGE>
the provisions of this Agreement; (c) registration or qualification fees and
expenses of preparing and filing such forms as are necessary under applicable
state securities laws to qualify the Acquiring Fund Shares to be issued in
connection herewith in each state in which the Selling Fund Shareholders are
resident as of the date of the mailing of the Prospectus and Proxy Statement to
such shareholders; (d) postage; (e) printing; (f) accounting fees; (g) legal
fees; and (h) solicitation costs of the transaction. Notwithstanding the
foregoing, the Acquiring Fund shall pay its own federal and state registration
fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, Keystone Trust, the Trust, the respective
Trustees or officers, to the other party or its Trustees or officers.
<PAGE>
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of Keystone Trust, shall
be governed and construed in accordance with the laws of The Commonwealth of
Pennsylvania, without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or
<PAGE>
employees of Keystone Trust personally, but shall bind only the trust property
of the Selling Fund, as provided in the Declaration of Trust of Keystone Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of Keystone Trust and signed by authorized officers of Keystone Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officers shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Selling Fund as provided in the
Declaration of Trust of Keystone Trust.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN EQUITY TRUST
ON BEHALF OF EVERGREEN
SMALL COMPANY GROWTH FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
KEYSTONE SMALL COMPANY
GROWTH
FUND (S-4)
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
